There was a time when all big hedge fund managers were bearish. And at the close of a month, they sold in mass, with that ululation that only communality and unlimited funds can match. Where have they gone? Not until the last bear has given up, to say the opposite of what the world's worst forecaster Alan Abelson would say, can we expect those glorious days to come again. One must take sustenance until then with Churchill's guidance: "Twenty to 25. (route 95). Those are the years. Don't be content with things as they are. Don't take no for an answer. Never submit to failure. Do not be fobbed off with mere personal success or acceptance. You will make all kinds of mistakes (the next day especially). But as long as you are generous (to those who need) and true, you cannot hurt the world or even seriously distress her. She was made to be wooed and won by youth. She has lived and thrived only by repeated subjugations". (the drift has subjugated them?).

Jeff Watson writes:

And that's a perfect segue to the idea that has the world in it's grip.

Pitt T. Maner III writes: 

A sentence from a recent column by a surprisingly ebullient forecaster:

"But there's the buoyant stock market, which we've typically found to be in good times and bad a better investment guide than the run-of-the-Street strategist or portfolio pro, and regret not having paid it more heed back in the dark, wintry days of 2009, when it began its long slog back from the depths of the Great Recession."

—Alan Abelson, Saturday, January 26, 2013




As the S&P 500 futures hover around the 1500 mark I am reminded of the "Cleared for the option" which gives a pilot the option to do a full stop landing, stop and go, touch and go or low approach or missed approach…

From the handbook:

1. The "Cleared for the Option" procedure will permit an instructor pilot/flight examiner/pilot the option to make a touch-and-go, low approach, missed approach, stop- and-go, or full stop landing. This procedure will only be used at those locations with an operational control tower and will be subject to ATC approval.

Richard Owen writes: 

Let us say a small prayer for the hungry equity broker who's volumes were down 30% last year on an already tough year and wish him much whipsaw, turnabout and retracement around the top. His commissions will be deserved sustenance and emboldening for 2013.



 Driving through the Owens Valley on a beautiful sunny clear day, the entire 150 mile stretch with 14000 peaks towering above showed the geological effects of immense glaciers that filled the entire valley during the past ice age. Ice could have been 3000 feet deep gouging up mountains. Even Mauna Kea in Hawaii has clear geological evidence of glaciers! The last ice age was as recent as 10-20,000 years ago and ice covered a large part of North America. Global warming is the end of the current ice age and has provided good weather and prosperity and the growth of civilization and the human race for 20,000 years. The reverse of global warming, namely cooling, is not an attractive alternative. Imagine if cooling began. It would mean summers with snow that did not melt lasting through destroying crops. 4 years of snow on the ground through summer would wipe out most of the world population. 4 years of 40 foot snow accumulation would erase most signs of civilization under a layer of ice. When Krakatoa went off in 1883 the ash plume circled the world and there was no summer in the US that year. Imagine the impact on gnp and the markets if cooling commenced. Its awful to imagine. So its a case of unintended consequences or be careful what you wish for should they figure out how to reverse global warming.

A commenter writes:

Cold weather crops like rye and barley would come back in vogue if we had an ice age which is not unthinkable. The zones for planting crops would change drastically. One would expect that researchers might do some genetic tinkering with corn, wheat, and soybeans, allowing them to flourish in a colder climate. Quite a number of scientists are predicting a Maunder Minimum at the end of this current solar cycle, which coincided with the "Little Ice Age.".

Steve Ellison writes: 

Quite a long time ago, I reviewed Evolutionary Catastrophes: The Science of Mass Extinction by Vincent Courtillot. Every one of the 7 mass extinction events identified by M. Courtillot was caused by global cooling. Therefore, I agree that global warming (which I see no reason to doubt) is the lesser evil.

David Lilienfeld writes: 

In the 1950s, 1960s, and 1970s, 1980s, and 1990s, the asbestos industry maintained that "there was reasonable disagreement" among scientists about asbestos as a cause of lung cancer; no asbestos-related regulations were needed. In the 1950s, 1960s, 1970s, and 1980s, the same was true of the tobacco industry for tobacco and lung cancer (and other sites, too). In the 1980s, 1990s, and last decade, many in the social conservative school of thought maintained that there was little evidence, or at least controversial evidence, about the role of human papilloma virus in the development of cervical cancer (I won't get into the matter of hand and neck cancer and HPV). In the 1960s, 1970s, and into the 1980s, the US salt industry insisted that the data linking consumed salt and hypertension were controversial and that no regulation of the salt content was needed. The argument against the consensus view holds only so long as additional data do not validate the view of that majority. With Copernicus, that was the case. It was the same with the role of bacteria in the development of peptic ulcers.

Absolute certainty and uniform conclusions by all members of the science community shouldn't be needed for policy formulation. If they were, then the Marlboro Man and Joe Camel would still be roaming the ranges and desserts of our television screens.

Ralph Vince comments: 

What a logical stretch David.

In the tobacco litigation, we found secret emails amongst the defendant employee's indicating a nefarious conspiracy to keep their methods and activities secret.

The East Anglia emails are similar in that regard.

I can tell you, from firsthand observation of the computer code that was in the email trove (because I have been writing code since the 70s, and I can tell you from examining someone's code what nationality they are, what mood they were in when they wrote it, and often what they had for breakfast). The code that was dumped was utterly damning to their cause. Not only does it show that the data does NOT sufficiently show that we are experiencing (anthropomorphic or not) temperature rises, but taints the issue because it raises the question of motive. We're left knowing that CO2 in the atmosphere has increased, a seeming understanding that this should have caused temperature rise, and the facts that do not comport to this, and as-yet no legitimate scientific reason (there are some theories, but that's all) to account for this.

Scott Brooks writes: 

I suggest that we look at the motives of the people involved in perpetuating what I believe is a giant con job.

Let's say the earth is warming. Is this a man made phenomena or is it just a normal cycle that the earth goes thru from time to time? Who stands to profit from these suggestions to stop global warming? Al Gore and his ilk?

Why do we trust these idiots in DC to make decisions that are common sense based and "special interest group" based?

If we start down this path that global warmists like yourself want us to go down, what happens when the earth keeps warming up (i.e. let's say it's really just a cycle the earth is going thru and not man made)…….what will happen then? Do you think the politicians will say, "Well, it's not mans fault. So let's roll back all the regulations", or do you think that they'll bloviate about how they need even more power to solve this horrible problem?

Why are you so willing to give more and more power to the government when they have a LONG history of abusing that power to their own selfish ends?

If you chose to go down that path, you will find people like me standing in your path actively trying to stop you.

Garrett Baldwin writes: 

I wasn't going to jump in on this, but I wanted to shadow something Scott said.

With regard to motives, pay attention to the way that the hearings and the solutions to solving this problem are handled. Some of us want the market to solve the problem. For example, let's say that the biggest threat in the world were something that is hard to measure, like the earth is running out of fresh air.

I'd argue that if that were a serious problem, a man would come a long and invent a machine to solve it. We'd rely on human ingenuity. We'd beat back that threat…

But the people who stand to profit through centralized alchemy only want to do it one way — their way. And any solution that is market based, creates competition, and doesn't enrich allies or decision makers or centralize more power with the government is either demonized, destroyed or regulated from the conversation.

The reality is that central planners can't solve this problem. They claim that they invented the internet, but if the government were still operating the internet, it would just be two dudes from DoD playing pong back and forth between New York and Camp Pendleton. This entire hype has evidence of scam all over it. Naomi Klein has demanded that the U.S. distribute $2 trillion to third-world nations who are "victims" of the U.S. and our energy policy. Ironically, the nations that are demanding the money are also the ones that are near the bottom of the Heritage Economic Freedom Index. Countries that aren't developing because they keep they limit their own people's ingenuity and production are going to get $2 trillion and then do what with it? Usher in a green economy? Come on…

So, when I hear the idea that we have to "do something" and do it fast without exploring the data, without asking questions, and without being allowed to have a debate because doing so would cast the distrustful of government as people who don't care about the children or the future or humanity. Meanwhile, the alarmist will have a moving wardrobe of children follow him as he spouts off how important his intentions are and how we are monsters.

Beyond that, we also ignore one thing in this discussion.

What are the positive benefits of global warming? After all, Greenland had a booming farm trade 1,000 years ago. I'd like to get some beach front property in Greenland. I'd also think that trade through the Arctic Circle would be nice and reduce shipping to Asia in half. Why is global warming such a terrible thing? Is it because we refuse to embrace the challenge, and because there's profit to be made by saving us from ourselves?

So, I will say from my perspective this. I don't consider climate change a big deal, and it's not something that I worry about. Humanity will adapt after government spends trillions of dollars chasing this dragon..



StrategyPage reports these numbers this morning:

Accident Rates for Combat Aircraft per 100,000 Flying Hours

1943: >200

1963: 30

2003: <10

2013: <5

"Flying combat aircraft has never been safer, or more boring."



Hi everyone,

I've created www.Volopta.com, which contains free derivatives pricing code in a variety of languages, such as Matlab, C++, etc.

Feel free to distribute the link to anyone you think might be interested.





 Have you ever heard the saying, "if half a spoonful will kill you, then why not a whole cup"?

It means that if the Fed were to buy every asset that the banks have, with constantly increasing prices until the banks had trillions additional of profits, that it might be good for the economy as the banks used all this high powered money to make loans to the non- banks.

Vince Fulco writes: 

Reminds one of the Dr. Doolittle story re: the push-me-pull-you but this one may have a very unhappy ending. Monetary pulls in one direction, Fiscal yanking in the other…Everyone can't be right. 

David Hillman writes: 

One might have much more faith that the bankers would instead find creative ways to the additional trillions off the table in the form of bonuses instead of lending to us business chumps. of course, that is good for the economy as they would use it to create jobs by building personal castles and buying stuff from Bulgari…..



There is a zero sum part to trading where what one flexion makes, another high frequency or day trader or poor gambler ruined or lack of margined or viged player uses. The win win aspect is that if you hold for a reas period as almost everyone in market is forced to do, you get the drift of 10000 fold a century, except if you lived in the Iron and played a game with kings moving backwards.

Anatoly Veltman writes:

Ok, I'll say it. Drift prevails over a century. And I had no problem with drift as recently as 4 years ago, when the only true drifter I know, a prince of certain oil, was adding to his C holdings by bidding pennies.

I'm having a problem with over-relying on drift now; because now, four years later, you can only bid pennies for C if you add $42 in front of it. All the while the real economic indicators, as Chair pointed out just today, have not and will not improve much any time soon. Now tell me: why assume that there will be much of a drift effect in the near five, or maybe the near ten years? Do you expect policy improvements, or pray for a budget spiral miracle, or Europe culture unity miracle, or what other miracle?

Jeff Watson writes:

Back in 1932, the DJIA made a new all time low that wiped out 36 years of gain. Likewise, the market didn't totally recover from 1969's highs until 1982, and the market has done a 15 bagger since then. I'll stick with the drift, which is a steady wind. 

Rocky Humbert writes:

There seem to be two sorts of smart-sounding stock market pundits: (1) those who get bearish because prices have risen. (2) those who get bearish because prices have fallen. I am neither smart nor a pundit but my views of the 3-5 year upside from here (small) and current positions (long inexpensive s&p calls) are known to all.

In the face of the current seemingly relentless rise (which has used up a year's drift in 3 weeks)… I confess that I am looking at my new, over 50% combined tax rate, and positing that higher marginal rates disincentive not only my risk-taking, but also my selling (as the taxes discourage my speculative urge to sell now and buy stuff back at hopefully lower prices.)

With this in mind, an academic study might consider whether changes in capital gains tax rates result in more serial correlation (i.e. trending — as I look around three times) SHORTLY AFTER the higher taxes are imposed. And the effect diminishes over time as people become accustomed to the new regime. Obviously I would guess the answer is yes.

Kim Zussman writes:

 Increasing tax regime could be bullish:

1. additional vig against frequent trading (as if there weren't enough already) > 1a. "drift" of holding period toward longer timeframe
2. disincentive to sell = incentive to hold and/or buy (including insiders)
3. restructuring away from dividends toward stock buy-backs

Rocky Humbert writes:

Dr Z may be onto something. Does this mean if Obama raises capital gains taxes to 99%, the stock market will triple over night? 

Anatoly Veltman writes: 

1. I have no problem with counting to include the last few years
2. I have a problem with counting to include anything pre-2007, let alone pre-2001, and even more so pre-1987.

The reason I have a problem with it: historical price analysis, no matter which way analysis is performed, relies on the notion that participants have not largely changed, and that "their" psychology has not changed. This is not the case - if one goes too far back - because financial market mechanism and participant make-up has changed ever increasingly over the past decade.

One of the victims of methamorphosis was "trend-following". I believe that most previosly successful trend-following rules have died in application to regulated electronically executed markets, because most clients are now automatically prevented from over-leveraging. Thus, "surprise follows trend" rule, for example, lost potency. Nowadays, you get preponderance of surprise "against trend". That's a very significant switcharoo, which has put most of famed trendfollowers of yester-year out of biz.

Also, Palindrome was not much off, predicting the other day hedge fund outflows due to old as age "2&20 fee structure". This structure just can't survive the years of ZER environment. Huge chunk of very cerebral participation has been replaced by bank punk punters, gambling public's money for bonuses.

Gary Rogan writes:

The drift seems to be a long-range phenomenon that has existed in different stock markets for a very long time. It is therefore difficult to make predictions of its demise based on any specific factors. One thing is clear: calamities like revolutions end the existence of the market and obviously the drift. Benito Mussolini was very good for the Italian stock market for a long time, and even way into the war it kept up with inflation, but eventually it succumbed to the realities of war (in real, not nominal terms). Granted, Mussolini initially had much better economic policies than Obama, but who would really expect that faschism could coexist with a great stock market? The question still remains: will there be a total wipeout? Short of that the drift is likely to continue.

Il Duce wasn't chosen completely at random, and the question was (just a little bit) tongue-in-cheek.

I could easily make the contention, and a great case, that fascism co-exists with a great stock market right here in the USA.

Ralph Vince writes:

I think we make a huge mistake when we assume that policy affects long term stock prices. Sure, you might have seen events, like a lot of stocks seeing big ex-dates last year, before big tax theft years — but the long term upward drift is a function of evolution. Like our progress has always been — starts and fits.

Sometimes the fits have lasted 950 years! But it always comes around. I like to get up in the morning, put my shoes on, by a few shares of some random something or other. If it goes against me, buy a little more. When it comes around to satisfy my Pythagorean criterion, out she goes.

As I've gotten older, I like to do it with wasting assets, long options.

It makes it more sporting.

Stefan Jovanovich writes:

I wish that we all could agree that prices only count if you can use the money . Zimbabwe's stock market does not have prices for anyone who wants use the money except in Zimbadwe. The Italian stock market was not quite that bad but close enough to make its "performance" entirely fictional from the point of view of anyone wanting to do what people now take for granted - use their dollars to buy/sell "foreign" stocks, close the trades and then take home their winnings - in dollars. That was not possible in Italy after 1922 or in Germany after 1932, for that matter.

As for Mussolini's economic policies, they were far more destructive than the President and Congress' inability to stop writing checks that the Treasury has not collected the money for. In his Battle for the Lira (1926), Mussolini decided that the currency would be fixed at 90 to the pound, even though the price in the foreign exchange market was 55% of that figure. The result was to create an instant bankruptcy for all exporters and those few remaining financial institutions that dealt in international trade. As a result Italy got a head start on the rest of the world; its Depression began in the fall of 1926. But Quota 90 did create a windfall for the Italian industrialists who were Mussolini's supporters; their costs on their imported raw materials were immediately halved. Like the German industrialists after Hitler took power, they saw their order books boom with all the government spending for guns and butter. And look how well that all turned out.

Baldi writes:

Ralph, you write: "As I've gotten older, I like to do it with wasting assets, long options."

Older? You wrote about doing just that in 1992:

"Finally, you must consider this next axiom. If you play a game with unlimited liability, you will go broke with a probability that approaches certainty as the length of the game approaches infinity. Not a very pleasant prospect. The situation can be better understood by saying that if you can only die by being struck by lightning, eventually you will die by being struck by lightning. Simple. If you trade a vehicle with unlimited liability (such as futures), you will eventually experience a loss of such magnitude as to lose everything you have. […]

"There are three possible courses of action you can take. One is to trade only vehicles where the liability is limited (such as long options.) The second is not to trade for an infinitely long period of time. Most traders will die before they see the cataclysmic loss manifest itself (or before they get hit by lightning.) The probability of an enormous winning trade exists, too, and one of the nice things about winning in trading is that you don't have to have the gigantic winning trade. Many smaller wins will suffice. Therefore, if you aren't going to trade in limited liability vehicles and you aren't going to die, make up your mind that you are going to quit trading unlimited liability vehicles altogether if and when your account equity reaches some pre-specified goal. If and when you achieve that goal, get out and don't' ever come back."



 "Zimbabwe has mere $217 in the bank"

Jan 30 2013 07:48 Sapa

Harare - After paying public workers' salaries last week, the balance in cash-strapped Zimbabwe's government public account stood at just $217, Finance Minister Tendai Biti said Tuesday.

"Last week when we paid civil servants there was $217 (left) in government coffers," Biti told journalists in the capital Harare, claiming some of them had healthier bank balances than the state.

"The government finances are in paralysis state at the present moment. We are failing to meet our targets."

Zimbabwe's economy went into free-fall at the turn of the millennium, after President Robert Mugabe <http://www.whoswho.co.za/robert-mugabe-3562> began seizing white-owned farms.

The move demolished investor confidence in the country, paralysed production, prompted international sanctions and scared off tourists.

After more than a decade - in which the country suffered hyper-inflation of 231 million percent and infrastructure that crumbled as quickly as prices went up - the situation is now more stable.

But public finances remain a mess and local business battles against unstable electricity supplies, lack of liquidity and high labour costs.

Zimbabwe's government has warned it does not have enough money to fund a constitutional referendum and elections expected this year.

Biti said that left no choice but to ask the donors for cash.

"We will be approaching the international community," he said.

The country's elections agency said it requires $104m to organise the vote.

Government's national budget for this year stands at $3.8bn and the economy is projected to grow 5.0%.

The mineral rich country is now using the US dollar and the South African rand.



If you look at it in a slightly different way could it not also suggest that you buy stocks NOT based on publicly available information on some upcoming near-term changes (that if you are not yourself privy to some difficult-to-get information) but instead based on negative sentiment coupled with some well-known value parameters.

How can that be an advantage for individual investors? I am sure many contrarian funds also do that. They have the advantages of visiting the company, calling the CEO and analyzing the entire industry for instance, which are only possible for perhaps large investors but clearly not possible for the ordinary individual investors.

Gary Rogan writes:

An individual investor isn't "graded" every quarter, he/she may hold forever instead of trying to get in and out. There is a well-known asymmetry (in individual investors' favor) that for many institutional managers constantly approximating the metrics they are graded against is preferable to swinging for the fences because reliable mediocre performance isn't likely to result in two or more bad quarters in a row that may get the manager fired. This may or may not be relevant in this case, but if a manager can figure out what everyone else is doing it may be in his interest to just follow that. Also the point is, that after a long time the bet may stop being contrarian and with enough diversification the portfolio starts behaving more index-like but with a built-in positive bias that may take years to play out. The survivorship bias also will eventually favor the winners over the losers, if there are enough of both. Over the long term at least.

The individual investor doesn't get hit by additional decision-making without much information. And finally, negative sentiment is sometimes more powerful than all the buying by all the contrarian funds put together.



 I thought that there had been some consensus emerging that China wasn't headed for a hard landing. Maybe it isn't landing at all? I don't know China that well, but there are many who I think do. Any thoughts?

Leo Jia writes:

Hello David,

I don't have much in-depth analysis to offer, but based on the experiences in China, I don't see much evidence of landing lately, let alone a hard one, though there were worries about it a year or so ago. Things seem OK now. Real estate is picking up speed. The multi-year depression in the stock market seems coming to an end, very likely reflecting some optimism on the new leadership's capability in handling the social issues that threaten the ongoing economy. In any regard, the worries about a hardlanding are being pushed forward.

I can't read Prof. Pettis's post as his blog is blocked lately. But here is a post by Stephen Roach on the same topic, which argues that a reform is still critically needed in order to avoid crashes.



 There is a new short movie (22 minutes) about the "Father of Modern Epidemiology", Dr. John Snow.

Steven Johnson wrote a book about Snow entitled The Ghost Map and it has a very interesting website.

I remember as a kid hearing about the Miasma Theory and the influence it had on the locations of early towns and cities in Alabama. The First State Capitol, Cahawba, had the reputation of having a "bad atmosphere" and was soon moved to higher elevations. Now it is a true "ghost town".



My friends Susan and Marc Strausberg, the founders of EDGAR Online, have created a new Internet product that provides instant and specific answers to financial questions via mobile devices; 9W Search.

9W's name comes from the punch line to a vaudeville joke answer to the question "Herr Wagner, does your last name start with the letter V?"

Our web site uses recent disruptive technology in hardware; the latest tablets and smart phones have greater ability to provide remote access to financial information.

9W's granular search results are enabled by the new software technology, XBRL, a financial tagging language that requires that each element in a financial report be given a unique "bar code", assuring that each individual number remains constant throughout the entire financial reporting supply chain.

In time 9W expects that the XBRL standard will become ubiquitous as part of all accounting software packages and for regulatory filings. More government agencies, here and abroad, plan to adopt XBRL in the future to satisfy their need for more efficiency and transparency and, when ready, much more data will be available for inclusion into the 9W platform. (Examples of future 9W sources of data are the EPA, FDA and Department of Energy reports).

* 9W Search can be used by nearly all mobile device users as well as standard PCs.

* 9W is not the best choice for deep analysis but is aimed at a broad underserved market.

* 9W returns SIMPLE FACTUAL ANSWERS to queries -not opinions.

* The primary source of 9W answers is the ocean of SEC filings; our data base contains all of the up-to-the-minute SEC submissions, a entire document history going back five years, and all filings made in XBRL (the new tagging language required by the SEC).

* 9W provides Instant comparisons of single financial metrics and ratios (more than 200 are available in our data base with more to come) for up to three companies at a time.

* All reports can be downloaded into Excel or PDF and shared via email, Linked In, Facebook and Twitter.

* 9W sources of non-SEC information are direct links to other web sites.

* 9W is able to answer queries about highly specific facts, located in "footnotes," "insider sales data," "management changes," and "real time stock prices"

* 9W will work on all operating systems for PC's (Windows 7 & Windows 8, Google Chrome, Firefox and all the rest).



 Have you guys heard about this guy

"Hawaiian big-wave surfer Garrett McNamara will go to any lengths to chase a massive swell. On Monday that pursuit took him back to Praia do Norte, a tiny coastal village about 60 miles north of Lisbon, Portugal, where he got pulled into a massive wave that has the entire surfing world in awe. "

youtube video of him at Nazare, Portugal

Could the surfing aficionados please explain to me how these people do not die?

Jim Sogi responds: 

Scott, First they train and train and train so they are prepared. They have a system with the sled driver so they can get rescued if they fall. The maximum hold down would be 20 seconds for one wave, and possibly 40 seconds for a two wave hold down. With training one can hold their breath that long fairly easily. A three wave hold down for 60 seconds gets dicey and black out is possible. Thirdly, they are wearing life preservers that float them to the surface. Shane Dorian has also developed an air bag that inflates to bring the surfer to the surface. The statistics of surfing demonstrate it is rather safe overall.



 Orde Wingate, the eccentric British general who made his reputation in the 1930s-1940s by leading unconventional troops in Palestine, Abyssinia (Ethiopia), and Burma:

His pioneering efforts to add guerrilla tactics to the arsenals of conventional armies often met with disdain and disbelief from more conventionally minded officers. Wingate did not care. "Popularity," he believed, "is a sign of weakness." Considered by his peers to be either a "military genius or a mountebank" (opinions differed), he had been locked in an unceasing war against his superiors from his earliest days.

Even as a young cadet at the Royal Military Academy, Woolwich, he "had the power," recalled his best friend, "to create violent antagonisms against himself by his attitude towards authority." Later, as a junior officer, Wingate was known to begin meetings with generals by placing his alarm clock on the table. After it went off, he would leave, announcing, "Well gentlemen, you have talked for one hour and achieved absolutely nothing. I can't spend any more time with you!"

Wingate's first rebellion was against the stifling religious atmosphere in which he was raised. His father was a retired Indian Army colonel with a devotion to a fundamentalist Protestant sect called the Plymouth Brethren. He and his wife brought up their seven children, including "Ordey" (his family nickname), in what one of his brothers called a "temple of gloom," with prayer mandatory, frivolity forbidden, and "fears of eternal damnation" ever present.

By the time he arrived at Woolwich, to train as an artillery officer, he had left the Plymouth Brethren, but he never lost his religious outlook. For the rest of his life he would be deeply influenced by the Bible, on which he had been "suckled" and which a friend said "was his guide in all his ways." Another legacy of his childhood was that he developed a violent aversion to being regimented. At Woolwich he was in constant trouble, and he formed a low opinion of the "military apes" who tried to discipline him.

After graduation he learned Arabic, and in 1928 he joined the British-run Sudan Defense Force as an officer overseeing local enlisted men. Here he battled elusive gangs of slave traders and poachers within Sudan, learning the hit-and-run tactics he would employ throughout his career.

He also developed many of his unconventional habits, such as wearing scruffy clothing ("his socks were very smelly and all in holes," a subordinate later noticed), subjecting himself to great danger and discomfort, and receiving visitors in the nude. (He would become notorious for briefing reporters in his hotel room while "brushing his lower anatomy with his hairbrush.")

Read the full article here



 While watching a Mark Douglas trading psychology seminar (dvd), I remembered the discussion about whether financial time series were dependent or independent (sample without replacement x sample with replacement).

He makes a good, clear point, although talking from another framework:

"There's no connection with the outcome of this "now" moment opportunity with any opportunity in the past - even if you're using the same signals: the traders that are operating in the market now are not the same traders that operated the last time."

It's so simple we (I) forget it.

The idea seems to be this paradox: while it's impossible for every trader, investor, manager to be at the same time doing the same thing as before, (and therefore previous opportunities are not related to the present one), somehow the edge as defined by your work (statistical, technical, fundamental) will remain its winning % and manifest it in a series of trades.

The paradox is that individual trades are random, while series of trades maintaining the edge win%.

So his advice is:

a. Have a system

b. Follow the system without emphasis on the distribution of individual trades.



I was skiing in Vermont recently and as is usual for skiing in the northeast, the slopes weren't as deeply covered with snow as one would wish. When one attacks a steep run in these conditions, it is guaranteed that the center of the trail will be bereft of snow — thin cover is the term we use euphemistically to indicate ice and rocks — mostly ice though. When this happens, there can usually be found some snow piled on the edges of the trail, it having been pushed there by previous skiers who made all their turns in the center, their scraping edges clearing it away off of the underlying hardpack and pushing it to the sidelines.

Skiing in such conditions can be done, but not without incurring greater than normal risk. And it is usually not as satisfying as skiing using the entire available path whose deeper, more sweeping turns are somehow more satisfying and which provide greater control. But under these conditions, staying in the center is deadly so advanced skiers will stick to the edges of the trail, making all of their turns in rapid succession on what is in effect a trail only two or three feet wide. This means that turns must be small in degree and therefore must happen very quickly so as not to allow the tips to remain pointed straight down the hill and therefore incurring excessive speed. This kind of skiing requires conditioning, linking extremely rapid turns is exhausting and one must not attempt this when fatigued as the resulting inability to really push hard and dig can be catastrophic. It also requires some nerve, for one, keeping near the edge puts one in dangerous proximity to the treeline (or the edge of the abyss -as the case may be) and one slip at high speed and it's all over. And it means high speed, even while carving one edge after another in succession, the lack of available surface on which to gain traction means keeping the tips pointed perilously close to straight down the fall line. Mistakes at these speeds tend to have greater than normal undesirable consequences.

As I enjoy the speed, I will make one or two runs in these conditions just for the thrill of it, but this kind of tight skiing in a narrow and steep path requires tremendous concentration and loses it's appeal rather quickly. I will spend the majority of my time on tamer runs with more snow, even though they may be more crowded, so I can make the more gratifying, longer, carving turns that I prefer.

Jeff Watons writes:

That's just like surfing big waves vs small waves.I am not comfortable in the brutal conditions Mr Sogi San surfs on an every day basis. In those conditions, I will look for the rip current to get outside, paddle and make a bottom turn, and ride it in. Like typical Sunset. I don't stay out very long as I did when I was younger when it is big. But if the waves are 2-3' overhead, I'm good all day long. I'll still find the rip to make paddling out easier, but I'll attack the wave harder. But some of the very best days are those waist-chest high waves where you cruise on a long board, and catch the glide. However, during calm conditions I have suffered the greatest traumas while surfing. Broken vertebra, herniated discs, tendon and ligament damage, broken nose, etc. Somehow, being relaxed while it's calm is more dangerous then when it's big. Or maybe I'm more careless when the waves are small, and a bit reckless thrown in for good measure. Carelessness happens in the markets also. You start taking your profits for granted. It's humming along nicely with all your positions in the green, then wham, the Mistress gets a little PMS(no sexism intended) and throws the whole system off balance or upsets the cart, and your account suddenly needs a tourniquet. The lesson here is to keep your guard up at all times.

Jim Sogi writes:

 Just back from backcountry skiing in the Eastern Sierras. The conditions were snow that was about a week old, with very cold temperatures, and no wind. The sun made a crust where solar energy hit, so the powder stashes were hidden on north facing aspects where there were old growth trees. The cold had dried out the snow making it sparkle and soft and creamy sugar which was excellent for skiing.. Though it had not snowed for over a week, in the shade, on the north facing slopes shaded by old growth pine where the sun did not affect the snow there was beautiful sugary soft powder. It took some doing finding these niches and some hiking to get there and fighting some pesky brush at lower elevations. No one else seems to have discovered these hidden stashes of nice powder. This reminds me so much of the markets, when even in less than optimal conditions, there are hidden stashes of unridden goods. It takes understanding of the underlying processes that create and destroy snow, the equipment and will to get there, and the ability to ride those conditions. Its surprising in such a huge mountain range that only in such limited conditions would there exist such fine skiing. The last day, new wet snow came and turned everything into the famous Sierra cement.

Laurel Kenner writes:

I took Aubrey to our favorite ski place, Telluride, a couple of weeks ago. A drought was on and the mountain was brown, but the resort's snow-making machines had been at work since November and most runs were open. A few patches of grass were visible in some popular places — enough to send a skier head over heels in the old days. The new equipment was somehow able to ride it out, although caution was still warranted. That strikes me as like the market; if you're well-equipped enough with margin and numbers to ride out the rough patches, you can still do well in adverse conditions.

Steve Ellison writes: 

I ski 10-15 times per year and encounter a wide variety of conditions. Light is an important factor. An overcast sky causes what skiers call "flat light". I slow down in flat light because the lack of shadows makes it hard to spot irregularities on the surface until one is nearly upon them. Dense fog is even worse. I have been in fogs in which I could not see the trees on either side and momentarily lost track of which way was down.

I like fresh snow, but there can be too much of a good thing. One day right after a 2-foot snowstorm, I started down my first run and fell on the very first turn when my outer ski caught some snow. I pushed off my hand to get up, but my arm sank into the snow all the way to my shoulder. It took a few minutes of wiggling and maneuvering to get back on my feet.

Wind is another factor. The Sierras sometimes have very high winds, which blow loose snow off exposed areas. The result is alternating ice and soft powder (in the spots in which blown snow settles). Going too fast at the transition point can result in a fall. On one traverse I often ski, I use moderate wind to my advantage by letting the wind slow me down as I ski into it with no effort on my part.

Duncan Coker writes: 

When backcountry skiing which Mr. Sogi describes another key element is the approach. There are no lifts, so you hike uphill for every turn you will make downhill. It can be exhausting, but also very rewarding and you get to know the terrain including snow pack, the location of rocks, couloirs, tree wells, cliffs and the grade. After enjoying the view at the top you can descend focusing mainly on execution, making some nice turns. Skiing the steeper, untouched terrain has more dangers but is more rewarding.

I love the surfing analogy of "never taking the first wave" alluding to the dangers of being tempted by the first big wave in a set, after a lull. In skiing there are times when it is better to take pass on a run as well. Condition may appear good, but dangers are still there. Ultimately though we all have to "drop in" at some point for whatever activity we are pursuing, and taking some risk is certainly worth it.



 This week, New England ran out of natural gas. Supply cannot meet demand because New England didn't invest in appropriate infrastructure. Mid you, there's plenty of natural gas nearby. It just can't get to any of the New England states. As a result, Boston City Gate blew past $30/MMBtu. Today, thanks to LNG from Yemen, it fell to around $15.00.

At the same time, bulk power prices skyrocketed to the stratosphere. This morning bulk power at New England's hub traded in the $400 to $500 range (400 to 500 cents per kilowatt-hour) on normal volumes. Nearby in New Jersey and Pennsylvania, it was in the $20 to $35 range (2 to 3.5 cents).

New Englanders have been protesting coal plants. New Englanders have been protesting nuclear plants. New Englanders have been protesting hydroelectric plants. New Englanders have been protesting transmission lines. So,in response, companies are withdrawing investment and retiring perfectly good energy assets.

If you are wealthy and living in New England, you're paying through the nose for state taxes, local taxes, fuel oil, natural gas and electricity. If you are not wealthy, you're freezing in the dark.

Today, Massachusetts wants to increase taxes on her citizens while they are distracted protesting yet another critical fuel. It turns out New Englanders don't want cheap Canadian oil shipped to Philadelphia through Maine's ports, so they spent the day "rallying against a proposed pipeline from Montreal" (http://tinyurl.com/adn7atf).

Mind you, these protests are not really about a new pipeline. Since World War II, New Englanders didn't fret about shipping foreign oil from Maine's ports through northern New England's pipelines and on to Montreal's refineries. Now, when operators want to reverse the flow on existing facilities, New Englanders suddenly have a conscious.

Nevertheless, when you add it all up, it looks like a collision course in the making. With escalating taxes and skyrocketing energy costs, New England's economy will not be able to attract the jobs it once owned. It will only be able hire teachers for their universities, medical professionals for their insured, busboys for their country clubs and tax accountants to keep everybody straight.

The combination of growing taxes and escalating energy costs is not sustainable. At some point, lunacy has to give way to sanity.

It would seem a movement would develop to address New England's thirst for energy. Once, New England was the nation's capital for commercial nuclear power. The Yankee System included early nuclear plants in Vermont, Maine, Massachusetts and Connecticut. They were supplemented with newer plants in New Hampshire, Massachusetts and Connecticut. Today, only one of the Yankee plants survives. The remaining non-Yankee plants struggle.

From a national energy perspective, New England is an Island. Their only borders are New York and Canada. New York is not an exporter of energy. Eastern Canada is energy challenged with their natural gas wells depleting and their surplus power limited.

New England must move beyond provincial thinking and some seek creative options. Nuclear may no longer be the answer. But solutions are needed and they are needed urgently. It will take leadership at the regional level to bridge provincial interests. Failure to address these issues across all New England states will most certainly cause their economies to deteriorate.

In the interim, the region doth protest too much, methinks.



 One of the pleasures of visiting the declining city of Chicago (perhaps the next Detroit), is to visit the Seminary Bookstore in their new location, 5727 S. University Avenue, They have a great collection of quasi academic books, i.e. the kind that professors write for popular consumption, and the current text books can be bought a few blocks west at the University Bookstore.

Compared to the old store, it has much more room, much more light and glass windows, and plenty of places to sit and read. And unlike the old store, it's possible to find your way out without being buried by a ton of musty books if you don't get lost in the basement. I am one of those unfortunates who was not educated enough in my college days to have a good grounding in all the disciplines that make up the world of knowledge so I like to update myself periodically in areas that I am weak in or should know much more about, especially for market actualization or knowledge to share with my kids.

Perhaps the list of books I bought might be of interest to some scholars or would be market people. Microeconomics by Besanko and Braeutigan

Industrial Organization by Luis Cabral

Investments Bodie, Kane, Marcus (ninth edition)

Stochastic Modeling Barry Nelson

Scorecasting Moskowitz and Wertheim

The Evolution of Plants Wills and McElwain

Survival by Minelli and Mannuci

Thieves, Deceivers and Killers, Agosta

The Birth of the Modern World 1780-1914

The Lions of Tsavo, Patterson

Modeling Binary Data by David Collett (second edition)

Historical Perspectives on the American Economy, Whaples

Viruses, Plagues, and History, Olstone

Plastic (a toxic love story), Feinkel (for the collab for her new business)

The Power of Plagues, Sherman

Quantitative Ecological Theory, Rose

Think Python, O'Reilly (for my kids who want a job in the future).

Beautiful Evidence by Edward Tufte

All of Nonparametric Statistics by Larry Wasserman

Number Shape and Symmetry by Diane Hermann and Paul Sally

Nonparametri Statistics with Applications to Science and Engineering, Paul Kvam and Brani Vidakovic

Discrete Multivariate Analysis by Yvonne Bishop et al

Modeling with dta by Ben Klemens

Python Essential Reference by David Beaszley

The Origin of Wealth by Eric Beinhocker

America, Empire of Liberty by David Reynolds

The Entrepreneur (classic texts by Joseph Schumpeter) Marcus Becker

A History of Everyday Things: the birth of consumption in France, Daniel Roche

Civilization by Niall Ferguson (the west and the rest)

The Americans (the Colonial Experience) by Daniel Boorstin

Triumph of the City (how our greatest invention makes us richer, smarter, greener, healthier and happier) by Edward Glaeser

The Big Red Book by Coleman Barks (bought by Susan)

The Founders and Finance, Thomas McCraw

A Nation of Deadbeats (an uncommon history of America's financial disasters) by Scott Reynolds Nelson. (this one I have to read immediately)

Rome by Robert Hughes

The American Game: capitalism, decolonization, world domination and baseball by John Kelley ( 173 5 by 8 pages only)

Exploring the city (inquiries toward an urban anthropology ) by Ulf Hannerz

Brokerage and Closure (an intro to social capital), Ronald Burt

All the Fun's in How You Say a Thing (an explanation of meter and versification) by Timothy Steele

The American Songbook by Carl Sandburg (for Aubrey)

The Measure of Civilization (how social development decides the fate of nations) by Ian Morris

Freaks of Fortune ( the emerging world of capitalism and risk in America by Jonathan Levy

The Invention of Enterprise (entrepreneurship, from ancient mesopotamia to Modern times) by David Landes et al

I feel like Louis L'amour who gave lists of books he likes to read in The Wandering Man without telling what he got out of them, but I do not have enough erudition to tell based on skimming them how valuable or interesting they are. Any suggestions or augmentations on that front would be appreciated and perhaps helpful to others.

Kim Zussman writes: 

University of Chicago is now ranked #4 by US News — the highest ever. This is a big jump from the era of the low tax predecessor to the former con law professor, and will hopefully have a favorable impact on South side murder rates.

Dan Grossman writes: 

Unintended Consequences by Edward Conard is the best book I have seen on the subprime crisis and current government tax and economic policy.



One doesn't recall seeing so many bullish things in a market recap in many years. It reminds one of the bearish lists that Alan Abelson would come up with in the complete enumeration of his weekly articles from 1956 to 2005 that collab and I read from 1956 to 2005, during a period when the market went up about five fold.

Jim Lackey writes: 

If one was at The weekend meeting…

"Say, look fellas, this mumbo of 1000 point rallies and declines of the same on political mumbo jumbo must stop. We need the public in the game and moving their book to cover the eco system overhead of the US market. Look at Mr White, he had to take a pay cut! Why are we losing our friends when we lost many in the crash. This must stop. Let's agree to keep the declines at a swift 300, a gamber smash 20 day max to minimum in three. Yes and lets keep the news flow all declines are healthy and pauses to refresh. HFT keeps stealing? Lets do to hft what we did to the day trader in 2004. Work the open and close as gentlemen and from1030 to 330 lets agree to play it as tight as possible. If HFT does not have the big orders to front all the have is to catch a retail 100 share order at lunch or best fight each other to the death. All HFT not backed by us making markets will be gone in a year.
Hear here..cheers long live the US markets."



 Upon waking up, the verse from Trial by Jury:

"one cannot eat breakfast all day/ nor is it the act of a sinner/ when breakfast is taken away/ to turn his attention to dinner. And it's not in the range of belief/ to look upon him as a glutton who, when he is tired of beef determines to tackle the mutton"

One can't decide or figure out whether this post was prompted by Mr. Grain's good fortune in marriage, or a Niederhoffer alert memorializing my inordinate tendency to be a contrarian sent to me by Miss Perfect. 

Yes, I am a contrarian above 1500 S&P with all that implies about the euro and fixed income. It seems to me like the flexionists and other sinners determine to tackle the mutton after many rounds of breakfast. 

Richard Owen writes: 

It's always interesting to see how the anointed enjoy their lunch and dinners. On a recent visit to Hammersmith, one enjoyed a visit to the beautiful Church cafe — with discounted coffee — and spent an ultra-civilised half hour with button down marmish nannies and housewives. This was prior to an appointment with rare books at St Paul's Girls School, wherein one is greeted by a forest's worth of antiqued Edwardian wood paneling and transported back into a Mary Poppins netherworld. Walking back down the high street, there are plentiful and lavishly staffed cult cafes, ethical butchers, and second hand bookshops to visit.

It seems that with the squeezing out of standardised efficiencies; the disassembling of workforce collective power; the ravaging of the idyll to a barren landscape of unemployed, disenfranchised waitresses, butchers and bookshop owners, that the equity have collected their bounteous share thereof and reconstructed what they disassembled on their doorsteps. Drink down your Starbucks, else who will buy the cottage industrialist's cream teas?

Victor Niederhoffer replies: 

One would inquire of Mr Owen whether any of the button downed nannies and housewives seemed to be of the kind that would administer spankings to the Royal Stock Exchange Members who frequented such clubs in the old days when the President was greeted on the floor with a standing ovation when he was outed for patronizing one.



 One recently updated my collection of microeconomics textbooks with Microeconomics by David Besanko and Ronald Braeutigan which is the standard text at the University of Chicago Business School. I still like the Microeconomics text by Pashigian (price theory and applications), Landsburgh "Price Theory and Applications", Cowen "Modern Principles" and Heyne "The Economic Way of Thinking" (12th edition" best.

It was amazing to me how little has changed in the way of intermediate microeconomics since I last took such a course 50 years ago. However, one concept that I had not come across in my previous studies was the Lerner Index of market power. It's the amount above marginal cost that your price is at relative to price. I looked to see if it's been measured for stock market companies but it only seems to have been used in the banking and telephone industry, although it's supposedly the standard used in anti trust cases. It would seem to be 100% correlated with profit margins and the Longman index of price to weight.

One wonders if such empirical indexes are associated with superior stock market performance under certain regimes. As mentioned, I am a great disbeliever in all studies of market performance relative to value versus growth, small versus big, accruals versus non accruals, superior versus inferior past performance, and of course all long versus short strategies (because it loses the drift), because of errors of retrospection, muticollinearity, and changes of regimes. However, I think such a study of profit margins using contemporaneous data only (available in the weekly value lines), would be worthwhile.



It is interesting to compare the runup in stock prices and decline in bond prices to that which precipitated the Oct 19, 1987 catastrophic decline in stocks and increase in bond prices with the present whenever there is a 15 percentage point divergence in favor of stocks in the ratio of stocks to bonds such as in the last month.

A commenter writes:

Revisiting history: In 1987, bond yields were around 7ish % and over the course of the year, they rose through 10%. before the "crash". In 1987, fed funds rose from 6% to 7.5ish%. Before the crash.In 1987, the S&P rose from 240ish to 330ish (37%) in an impulse move, without any correction. Before the crash.In 1987, the S&P p/e ratio rose from 16ish to 24ish. Before the crash. (Are we at 16 yet?)In 1987, inflation was rising and real yields were rocketing higher.Source: all bloomberg data. Disclosure: I sure ain't bullish. But I do own SPX calls because the trend is my friend.



Discussions and analysis about financial contagion are not attractive nowadays. "They" have found out that risk complacency is more remunerative as there will always be the political will to "sustain" the system. Whatever it takes.

A commenter writes: 

The paper you linked to deals with financial contagion. What about politico-financial contagion? I'm thinking about what happens to the markets if Iran turns around in June, say, and explodes a nuclear device somewhere in the Indian Ocean. Do the markets panic? To the same degree? While the idea may strike some as a wild hypothetical, the reality is that such a scenario may yet come to pass, perhaps this year perhaps next year. There are many types of contagion (pity those traveling through De Gaulle on the bio front), and for the markets, it may not much matter which one is the triggering event. Complacency isn't limited to financial affairs, even if there may be a financial dimension to the outcome.



Here is a great article mentioning the disturbing act of betting money on a WWE match. How much vig are you really paying? Seriously, this one is truly over the top and is indicative of the degeneracy of the masses. If the financials are to be believed, there are a lot of people out there hooked on professional wrestling, and are big fans. While it uses athletic moves, requires conditioning and coordination….plus a high tolerance for pain, professional wrestling is still just Greek theater. I'm not going to ever bet on a WWE event any more than I will bet the South will win the time my wife makes me watch "Gone With the Wind" on Netflix. The vig is just too high.



 I have been doing auto trading of Palm Oil futures for some time using a self-developed system. The system works on the continuous data of the contracts and trades on the most liquid contract.

One morning last week after I started the software before the market open, to my surprise, I discovered the prior day's data was of the wrong contract month. It was not the same as that during the prior day's trading session. Seeing an anomaly of the data, I disabled auto trading prior to the market open.

When the market opened, I saw the system gave a short signal that I believe was due largely to the influence of the wrong data of the prior day. But gradually, it turned out to be a good signal. By the close of trading when the system signaled to closeout the trade, it was a 10% profit. Although I understand that it should not be my expected profit, I was feeling a little upset for not taking the trade.

Then the next day when I started the software, the data was corrected. With the corrected data, the system showed a trade on the past day of actually a 4% loss. I felt a little relieved.

Kim Zussman writes:

This is where the mistress speaks to us. In between the rationally testable segments; where the discretion of experience, discipline, and morality are challenged every day.



 Ban-dido Ban-ada, Oh Ban-ada Ban no-no Ban-dollar-O

Girls just wanna have guns

By marion ds dreyfus

By virtue of being lithe and of lower body mass, and having much smaller feet, in the main, women have always been terrific at mountain climbing. Women with ‘scopes were first among perseverant astronomers, though their achievements were largely ignored and stepped on by males with high-power magnification. Women are superlative and self-abnegating in the lab, often working 50 and 60 years, unmarried and unchilded, in the shadows of their discoveries before they reap awards and recognition.

Women are great in a myriad of occupations and professions, are as brave and heady as males in the full spectrum of human endeavors—not to mention childbirth, which Norman Mailer quipped would never be anything a male could do.

Since time began, women aspiring to “male” jobs and occupations have been derided and disrespected as a consequence of their menstrual periodicity. Everything suspect, from womb-connected “hysteria” to lack of judgment and inferior cognition was assigned to the female, and used as a club to deny women representation in education, careers, the opportunity rung on the rigorous escalator of achievement.

But women, on the whole, are not the best candidates for firefighter roles, other than support. The heavier duties of carrying deadweight injured comrades, the upper-body strength needed for many of the tasks associated with the military, and the steadiness required to maintain combat positions in the face of withering fire and lengthy attack, are not the circumstances where women shine. To disagree that women are, in fact, different from men in these specifics is to live in a faux-construct—we have many strengths, but we are not gorillas, and we have different musculo-skeletal apparatuses and hormonal tides than men.

All this by way of explaining why Secretary of Defense Leon Panetta’s recent initiative to open some 328,000 combat jobs is a bad idea. The prospective groundbreaking decision overturns a 1994 Pentagon rule restricting women from artillery, armor, infantry and other similar combat roles.

Career advancement, yes, does often result from valorous action in war, and to date these emoluments and ribbons of glory have been male-only. But there are numerous reasons not aired in the miles of ink generated by Panetta’s (and the President’s) little change of definition of who qualifies for what in combat-forward posts and training.

As Ryan Smith, an ex-military (currently a lawyer) who served several battlefield tours in Iraq explains in “The Reality That Awaits Women in Combat: A Pentagon push to mix the sexes ignores how awful cheek-by-jowl life is on the battlefield,” there are egregious battlefront conditions that absolutely militate against women being crammed into such conditions.

If you rejoinder that “women can take it,” assuredly yes, we can. If we choose to subject ourselves to the glaring lack of hygiene, the days-long stakeouts without toilets, the long spans without proper bivouacking, the shattering noise and grime, and the eternal close quarters with men in the same clutch of duty, without end. But the esprit de corps that is critical to unit success in the military is broken by having women around—even expertly trained, above-average-strength women with top honors in pushups and hauling and obstacle-course running.

Women are great firearms experts. We win awards in shooting competitions year after year. And Annie Oakley is a proud estrogenic legend in the country. But shooting is not the sum of tasks in combat. More of the time, most of the time, is spent in awkward human-human contact that is uncomfortable, difficult, dangerous–and messy.

“I think people have come to the sensible conclusion that you can’t say a woman’s life is more valuable than a man’s life,” the retired Air Force Brig. Gen. Wilma Vaught once said. But in the IDF, there is a recognition, as is only reasonable, that women are different from men. And they are child-bearers, and their status in society is different, obviously, from that of men. Those differences bring consequences that ignoring would be worse than folly on the part of military brass. Imperiling lives is the natural result of the congeries of elements making women in close combat quarters a decided and constant liability.

Israel’s top-notch IDF (Israel Defense Forces), acknowledged as one of the best fighting forces in the world, has long had women in their military services. But the jobs they are assigned to are predicated on what women can do without subjecting them to frontline bullets and man-on-woman infantry and the like. Women are recognized as child bearers, and hard-wired male consideration for women cold-cocks neutral equality on the battlefield. The addition of women into the traditional male-male mucky soup of war or defense changes the equation. Men are prone to gallantry instead of better moves that save themselves and their fellows. Gallantry has little place in the menu of man-hours fighting. It will, as many writers and analysts have observed, cost us lives. Needless lives lost.

And as for training, there are indications, even now, that standards will be lowered. Gen. Martin E. Dempsey, chairman of the Joint Chiefs of Staff, made reference to such lowered norms at a Pentagon press conference in January that will be used by critics of the decision to open up combat roles to women. The New York Times headline read: Gen. Dempsey hints–Bar likely lowered for female combat units.

No. Wrong. Lowered standards are automatic reasons for rejecting the ‘wisdom’ of this females-in-combat initiative. Women in threat conditions need the same training and the same reliability as men. Making women acceptably laxer or less tough is simply unacceptable, and works against the equality notion we have come to worship as the gold standard in all of our public life.

Sources say outgoing Sec. of Defense Panetta will announce his decision to permit female soldiers to participate in combat roles starting later in 2013. Special units like the SEALS and the Army’s Delta Force, will have until 2016 to document why they should qualify for an exemption to the new ruling.

While some women may be able to come up to the mark achieved routinely by male inductees, most simply won’t. How many women wrestlers, miners and construction workers are filing their tax returns, even in 2013? Not that many. This is not about to change any time soon, even with Pilates, Super-Spin and Zumba classes as the hottest gym tickets around.

Aside from the ineradicable problems of excreting and undressing or not undressing in the tightest quarters, body sores from lack of bathing and maintaining uncomfortable postures for hours on end—as is typical when armies are on the move, as was true with Desert Storm in Iraq, and will continue to be true, even with reduced military budgets.

Which brings us to the slash and burn budget curtailments of the newly re-elected president. President Barack Hussein Obama’s brutal budget slices have already, to hear every defense head of the Joint Chiefs, destroyed our retaliatory or offensive strength, such that we will be sitting ducks for a determined and especially asymmetrical force such as the ever-stronger al Qaeda in both the Maghreb–and wherever else you pin the tail on the map. Such carefully calculated cuts in military and tactical supplies, equipment upgrades, accessories and general provender have been detailed despite strenuous objections by the military charged with conducting their forces to exemplary effect.

This initiative is, it seems clear to this writer, another in the nefarious efforts of an obdurate administration that believes in nothing, very much, beyond their own peculiar and failed notions of “normalizing” the status of the United States into the mediocrity of their imaginings. This initiative, coming from the mouth of Leon Panetta, but fronting for the top dog of the Administration, is another in the pantheon of disastrous missteps along the lines of Fast and Furious, a Team Obama/Team Holder stab at disenfranchising the nation’s gun owners by virtue of trafficking firearms to Mexican drug mafias in hopes of public alarums against gun availability.

From a comment thread between David Brooks and Gail Collins of the New York Times: Now [women] wear fatigues and tote rifles. So the Joint Chiefs of Staff have bowed to reality and told Defense Secretary Leon Panetta that “the time has come” to stop excluding women from combat positions. The transformation won’t happen immediately, and it might not be universal. But it’s still a groundbreaking change. When the recommendation became public Wednesday, except for a broadside from the Concerned Women for America (“our military cannot continue to choose social experimentation and political correctness over combat readiness”), the reception seemed overwhelmingly positive. [Emphasis added.]

It’s hard to remember—so many parts of recent history now seem hard to remember—but it was the specter of women under fire that did more than anything else to quash the movement for an Equal Rights Amendment to the Constitution in the 1970s. “We kept saying we hope no one will be in combat, but, if they are, women should be there, too,” recalled Gloria Steinem. (Gail Collins excerpt)

Why? Fortunately for the country, the stunningly failed plot by the anti-Second Amendment President Barack Hussein Obama and the 82nd U.S. Attorney General, Eric Himpton Holder, who seemingly share an aversion to the continued hegemony of the United States, flopped. Big time. We have, of course, under this current Administration, yet to get a full accounting of the bluffing, intransigence and simple mendacity involved in this audacious and simpleton scheme, which resulted in deaths of many innocents, including our own Border Patrol agent.

In a Newsmax article by David A. Patten, ex-Navy SEAL Ryan Zinke comments:

Former Navy SEAL commander and Montana State Sen. Ryan Zinke reacted sharply [Wednesday] to news the Obama administration will drop the prohibition against women serving in military combat roles, warning it is “nearly certain” to cost lives.

A Republican who served in the elite SEAL Team Six, Zinke cautioned that introducing male-female dynamics on the front lines “has the potential to degrade our combat readiness.”

“I know there are some women who can do the physical training,” Zinke told Newsmax in an exclusive interview. “When I was a SEAL instructor, the Olympic training center is in San Diego, and I watched some Olympic-caliber women athletes run through the obstacle course better than certainly many of the SEAL candidates could do.

“These were quality athletes. So physically, I think there are some women who can do it. But the issue is what are the unintended consequences? This is not a Demi Moore movie.

This administration seems to excel in leakproof debacles that then leak, hurt the country, hurt our citizenry, hurt our prestige and standing abroad (Think: Benghazi. Think: Algeria) yet manage never to result in an open airing of underlying orders and ideological priming that created the specific imbroglio. Somehow they only reluctantly come under the microscope of the bemusingly slacker media.

Ex-SEAL Zinke also suggested that the decision appears to be hastily undertaken and fails to reflect a real-world understanding of combat.

“The hard truth of combat oftentimes is brutal,” he said. “It involves face-to-face, hand-to-hand, close-quarter battle. And I think we forget that. We’ve become so sensitized that warfare is wrapped up in a 2-hour movie featuring stars who always live. And that’s not how it really is.”

Zinke said the decision to open up combat roles for women should have followed “a longer national discussion than a simple executive order.”

“I’m disappointed that it was taken lightly, and obviously it was,” he said.

Zinke also addressed concerns that mixing men and women on the front lines could impair unit morale and effectiveness.

In the case of women in the military, the “jobs” that could be provided would be taken up by men, if women do not fill them. The record of this government in the past four years has not been exemplary in their job numbers, either assessing the jobs they “will” create, or the jobs they “did create.” Both facets of employment in the public and private sectors have been, at best, extremely dubious, and given to all manner of Howevers, and data manipulations. The current 7.8% unemployment, for instance, “forgets” four million jobless who have given up in hopelessness, but they have been expunged from the official jobless rate, as have minority jobless figures, which conveniently ignore long-term unemployed among minorities. The true jobless rate is likely twice the official 7.8% in most cases.

But regarding the women in combat issue, again, this is yet another stealth way of de-balling the one institution in the country that works well, at least until the advent of the scorching budget cuts de-man the military’s effectiveness as a defensive and offensive force. It is no secret that the military is the orphan-child of a President who has little use for defense. His failure to react to provocations against our people on a global scale is already a scandal, at least among those who love the country, if not among the glazed eyes of the fawning and subterranean-IQ news corps.

Women in the military, in combat-forward posts, will further compromise esprit de corps, will lead to a heightening of the already-notable rape and sexual harassment in the ranks, will lead without question to a rise in unwanted pregnancies and liaisons (wanted or otherwise), and will create, as per the law of unexpected consequences, a host of other unconsidered sequellae. Men in command units cannot act as they normally would if a female colleague is threatened or in trouble: That spells certain disaster. Female soldiers might not be able to rescue fellow soldiers when one is injured. Women experiencing their menses may be sussed out by sensitive dogs and/or detection devices, and staked positions in camo may be disclosed.

Seem unlikely? It is not. Hunters refrain from aftershave and perfumed soaps when on the hunt, as do professional anglers: Animals and even fish can detect an infinitesimal taint of sweat, scent, cosmetics and ointments in hunters and fishermen.

This is not even to broach the fearsome scenario of captured females in war theaters. What will be done to captured women soldiers, when what is done to our brave male soldiers beggars description and defies comprehension for normal humans? All other armies are all-male–what are the uneven results of having a male and female force confronting an all-male force? Tennis gives us a good idea: The mixed-gender loses to the usually superior all-male singles.

The men making the decisions are, in this unmilitary Administration, largely unacquainted with military needs and circumstances, the President included. They are also signally uninterested in correcting their unacquaintedness with the military life. They know it all already, no lessons needed, thank you.

Is there any out? Perhaps. As James Taranto wrote on this topic in his Opinion column in the Wall Street Journal, Panetta's decision gives the military services until January 2016 to seek special exceptions if they believe any positions must remain closed to women.

Net-net, our now-disemboweled military, with the addition of albatross women in duties for which they are unfit and unsuited, will be rendered a laughingstock. Exactly as apparently desired by the current, regrettable, Administration.

This is not “equal rights” for women. It is unacceptable wrongs, for men, and for women. Adoption of this foolhardy misstep will entail headaches, loss of efficacy, and needless deaths. Those in the military who know whereof they speak have already predicted “almost certain needless deaths.”

As a colleague once remarked to me, when she felt she was being shafted by our employers: The fornicating we are getting is not worth the fornicating we are getting.



 It is nice to hear some bullish sentiment recently and I will jump aboard. Here are 10 reason the market will go up from here in 2013.

1. Incentives do matter. The stock market is a reflections of humanity trying to better their lives via work, production and profit. That won't change and will drive the market up.

2. Despite government figures there is inflation in what people actually spend money on, food, energy, healthcare, education. Stocks, similar to hard assets, rise when there is inflation.

3. Fed dollar policy if for a weak dollar. Since stocks are priced in dollars this will help stocks to rise.

4. Scarcity matters. You cannot have guns and butter, stocks and bonds. You have and to pick and the yields are not even close. They favor stocks by a margin of 5-6%.

5. Bear markets come and go and but are not predictable. On the other side there is a welcome documented upward drift for stocks.

6. Big Al's research shows buy and hold beats every other market timing strategy except waiting for a 50% decline which happens only once or twice in a person's lifetime or maybe not at all.

7. After a real estate/financial crisis is a good time to buy, like after 1990-1 recession, S&L crisis, 1907 crisis to name a few.

8. Politicians come and go and markets rise in liberal and conservative times. The markets does not favor political parties but stability is bullish. The current divided government is stable enough for the market to rally.

9. The market weeds out the least productive. The best idea rise and the worst go bankrupt. Owning a stock index is a proxy for the very best ideas put into action, adjusted every year to get rid of the worst ones.

10. There is no upward bound on stocks. There will always be more work to do no matter how productive we become. This will be reflected in rising capital, equity and stock prices.

Anatoly Veltman writes:

Well, I'll take exception to a few of the ten:

1. Stocks is the last thing (just ahead of bonds) that should be rising with inflation
2. Counting on success of Fed's dollar weakening, just pick your cross of choice - not US stock index
3. I'll be gladly corrected, but isn't index's survivorship bias only important in bear market?

My chief contention is this: the country, as well as other top industrialized nations, have been engaged in anti free-market policies. We haven't seen real benefit (should we have?), and we haven't seen the society's degradation yet (in full swing). If we do, I don't think current multiples will prevail. I'm not calling for the entire S&P to wipe out - but I can see market pricing of, say, 10 or lower P/E; you tell me why is that impossible?

Gary Rogan writes:

There seems to be contradictory evidence about how well stocks serve as inflation hedges. There does seem to be a lot of evidence that they are significantly ahead of bonds, so "just" probably doesn't do them justice. As an explanation, but not as a prediction, the ability of stocks to function as inflation hedges depends on the ability of the underlying companies to pass price increases. It seems that when inflation suddenly accelerates, stocks don't do as well as when there is a stable rate.

There is some evidence that you need to go beyond broad market indexing if you want to use stocks as inflation hedges because not all companies are generically suited to pass price increases in the same way. I have said a long time ago, just when the current political environment first appeared on the scene that I expected large consumer non-durables to be the best hedges for the variety of ills associated with that environment. I fully expect them to continue even if inflation goes up.

The anti-free market policies will likely affect growth rates in a variety of sectors in the future, and likely have in the past. This should favor low-growth, high-certainty companies over the traditional growth superstars. Should things like fracking and 3D printing and whatever other factors compensate for the anti-free market policies, this "likely" will become the wrong guess. It is certainly true that certain large tech companies have allied themselves very deeply with the regime and are therefore likely to be able to exert some influence.

Very little will protect against collapse, inflation-driven or simply debt-driven. Gold is there, but look what has happened to many who had the gold during various once-in-a-lifetime calamities. Stocks may not be a bad choice short of total colla



 It seems lately the TV is flooded with AARP and those reverse mortgages we discussed. A Colonial Penn salesman called me (wont give my actual number anymore) 9 times, then I finally answered. To me it seems the more the Market and our economy "improves" the more these charlatans proliferate.

What correlation do you experts see?



Anonymous writes: 

When a niche expands, such as it did in this case with the Great Bust of 08, there is a rush into the new territory. The effort is to get there first, to beat the competition to the new territory. When the niche gets saturated or starts to shrink, then it will test the character of the marketplace. If it is a fair free market, the competitors will battle amongst themselves by giving some combination of lower pricing and better service to the customers. If however, some believe they have a government favor or regulatory advantage, rather than serve the customer, they will press that advantage. They will try to beat their competitors by oppressing the customer.The sales will become more deceptive and fraudulent. Everybody is happy when there is plenty of food. The wars start when food gets scarce.

The fraud becoming the norm rather than the exception in the mortgage markets started when home-ownership peaked.

Ralph Vince adds:

And when "food gets scarce," leaders (often little more than self-appointed) and media have seemed to exacerbate the divide, seeking to use the weight of one side are all, to their advantage by stoking the flames to points beyond unreasonable — whether A French writer of early 19th century, an Austrian convict in the 1930s, a South American or Latin American of (fill in the blank) or a ……

It isn't so much the leader, but rather the gullible that follow, convinced that their fellow man have been the problem.

Anonymous replies: 

For lawyers and media gullible public, fines, prisons (or lack there-of) and arms certainly can be how they think they can gain a governmental advantage. 



The payroll tax numbers look bullish on the economy, but any conclusions have to be weighed against the quality of the data. The upcoming Jobs report will include data for the approximate monthly period ending January 12, 2013. That is, it includes data crossing over the year end. Normally that would not be a problem, but this most recent year-end includes tax law changes.

There was a significant amount of bonuses being paid out in December 2012 rather than in the first Quarter of 2013. That shows up in the data. Then of course the tax receipts would drop in 2013 to reflect the lack of bonuses paid in 2013. That also shows up in the data. But then you would see the receipts level off at a number higher than January 2012 because the Feds are taking about 2 percent more. That also shows up in the data. (see attached chart) So the tax receipts accurately reflect policies, the fact of which counters arguments suggesting that people and businesses do not pay attention to taxes.

If taxes reflect policies in this short-run, then their ultimate effects will also reflect those policies. That is, sooner or later the increased taxes will undoubtedly have bearish effects on the economy. Like, we didn't know that?

Is there a better metric of what is going on, considering that the changing rules have the payroll tax receipts jumping up and down? Yes there is, and it is the medicare taxes, officially known as "Hospital Insurance". I have previously commented on this space about medicare taxes, so forgive me for not repeating it. This report will be released at 2 PM EST on the 8th business day of February. The bad news is that it is only monthly data, but the good news is that it will reflect receipts through January 31, and as such should give us a clean look.



 When the system doesn't work pass the buck…ball. (If everyone did their fair share and passed out assists the world would be such a better place and I might have a job at the end of the season).

To be tested at 3:30 today. (Dang, Kobe not taking many shots— let's play a zone)

'D'Antoni said the Lakers will try to implement a similar game plan. If that means Bryant will assist more than he scores once again, it shouldn't be viewed as a sacrifice if the Lakers come out on top. "It's a privilege to play the game and it's a privilege to win and to me, you do everything possible to win," D'Antoni said. "Whether that's a sacrifice, I don't know. That's like saying, 'OK, you really play hard tonight,' and that's a sacrifice for the team by playing hard."'


Meanwhile a leading NBA statistician does not see playoffs in the future for LA:

 It's once again time to unveil the Hollinger Playoff Odds. The idea is to predict what a team's odds are of making the playoffs, winning the division, making the Finals, etc., by simulating all the remaining games in the NBA season. We have a computer at ESPN headquarters in Bristol, Conn., that automatically plays out the rest of the season every night — not once, but 5,000 times. And we can see from those 5,000 trials how many times a certain outcome resulted, then assign a probability from it. For example, if the Blazers make the playoffs in 2,500 of our trials, we say their odds of making the playoffs are 2,500 divided by 5,000, or 50 percent.


2) Current Odds are 100% for the Knicks and 25% for the Lakers. http://sports.espn.go.com/nba/hollinger/playoffodds



 Meet Mark Landis, One of the Most Prolific Art Forgers in U.S. History:

The Avante/Garde Diaries recently released these two brief clips of an interview with master art forger Mark Landis who for the last 20 years created dozens if not hundreds of convincing art forgeries including works by Picasso which he then donated to institutions around the United States including over 50 art museums. Landis would often arrive at the museums dressed as a jesuit priest with elaborate stories of how he had acquired the artworks he subsequently donated. Incredibly, after a 2007 investigation it was determined that Landis may not have actually broken any laws. He never once tried to profit from the fake artworks but instead seemed to gain enough satisfaction from fooling curatorial staff members at various institutions. While the interviews above by the Avante/Garde Diaries are not a comprehensive documentary, they are a fascinating glimpse into the world of this rather bizarre man.



 There is nothing like the exuberance of a bull market. All the long keep augmenting their purchasing power. And their colleagues wish to get in on the bullish drive. Sold out bulls rue the day they tried to time it and get out or were forced out like on Dec 26th. The news stories all draw attention to good news. And the President looks "straight" (ahead) from the home shores, and the wives look like Marilyn Monroe. Who would have the courage to go against the last few points to S&P futures 1500 or dow 14000. I often found myself fighting such bull moves when I was at the palindromes near the summer holidays. I'd be the only one fighting the trend in the room and there would be trillions of purchasing power there, all augmented by nubile women from this country and the former Iron. Thank goodness for once, the trillions are not totally against me.

The only thing that would interrupt the Palindrome's chess game was a call from this central or another. "We'd like to share together what we're doing so we could work together". "Fine, I'd be delighted," a palindrome would say. And another trillion would be added against me, all waiting for the weekend to end so that they could augment in force. 



 The ease with which Lance was able to maintain his hoax, and the difficulty that others had in breaking it, and the penalties they had to bear, and the great emoluments that were made from it by Lance and his crew should be generalized. What other hoaxes and conspiracies are there in the world? What is the dead weight and direct cost? I have been the victim of several such frauds and conspiracies but was smart enough in the last ones not to take legal action as I knew that my legal and opportunity costs would be many times greater than the possible recovery. I believe several on the list have also been so victimized. How prevalent is it? And how can they be defeated and fought against?

Anatoly Veltman writes:

Not a direct answer by any means, but the first time I heard Carl Lewis respond to a question on how good Ben Johnson was (question was posed way before Ben Johnson got publicly "discovered") — I was quite stunned by Carl's stern reaction. It was like you asked him if he could outrun a Martian in his prime. One might either conclude sour grapes from hints like that, or suspect that there is no smoke without fire. In any case, maybe one of the best ideas is to ask a competitor?

The question raised here, by the way, may be the most important question of the couple of decades. Every single one of you places your livelihood on the line daily in the system which is totally rigged against you in the worst way.

Jim Lackey writes:

I'll guess the opportunity cost of the lengthy background, due diligence to N^th, and flat out distrust of people, most of whom are benevolent and kind, would be something like the a 1,000,000% drift stocks give us per century. I'll flat out call it that being a skeptical, safe person is costly.

If it is too good to be true, it is, and we are not idiots. We all have some street smarts here. A well oiled con? I'll fall for it every time and I usually get the joke. To hell with them. To catch a thief one must be one or a good officer of the law.

David Hillman writes:

Some of the answers we know.

1] always get it in writing, 2] pigs get fat, hogs get slaughtered, 3] know thyself and resist your weaknesses, 4] invest in what you KNOW, 5] there's some business we just don't write, 6] most of us will make more money investing one's self than in someone else, 7] in the Shakespearian spirit…."neither a borrower or lender be", gifts are OK, but don't expect a return, 8] give at the office, 9] don't invest what you aren't willing to lose, 10] don't buy meat off the back of a truck, and 11] never buy anything with "Magic" in the name.

I have almost always found it best to be the "initiator" of an investment, an idea, etc. than to be "initiated upon". Also, when one is in the mud, it's usually better to hint at legal action, then settle rather than sue (The con often has the same legal and opportunity cost as you, at least the same amount of risk of losing and possibly more dire consequences.)

Even if one is optimistic and has faith in humanity, something I share with Lack and the chair, one of the best ways to avoid cons, scams, etc. is just to say "No, thank you" and go on about one's business. Except, of course, when the high school girls soccer team shows up at your door step in short uniform shorts and t-shirts, smiles all around, selling $1 candy bars to raise money. You say, "Sorry, ladies, I don't eat candy, but here…..", then you give them $20 and go on about your business.

Jim Lackey replies: 


First never let little ones have a coke out of kitchen or touch your computer. One of mine must have spilled soda in my key board.

Next I must differentiate a scam from a good con. A scam, as in Fla scams or any mumbo we see on buy it now sites, well, burn me once and the 2nd time I am a fool and we get that joke.

A well oiled Con, do not even try. Do not worry about it. These are men of genius and spend their lives dedicated to stealing. Cops are so silly. It takes the after the fact to catch most cons. Only a genius officer of the law with 100 years experience will catch these guys in the act.

If you ever read or see some of the cons these men come up with… yeah, I guess it's easy to see after the fact, yet I am amazed at the work, the genius the art and science, James Bond movie types.

They seem to prey on our weakness of love and benevolence. Give that up and ………….. well just don't.

I can see why a Mr or others are concerned. We try to warm family for their future. I guess that is what lawyers and trusts are for, to protect the pot.

Trying to prevent the next con is to me like attempting to predict the next tech innovation. We all saw the music deal and the Ipod, but we dissed or didn't get the Iphone's change of the world and laughed at a zillion Ipads later. Now my friends are trying to buy aapl on a pullback at 500. Umm it was 15 or 30 or 50 many baggers ago. Move along.

Anatoly Veltman writes: 

Jim, yours is very good advice on relationships. My grandpa taught me exactly that. But when it comes to today's electronic financial markets, there are a number of caveats. And since you brought up drift again, let me try this: what if today's world heads have no interest in perpetuating the traditional drift? What if we're moving toward a reset, after which today's investors will not regain purchasing power in a generation or so? What statistics can you rely on, if the US has not conducted ZERP in many preceding decades? Nor has it ever experienced the current rate of deficit growth.

Gary Rogan writes: 

To know about a large financial conspiracy for sure you either have to be present during its planning or see overwhelming and pervasive accounting irregularities. How can one ever be confident that some group has conspired for some wide-spread reset? Whose evidence can you trust? If any particular highly-placed person is saying "yes" or "no", or if someone is writing that it should be clear based on this or that, how can you be sure that any of this is a result of a conspiracy and not otherwise-originated processes or actions? 

Anatoly Veltman clarifies: 

 I'm not saying there is conspiracy already in place as defined. There are certainly unusual goings-on:

1. The Fed has never entered the long-term market to this extent before.
2. The banks have never had access to zero-cost funds for this long before.
3. The employment data has never been groomed in particular fashion for this long before.
4. The US deficit has never been in this shape before.
5. The European experiment has not been really tested yet.

There will come a point, when only unprecedented last-moment multi-national "co-operation" will save the humanity. Figure out in which way, and you are golden.

Richard Owen adds: 

I was recently thinking about just this topic and was considering penning something along the lines of "Conspiracy and the Scientific Method" — even if just to try and settle what I think.

My sequence of thoughts about the helicrash in London had made me think of the essays by actuaries about 9/11. How your correct statistical assumption for 9/11 upon first impact was a terror event. One of Goldman prop's guys in London protected his book with Eurodollar to good profit.

Like all complex topics, it is complex. On the one hand, conspiracy or, more often, functionally equivalent structures, are very important in business. On the other hand, I think for the most part "there is no they".

To precis one thought: I think Lance is a good case study: it wasn't an 'illuminati conspiracy': he was widely known to be doping in the right circles. A public charade was maintained by many parties involved. The message was packaged and diluted appropriately for the media. That sort of "widening circles" structure is what differentiates it from the nutty "illuminati" type conspiracy concept.

For a very interesting case study, see Richard Heckmann and China Water. If Heckmann can be taken for a fraud, after huge ground work to avoid so being, so can all of us lesser mortals.

Gary Rogan comments: 

To quote Victor, "Market is pricing in inflation of 1 or 2% a year for the next 10 or 30 years. Yet every repub and every free market person predicts a catastrophic rise in inflation and interest rates. Who knows better?"

I can't agree that all will end well, but my theory of the market is that it doesn't really price what it has no idea about, so they just haven't figured it out. Under such circumstances, for anyone in particular, other than the guys planning it (paging Dr. Palindrome) plus some Free Masons and the Illuminati, it seems like figuring out how and if the unprecedented last-moment multi-national "co-operation" will save the humanity is too computationally intensive.

Jim Lackey writes:

Perhaps Mr. Stefan can overrule me as to when, but one doubts there was ever a time when the elite class wanted to perpetuate anything but the certainty of their own. Unless the rules in the USA go above and beynd the restictions of the EU, China and all, I can't see how anything but good can come out of our future. Less good or not as good as ones past or beliefs is relative. Yet I grew up in the 80s and saw the worst of it all for the good working men. Now we see the recession and depression of finance and perhaps the medical. Let's get the joke no way can the govie medical and finance command such a slice of the economy. It will be shared fairly by free market forces in new buisiness and growth. Construction is back and even oil refineries are being expanded again and never ending job at BP in Whiting IN.

I'll note the huge growth and investment now In Tulsa OK out to Nashville and building plants and things right here in US of A as even the advantage of current energy costs is enough to over come the rise in tax or any other threat. If you do not believe it, the Nordic EU venture boys are in deep buying all they can in Tulsa and kids are running Hass Machines out of their garage as start ups. The innovation is not in Silicon valley and instagram or new social…it's building real for the fracking that may or may not go global.

Tommy Ryan shot me an email back and once I figure out how deep this fracking can go global we shall have better answers to your questions. The DC boys are so far behind the kids. They are busy trying to regulate the white show firms that are already old line banks. From what I can tell, the kids already left for Singapore or some island to trade. I'll never leave the US, but if my kids were not in grade school I'd be Larry's neighbor.

Stefan Jovanovich writes:

There is only one reason to be optimistic about the future of the United States. It is that the country keeps redefining who the 'elites" are. It infuriated Henry Adams that a man with only a technical education could become the 19th century's most popular President. What was even worse was that a jumped up railroad lawyer's son could become the voice of all that Republican hard money. The Zinnistas, who never bother to do any counting, love the idea of the ruling class because that crude parody of Darwin's theory is as wonderfully tautological as the notion that a species' fitness determines its survival. The present Mandarin rule by believers in the pump theory of money spending is truly awful, but it hardly qualifies as a uniquely disastrous deficit ZIRP episode. One can argue that the country's entire history from the 1830s through the Civil War was comparably awful. We are not taught to see it that way because the extravagance, waste and fraud occurred not at the Federal level but among the states, not on Wall Street but among the country banks and state treasuries; but the country's government and official lenders were just as skint as they are now. All of this is now safely forgotten because of the explosion of wealth creation that occurred even in the defeated South in the last third of the 19th century; but no one visiting the U.S. in 1840 or 1850 or 1860 was writing home to tell everyone how marvelous it was. Dicken's sour descriptions were accurate, and Tocqueville's rosy forecasts were already an anachronism by the time they were published. No one was predicting that the Democrats' spoils system would do anything but continue. Yet within 2 decades the dollar had become an international currency and the marvels on display at Philadelphia were putting the Crystal Palace show to shame. We shall simply have to wait and see; the only certainty is that the Times (assuming they can get Mr. Slim to give them the money to survive) will be against whatever the future brings.

Gary Rogan adds:

 This is an interesting case of a hoax that refused to die even when exposed, it's illustrative of how no amount of denial will destroy a hoax that is sufficiently implanted prior to the denial.

The Indian rope trick is stage magic said to have been performed in and around India during the 19th century. Sometimes described as "the world’s greatest illusion", it reputedly involved a magician, a length of rope, and one or more boy assistants.

The trick, considered by western magicians as a hoax, was perpetrated in 1890 by John Elbert Wilkie of the Chicago Tribune newspaper. There are no known references to the trick predating 1890, and later stage magic performances of the trick were inspired by Wilkie's account.




The next time your dealer quotes the implied volatility of an American option, be sure to ask "is that trinomial, BAW, or something else?" Implied volatilities are obtained by matching the market price of an option to its corresponding model price, and finding the value of volatility that equates both. Implied volatilities are therefore dependent on the model used. For European options the industry-standard implied volatility model is the Black-Scholes model. Implied volatilities from European options should be denoted "Black-Scholes implied volatilities" but since there is no ambiguity about the model used to extract them they are simply known as "implied volatilities." Consequently, given the correct inputs such as the strike price and underlying spot price an operator should, in principle, be able to replicate the same implied volatility as that which has been quoted, up to rounding-off error.

For American options (example) the situation is different as there is no industry-standard model for pricing American options, even under Black-Scholes assumptions. The available models include binomial trees and trinomial trees of various sorts, the Barone-Adesi and Whaley approximation (BAW) and its variants, the Longstaff and Schwartz algorithm, and many others. Hence, without the choice of model being used to extract an implied volatility, a trader cannot obtain the same quoted implied volatility. Even given the choice of model, approximation error (such as the number of time steps used in the tree, or simulation noise, for example) would preclude an exact replication of the quoted implied volatility.

One very promising method to valuing American puts has been proposed by Alexey Medvedev and Olivier Scaillet in their 2010 paper, published in the Journal of Financial Economics (link). Their method takes the form of an infinite expansion with analytic terms, truncated in practice to usually five terms or less. Being of closed form, prices are produced very fast. An implied volatility extracted with this model could be replicated, provided the number of expansion terms is specified.

Fabrice Rouah is the author of the book "The Heston Model in Matlab and C#" to be published in early 2013 by John Wiley & Sons.



 The way the HFT folks hit stocks with multiple trades in milliseconds reminds me of "slug testing" which is a way for a hydrogeologist to measure the permeability or hydraulic conductivity of an aquifer.

Interesting look at an algo test (link #1 below) of Apple before the recent sell-off. I wonder if this increased activity and testing on individual stocks has any predictive value. The artificial creation of "nano-lobagolos"—the "virtual" elephant herds being much faster these days.

From yesterday, early morning, January 23rd:

1) "The High Frequency Trading Algos are getting an early start today in Apple. With only 1 exchange quoting (NY-ARCA), HFT manages to cancel/replace 32,574 orders and execute just 10 trades. Sometimes, the manipulation is so obvious that it makes you wonder what is going on with the regulator.

2) The fellow that posts about HFT and who is the CEO of Nanex, Eric Hunsader, is speaking at Harvard on February 21st from 10AM to 12PM. Might be interesting for those in the area.

About the event:

Eric Scott Hunsader is the founder and CEO of Nanex LLC. Hunsader created NxCore, a real-time streaming data feed offering unparalleled analysis of the stock markets. Often the first to report on unusual activity in the markets, Hunsader is frequently interviewed and is considered a "must follow" by professionals in the field. His research advocating against trading abuses has appeared in the Wall Street Journal, The New York Times, Financial Times, Bloomberg, CNBC, Barrons, Reuters, USA Today, The Atlantic, Risk Magazine, Zero Hedge, and Forbes. Eric has spoken at 10 Downing Street, the University of Chicago, the University of Illinois, and MIT. No stranger to the spotlight, Eric has also made appearances on Sweden's Cold Facts, Japan's NHK, RT News, and in the films Ghost Exchange and Money and Speed.



There are many headline numbers on the horizon. SP500 cash crossed 1500 yesterday, Dow is a just a couple of good days from 14000 and all time high of 14165, same is true for the DAX 8000 and all time high shortly after. Nikkei admittedly has a little way to go to get back to 38916 ( in 1989), but some impressive moves of late.

Headline numbers usually are a contrary indicator. But one of the worst feelings I found in trading is having to read constantly news that goes against ones position, making shorting stocks now all the more perilous. Also a good reason not to read what is touted as financial news.



 The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the US Government cannot pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government's reckless fiscal policies. Increasing America 's debt weakens us domestically and internationally. Leadership means that, 'the buck stops here.' Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

~ Senator Barack H. Obama, March 2006

Gary Rogan comments: 

Here's a picture from today to go with that quote. Not the first one of its type either, these creatures know BS and where to find it.

Pitt T. Maner III writes: 

Howard Hughes had a unique way of handling this problem:

"Kistler also relates touching tales that depict Hughes's shrewdness and an underlying humanity. For the fly-catching incident, Kistler had brought a frozen fly from home in order to pretend he had "captured" it so as to placate Hughes. Hughes chuckled and looked at the fly. Then he said, "That's a nice fly. But next time, let's make it a REAL one, OK?" Another time, Hughes was at Lockheed in Atlanta. He took one of their planes up to do some touch-and-go practice landings in it. A man on the ground was watching the show and then said, "That must be Howard Hughes up there. No one else can handle a plane so beautifully." The man turned out to be Lockheed's chief test pilot. Hughes of course had once been a world-class pioneer aviator in the 30s."

Can also be viewed here.



We used to sing variants of this song at different times on the floor
depending on the conditions of the market and/or our level of boredom:

(To the tune of Camptown Races)

Puts and calls will break your balls, doo dah, doo dah
Puts and calls will bust your balls oh doo dah dey
Sell a naked call,
Sell a naked put,
Ground up balls is what you'll get, oh doo dah dey.

Puts and calls are highly rigged, doo dah, doo dah
Puts and calls have a lot of vig, oh doo dah dey
Time decay aside, straddles all the way,
Options will really rip your balls, oh doo dah dey.

Strangles and straddles will choke you dead, doo dah, doo dah
and strangles and straddles will smash your head, oh doo dah dey,'
Sell a put today, die another day
the only one who does OK, is the guy saying you made a good trade today.

Black Scholes was the holy grail, doo dah, doo da
Black Scholes is is the sucker's game, oh doo dah dey
Sell a call at night.
Buy a put at day,
Whatever you do, it will sure be wrong, so oh doo dah dey.

Options are a suckers game doo dah, doo dah,
Options take your money away, oh doo dah dey,
But your balls at night,
Bust your balls at day,
The premiums you pay, make someone;s day, oh doo dah dey.

Now today you will fail big time, doo dah, doo dah
Listen to the touts, they will lead you astray. Oh doo dah dey
But since it's only money, and you;ll soon be so broke
just sing this song and get along as you and the money will soon part ways.



 If cheapskating is going to increase, we might consider whether individual stocks that cater to cheap skates might have inordinate returns. This is the kind of things that my kids might make money with in terms of the category of stock, rather than its financial characteristics. Perhaps. On another front, I believe it is important to be especially cheap after having a good year. I think of Rimm every day with grave loathsomeness.

Art Cooper writes:

It's been a market theme for quite some time to buy stocks like Family Dollar Stores, Dollar General, etc. instead of retail stocks which cater to the middle class. The high-end retail market is a different market, as it responds to different forces. 

Jeff Watson writes:

I'm always accused of being a cheap person and try to not be penny wise and pound foolish. I never pay retail for anything and try to buy only stuff that will hold value. Herb Cohen is a person I look up to. He might look a little seedy, but he makes great sense and teaches sound methods of bargaining. His first $19.95 book I ever bought was probably the best investment I ever made, saving at least a million bucks, by bargaining with some of his techniques over a 30 year period. That's a hell of a return and his techniques work…

Pitt T. Maner III writes: 

 Cheapskating is likely to be an increasingly popular topic as hidden inflation and taxes go up. Perhaps there is an opportunity for a "Global Skinflint"!

"Jeff Yeager, dubbed "The Ultimate Cheapskate" by Matt Lauer on NBC's Today show, is a very cheap guy. He re-cants, as opposed to decants, the wine he proudly serves his dinner guests, funneling cheap box wine into premium-label bottles. He believes you should never spend more than USD 1 per pound on food items. And to save time and energy costs, he soft-boils his morning eggs along with the dirty dishes in the dishwasher."

And then there is the TLC show :

"Be aware of what you're using. Victoria Hunt, who retired from her accounting career at 48 has been tracking her expenses and her income on a spreadsheet since 1989. "Every minute of every day has something to do with how I can make a better decisions financially," she points out."

Rocky Humbert writes: 

Mr. Yeager is either wasting money on his super-heated dishwasher or he's stretching the truth about his eggs. Dishwashers (generally) do not heat the water about 140 degrees. See this article on naturalhandyman. To get the egg white solid, it requires about 180 degrees. Even my Miele doesn't get the water to 180 degrees! This does not compute! (That is, he's making his money selling books. Not cooking eggs.) I would suggest that he should instead put his Pop Tarts and morning sausage on his car engine's manifold. By the time he gets to work, he'll have a well-cooked breakfast. (And he can similarly roast hot dogs on his drive home.)

Dr. Johnson writes: 

Ballyhoo? Like any good Spec, one must test, and test I did, the claim that an egg can be cooked in a dishwasher during a normal wash/dry cycle.

Equipment- Miele G5775.

Note: Perhaps not the ideal brand for testing a cheapskate's assertion.

Eggs= Phil's Fresh Farms Free Range Large 42F wrapped in plastic film.

Max Water Temperature Wash5F Max Air Temperature Dry= 185F

Time to complete cycles= 54 min wash & rinse, Dry 22 min.

Results: Egg removed immediately at end of the cycles= Yolk 134F thick and slightly flowing, settles to 1/4 height, white 151F at shell boundary with firm consistency.

Egg removed after 10 Min.= Yolk 141F thick and settles to 1/2 height, white 141F at shell boundary with firm consistency.

Conclusion: Not Ballyhoo! One important consideration for those cheapskates who want to try this method is that egg shells are semipermeable, therefore unless the taste of detergent combined with a menagerie of old food waste is to your liking, sealing the egg in plastic wrap is advisable (also which at +140 F will transmit unwanted substances).

David Hillman writes: 

Yes, let us commend Dr. Johnson both on his testing and on his using Phil's Farm Fresh Free Range eggs, the chicken egg of preference at Casa DGH…..cage-free, no chemicals, natural whole grain feed, laid in nests, and certified humane!

That said, even though my Bosch heats water to 160F and air dries at what seems to be 1200K if one opens the door during the 'sanitize' cycle and is met by a blast of superheated air, this whole business of cooking eggs in a dishwasher seems a bit impractical.

One, it seems like using a sledgehammer to place a pushpin in a cork board. Two, while the dishwasher here is run every 2-3 days, typically in the evening, eggs are a daily breakfast staple. What to do on 'accumulation' days? Three, counting time to heat water or a pan, it takes about 10 minutes to fry, poach, baste, scramble or soft boil eggs on the range. Why wait 76 minutes? Four, dishwasher cooking uses a heck of a lot of water and electricity v. range top cooking, multitasking notwithstanding.

For those who feel the need to multitask in the kitchen, there are what seem to be more practical alternatives to cooking one's breakfast eggs in the dishwasher, though at $90, this might not be thought of as 'cheapskating' …..

Pitt T. Maner III adds:

 A few older links, but possibly of interest to those seeking to find ways to ride the money-saving trend and as a possible example of a company that finds quickly (identifying trends) and uses new inventions from private inventors. Khubani the CEO started with ad in National Enquirer.:

1) From 2010: 'A.J. Khubani, the man behind many “As Seen on TV” gadgets such as the PedEgg foot scraper, is making cheapskate gimmicks a priority at his company Telebrands, one of the nation’s top direct-response TV marketing companies.

More than half of Telebrands’ gadgets, sold online and at 90,000 stores, are now focused on helping shoppers be cheap. Khubani, who has been traveling around the country to meet inventors, is speeding up the number of new products he’s launching to every 30 days from every 60 days. “The mood of the country has changed,” said Khubani. “We’ve had tremendous opportunity with this recession.”'

Since 2007, Telebrands’ revenue has doubled to several hundred million dollars, he said.

Read more.

2) The current lineup of brands.

3) From 2012: "For the first time in our company's 29 year history, TeleBrands had 15 products ranked in a single year including our most recent hits like, Slice-O-Matic, Plaque Blast, Slim Away, OrGreenic and Bake Pops," said TeleBrands' CEO/Founder, AJ Khubani. "Each year, we continue to solidify our spot as the largest and most successful marketer of DRTV products aimed at solving everyday problems and reaching mass audiences at affordable prices. In 2011 alone, we rolled-out 12 products — the most in a single year in our company's history."

Read more.

4) On Khubani from 2011:

"The son of Indian immigrants, Khubani started out at 23, spending a few thousand dollars on an ad inNational Enquirer — a move that led to his first big hit. Since then, he's sold hundreds of millions of "As Seen on TV" products, including AmberVision sunglasses, the PedEgg and Doggy Steps. He has bolstered the careers of ubiquitous TV pitchmen, including the late Billy Mays, who enthusiastically hawked products now found on the shelves of more than 100,000 retailers. Today, Khubani is the leader in the $20 billion direct consumer marketing industry, turning out more "low-tech" products than ever before."

read more.

5) Not all have been appreciative of Khubani's methods:

"But will anyone care about dust mites? Khubani wasn’t achieving much traction among his Telebrands staff with his bed-spray idea, when along came a proposal for an anti-dust-mite pillow, from a colleague Khubani mysteriously describes only as “a business associate.” It’s hardly a new concept—there are several such pillows already marketed to allergy sufferers and asthmatics. But so far, nobody has had the brilliance to incite a national panic around flesh-eating creatures that feast on human remains—and lurk in the pillow of every man, woman, and child. “The hum you sometimes hear at night?” Khubani asks eerily. “That’s the sound of 2 million dust mites eating your dead skin.” Or perhaps it’s the sound of one man in Fairfield, New Jersey, homing in on your next anxiety. "

Read more. 

Victor Niederhoffer adds: 

 Of course the main virtue about cheapskating is that it prepares you for such activities in your business. As the oil magnate said, "I am not smart enough to act one way in my personal life and another in my business. My margin is 8%, and if I gave away 8% on everything my 200,000 employees would be out of a job. So I make them pay for their telephone calls." Regrettably, the oil magnate was victimized by old man's disease (the same disease as the sage), and he was locked up in England for 20 years, with his retinue preventing him from going back to us for fear that he might change his will, and he was soporifisized by many nubile girls and other attractive women he would meet at museums. 

Funny. More important even then the fine posts with examples and tests of cheapskating is the query I have received from many of the younger hearted on the list. "Where are those museums that the oil magnate frequented?".

Gary Rogan suggests:

I suspect the Getty museum is a good place to start.

Stefan Jovanovich writes:

I hope Gary means the original one in Malibu, the villa whose design Getty himself supervised but never saw. The monstrosity built on top of the landfill by the 405 is absolutely the worst place in LA for the amusements Getty had in mind. If he were alive today and living in SoCal, he would be going to OCMA to appraise the latest generation of lovelies.

Jim Sogi adds:

Eggs can be cooked sous vide at 144 -155 for 20 plus minutes for a wonderfully cooked smooth soft boiled egg with a consistent texture throughout.

Food grade hydrogen peroxide diluted to a 3% solution is an excellent way to sanitize kitchen and utensils and not toxic like chlorine. 



 With AAPL down almost 12% because of iphone sales being less then expected sales and gross margins on iPhone coming down one has to wonder if the management will be thrown into a tailspin trying to satisfy expectations.

On a conference call with analysts, CEO Tim Cook was unapologetic about selling less-expensive items. He said *the company's best measure of success is whether customers love Apple products*. Noting that Apple sold 10 iOS devices per second last quarter, Cook said Apple hit the mark.

"You're going to hear a lot of impressive numbers on this call, but that's not the only way we measure success," Cook said. "We're unwilling to cut corners to *deliver the best experience in the world.*"

Its nice to know that management is thinking about the long term and still has the great customer centric culture that made it great, not just trying to satisfy wall st short term expectations, perhaps that is why they keep such a large reserve of cash so they don't need the capital markets when a great opportunity is present.

The traders and analysts are seeing blood on the street because margins and sales are less then expected on a current product, but if stocks are for the long term does it really matter what the current product does in a particular quarter or what is the company vision for creating a customer? Perhaps this dichotomy is the opportunities Henry Clews spoke of when he talked about the old men taking their canes out.



 "You could never know when the elephants would come back, but when they did they always traveled the same path" . And the natives (and R. Humbergola) were always waiting for them.

Rocky "Humbergola" Humbert comments: 

Let the record reflect the fact that I have never traded a single share of Apple stock (long or short), however, I told a friend on October 9, 2012 that if I were inclined to trade this elephant, I would have shorted some on the most primitive moving average cross. But I didn't. And so I have nothing to brag about or substantive to say except that I continue to consider AAPL the single most difficult investment possible — a melange of technology, fashion and retail — all of which are well above my pay grade. And I would add that there is compelling (statistical) evidence that a company is biased to underperform the index after a longterm charismatic CEO leaves the helm…market capitalization and valuation not withstanding. As for my belief that the S&P at its current valuation offer a likely return in the very low single digits with a 3-5 year time horizon (which is still better than fed-targeted fixed income right now), I am continuing to sell individual securities but replacing them with S&P calls with single digit volatility as this strategy will ensure that when the ephelumps turn, I will not be left with a steaming pile of dung.

I hear a bunch of people calling tops and looking at the 1962-1982 analogies and so on, but I see very few people who were formerly bullish turning bearish and I see many smart people lagging the index and I've learned that it's better to be right than to be smart and I have demonstrated a utter lack of ability at calling the market in any timeframe relevant to people who sit in front of screens all day; hence I am using the gift of low vix to ensure that when the trend changes it will occur in a way that I will be profitable and wise but only after the fact. One last thing: the SPY historical vol at 30 and 100 days is 13.1 and 12.5. The TLT vol at 30 and 100 days is 12.6 and 13.17. SPY calls at the money cost 10.4% vol; and TLT at the money options cost 12.5%. There is some predictive grist here but the proof and execution are left as an exercise for the reader.



 1. Serena Williams was 1.01 at the table running into yesterdays match… she lost.

The fact that she injured her ankle earlier in the tournament and had played a two hour + doubles match with her sister the day before, may of been canaries for value betters for her protege.

What markets get hurt and then try to keep up, push even harder and spread their wings further, only to be exposed, their previous strength and formidable durability becoming more of a hindrance than a help in present decision making.

2. With the champions of tennis, like trees, having the ability to be flexible and be thinkers when it gets tight, you would think David "the Machine" Ferrer would be a good sell tonight, since a man of his absolute focus and steam engine mind set will struggle to ever win a major, as the versatility does not seem to be with him, although no one would want any other right hand man next to them when going over the trenches in the heat of battle.

The ability to take away risks and ease them back on when needed, massaging your position, in changing market conditions, need a similar flexible mindset to Novak. 



 As Adam Smith remarked, a country can bear a lot of ruin (ie, a lot of damage from government policies). And I had been assuming O's second term would be largely ineffective due to his lame duck status, the Republican House, and the country's and even the media's becoming bored by and turning against O the way it eventually did with Jimmy Carter.

But now we have (i) O's hard-line, no-compromise inaugural address, (ii) clear indication O's policies will be implemented by executive order rather than attempts to pass laws through Congress (eg, earlier announced non-enforcement of laws dealing with illegal immigrants; last week's gun control measures; budget and debt ceiling measures; today's announcement the long-standing ban will be lifted on women in combat), (iii) the Republicans' total wimpiness and ineffectiveness in countering or standing up to O, and (iv) the public and the media seemingly loving it all and just wanting more (as one tiny example, the very popular Phil Mickelson having to apologize for a fairly mild statement about his work incentive under a 60% combined Fed and Calif service rate).

I know the stock market is very smart, far smarter than any individual theorist like me. But I have to ask, is the market discounting all that will be coming from the administration during the next four years? O's second term is only two days old and look what we have so far. Four years of it can perhaps be a lot more ruin than Adam Smith could imagine in smaller, less sweeping governmental days.



Charm, from Kim Zussman

January 23, 2013 | 1 Comment

 "Charm" (decay of option sensitivity to underlying over time) seems an apt model for the decline in male sex drive with age, and the attendant increased attention to youth. Further calculations are required to examine the effects of being in the money, and time-related sensitivity to volatility.

Charm or delta decay, measures the instantaneous rate of change of delta over the passage of time. Charm has also been called DdeltaDtime. Charm can be an important Greek to measure/monitor when delta-hedging a position over a weekend. Charm is a second-order derivative of the option value, once to price and once to the passage of time. It is also then the derivative of theta with respect to the underlying's price.



 Like a good trading system or profit and loss curve, a champion tennis player (or other great sportsperson), will have maximum allowance for upside, but any downside sees a fast reversion to the mean.

Down 15 -40 on their serve…. ACE ACE, = Deuce… Noticeable by its speed and brutality, they have the means to get back on top or at least equal footing quickly, with any edge that dissipates being quickly regained, or found elsewhere…fast.

Victor Niederhoffer writes: 

Craig's idea about a bull market quickly reversing any losses from tennis results must be tested in the market with numbers. How to define such an ability to bounce back quickly? And is it predictive.



 Note my blog to Laker Nation below:

D'Antoni is a D'isaster. He caused almost as much havoc IN NY as Superstorm Sandy. Apart from what everybody knows that there is no D in Antoni and his penchant for trying to cram square pegs into the round black hole of his offense, e.g., expecting Pau to run like a 20 year old guard and play on the perimeter, his constantly changing rotation which ignores other proven talent like Jameson's 18+ career PPG including last year, is making the Lakers perform like a novice high school girls' team caught in the act of stealing each other's prom dates. Strategy like starting Darius Morris who runs around like a chicken without a head as he drives head-on to the basket and misses most layups while rarely passing off, is as dumb as a Hatfield like him walking into the West Virginia lair of his family's mortal enemies, the McCoys. Before his enemies get wind of his whereabouts, D'Antoni should hightail it out of here and resign as he did in NY and slink off in the middle of the night. That would only be poetic justice for the heinous crime perpetrated by Jim Buss on Laker Nation when he woke PJ up in the middle of the night to inform him that his services would not be required. Then Buss should prostrate himself at the feet of the Zen Master and beg him to come back for 15 mil or so. That will pay for Jeanie's ring and put the purple and gold on the path toward their own ring # 17!



 I have noticed a lot more ads on AAG reverse mortgages touted by Fred Thompson and Henry Winkler hawking another reverse mtg so you can rob the equity from your home. Anyone know any stats on how many poor souls lose their homes?

Also a lot more ads featuring Alex Trebek and the need for Colonial Penn burial insurance.



David Lillienfeld writes: 

Same experience here. My late sister-in-law insisted that if it was good enough for her cousin, it was good enough for her. Besides, she told me, the Fonz wouldn't think of misleading anyone. After all, he's the Fonz. When I finished talking with her, I called my nephew, and he started processing guardianship papers the next day. This was about 5 years ago, too. I have no idea what the fee structure is like now, but I can't believe it's improved much.



Some may find ever changing cycles easier to comprehend from the comfort of their couch.

In life you crave different things at different times (just like you crave different things in your diet at different times). Some months it may be freedom and warm weather, other years a good bean bag and sitting by the fire with friends, family and dog. At times it seems the longer you're in one position, the more you wish for what you find appealing in the other.

Then should it be so surprising that markets do the same– they crave movement, they crave stability. One minute trend following, the next mean reversion.

What does science tell us about what percentage of the population is truly stable, and does this change with weather and geopolitical instability as it appears?



Not all right wing radicals are forecasting inflation. Many of us are of the other side of that coin. The conservatives are back to the old argument that money supply creates inflation.that argument was destroyed since the Big O took office. M1,2,3,4 increases did not produce inflation. Gee whillikers, what does that mean?

They should go back to the drawing boards, but instead beat the same old drums, preach the same old mantras.

Alston Mabry writes: 

In the present regime, the Fed is increasing the money supply only by the amount of interest they are paying the banks to park at the Fed the very money the Fed shovels at them.

Mr. Allen writes:

The mistake is to think the inflation must show up in rates like in the 1970s. in the 1940s, the last time we had a significantly managed economy rates averaged 2.5% but inflation average 5.5% for the decade. That can occur when there is anchoring or when people think the inflation is transitory in nature. Under a gold standard, which is what inflation targeting is - short rates were volatile but long rates flat as a board because there was no systemmic inflation. Also, you can get stagflation which are higher prices and lower output which is more of what we have experienced as taxes, insurance costs, etc. are up but unit output for many industries flat. Also, do not fail to realize how empty the bucket was in 2008 v. now, Continentals did not immediately loose their value but there were $350 mil of those which in today's dollars is $3.5 trillion, so the Fed may in fact just now be crosses the Rubicon.

A commenter writes:

And 30-100% increases y-o-y in health insurance premiums for independent contractors and other small biz types. why? because they can under the guise of obamacare. really putting the squeeze on some average joes I know.



 I've watched a fair bit of the Aussie tennis open in week one, and it is amazing to watch the amount of drop shots that are getting played, with the net effect of approximately 30 played and 3 winning points against player 27 in the matches I've watched. Not good odds, some may say.

Is it that players are tired? And going for the easy out, or some 3 dimensional hiccup in the brain, which makes them think that it's a percentage play, with the opponent right down the far end of the court, even if it is rebound ace. Do they just want to mix up their game, knowing they will lose this point but provide unsurety in their opponent for the following points? Or is the RIO trade alive and well, i.e they just can't help themselves to go for the "get out of jail free" shot.

I'm not sure… I wish I knew the answer.

It seems unforced errors is possibly the most major stat to take interest in, along with 1st serve percentage. Winning, doesn't mean a great deal, if one has the same unforced errors, and in this day and age one needs a 70%+ 1st serve in, to give them some space.

If one doesn't following their trading plan suitably and manage risk appropriately, then winning a slam becomes a distant thought.

Victor Niederhoffer writes: 

The same thing about the drop shot being non-percentage could be said about the lob. Both become even more non-percentage as the game wears on. It's almost as bad as trying to take a few ticks out of them near the close of a market. The mouse with one hole is quickly taken. The one thing that could be said is that the weak players don't have coaches who count. And the hard surface makes drop shots even less effective than usual. But of course, it does tire the opponent out, and set him up for when you need a point. And of course it is like the penguins jumping into the whale first in social learning, as the one shot that you hit with non-percentage makes the vast majority of your " colleagues" , the subsequent shots, that much more effective.

Jim Lackey writes: 

 One that knows nothing about racquets, sees something similar in dirt bikes. We take the extreme inside line in a tight corner vs. the outside berm rim shot, it's much faster. It's about the line or exit of the corner. If you dive bomb on the inside you can cut off the exit of your opponent. This forces him to either take an inside line or a tighter line on the outside, thus slowing him down.

The wear out your opponent is a funny thing. Everyone that does count knows every single move and limit of the other riders… If towards the end of a race I know a guy gets "arm pump", which is literally your forearms swell up and it's hard to hand on the bikes, we use or force those boys to inside. One needs to stand on the brakes very hard to take the inside line. When you have arm pump it's very difficult to let go of throttle and put a couple fingers on the front brake to slam on. I'll put it another way… like tennis looks, it seems much easier to stand back in one box and hit it as hard as you can when you're exhausted vs. running around and using your touch. Same with MX. It's so much easier to stand on the gas and take the outside and go as fast as you can vs modulate.

I am doing BMX now here, it's a short 400 meter spring and to pedal. It's similar but a different training sport, but the counting goes on. I made a comment off the cuff to a 14 year old expert about changing a gear ratio 0.1-T or we use decimal gearing since it's single speed bikes. IT pinch ratio you can have the same gear ratio in a chart book. IE 41-18 X 24" circumference tire. At the big races towards end of day I would lose power. So I'd go down to a 40.9-t custom gear. It's still a 41T sprocket but the circumference of the gear is small, so it's a lower ration shorter roll out IE I crank revolution 2.277 vs. a 2.72222. t changes it just a tick and its enough to help.

Our friend, an MIT grad and racer, picked up on our questions to why the same gears felt a tick different on other bikes and he'd always say, "it's not same ratio," it's tire diameter or pinch in gear brands. So he invented a new business. Guys ask me if it works and I burst out laughing. I been doing that for 30 years. (Yet dad didn't have CNC machine so we have to mess with combinations IE got from 41-18 to 36-16 but we measured and charted ever, single combination on every race every track every time.)

Bottom line for MX, BMX, or any other sport. I never ran a 4.5 40' and can't run under a 22 minute 5k so I was always stuck in the middle and never a great athlete. The only reason I ever won a national event racing was counting, everything. Yet in baseball or the A pro level of all racing… "everyone does that".

Anatoly Veltman writes: 

Drop shots are akin to those who try to "provide liquidity" against an Elliott Wave impulse (offering against the third wave, or early on against the fifth).

Jeff Watson writes: 

 Just exactly what is an Elliott wave???? Has anyone ever seen one, or do they only exist in hindsight?



"Somebody has to remind people that life's pretty wonderful also. I just can't write anything without hope in it." Both men (R and H) always supervised the casting. Rogers spent 4 hours a day giving singing classes. Rogers maintained an open door policy regarding auditions so he could find new young people who will do tomorrow what Merman and Martin do today. No detail escaped their attention. The hem of a costume, or the flower in a vase–nothing was too insignificant to command their interests. A good model to follow.  From The Musical by Richard Kislan.



 Any doubts about Apple under Tim Cook being different than the Apple under Steve Jobs are gone by now. Apple capex is up, there's a swing in production back to the US, and there have been at least one "significant" software disaster. Now come the reports of changes in the product cycles and product introduction schedules. Apple hasn't shied from cannibalizing its products in the past, so I don't this it will pause from doing so now. I'm wondering at what point does the smartphone market go generic? Conventional wisdom is that with the Chinese now buying smartphones, the market will only expand. Perhaps. But are the Chinese prepared to pay the premiums for smartphones as Westerners have? That's a problem not just for Apple. Then again, I've yet to walk into an Apple store that wasn't packed. Even during the recession.

"Rumor: Apple to debut 4.8" 'iPhone Math' device alongside next-gen iPhone in June"

Henry Gifford writes:

When I bought my phone the guy in the store (in New York City) told me the US Federal government subsidizes every mobile phone in the US to the tune of $600, limit once per person per two years, thus the two year contracts.

Subtract $600 from the price in China and the price is quite similar to the US price.

Russ Herrold replies:

Yeah, counter clerks will say almost anything. The truth is more commonplace. Some subsidies exist, nominally for low income folks but the people PAYING FOR that subsidy are … [hint: go read your cell phone bill closely] all the other telephone users. This is a good article about it.



 I can be forced to buy health care insurance. I can be forced to comply with all kinds of regulations I think impinge upon my freedoms and leave me feeling emasculated.

But I will NOT be forced to watch sports on television! I have pushed myself away from the lure of TV wrestling for the final time. I shall not be forced to watch 50 "foul shots," the exact same shot, in every game. I will not be forced to hear crowd noises, razorblade beer pickup commercials, or the post game "interview" with the sub-par IQ of some athlete named after some famous movie chimpanzee speak profundities of our existence.

I would rather be dead. Televised sports is where I draw the line.



 The Rolling Stones tour reminds me that the decline and fall of America is now at least half a century old:

"There isn't any reason in the world why we can't do as well in this farewell business as any other country on the face of the globe. We have the farewellers and the people to say farewell to. If I can only keep it up I will be even with my competitors by the Spring of 1922, and by the Winter of 1937 I will be well in the lead."

William Gillette had it right. He was making the comment about the ability of European performers (the Divine Sarah being the most notorious) to do endless retirement tours; but it could have been said about our country as well. Gillette fits H.C.G. Mathew's description of Lord Palmerston (the greatest of Britain's first ministers): "an aristocrat, a reformer, a free-trader, an internationalist, and a chauvinist".



If there is an annual pinnacle of flexionic activity, Davos is it. It is good however to have such a meeting in a mountain location and in winter. The bracing air and ruggedness of the mountains does bring out the better qualities of human nature. So perhaps those forces will balance out the other less admirable features of the conference. I am taking the kids skiing today to a local hill in as a pre-commencement.



 I suspect that Lance Armstrong's confession on TV had to do with last Thursday's deadline for the US Federal Government to file a Qui-Tam (whistleblower lawsuit) action against him, based on information revealed by Floyd Landis (another doping Tour de France winner who denied doping for years after testing positive).

Qui-Tam lawsuits reportedly date back to the war between the North and South of the US, when the US Federal Government (North) offered a 10% share of money recovered from anyone who squealed on anyone defrauding the government. All the whistleblower has to do is talk, and the feds have a certain time to decide to pursue the case or drop it. If they pursue it, their likelihood of winning is very high, as they have infinite resources and many other advantages, such as the courtroom procedure where they plead their case, then the defendant rebuts, but then instead of the decision being made, the feds get another chance to rebut. This and other advantages, combined with the threat of criminal prosecution, lead many defendants to give up. In Lance's case, I suspect it could cost him more than all the money he has, or would likely be left with after the other people expected to get money from him get what is coming to them.

Press articles while he was still denying doping were in two categories - the ones that mentioned that he had tested positive for doping, and those that did not. He tested positive for steroids in I think his first Tour de France, and afterword produced a doctor's letter saying he had been taking a prescription saddle sore cream containing steroids. A doctor's note after a positive test is no defense, and the rules are clear on that - and printed on the back of every racer's license. But, he was let off the hook because he was a big shot by then, and it was not in the interest of anyone involved with the sport, including sponsors, to have him banned. Much later six of his blood samples tested positive for synthetic EPO.

EPO is a chemical produced naturally in the human body, which stimulates production of red blood cells. The fake stuff does the same thing, and was at one time the most commonly prescribed drug in the world. For an athlete, extra red blood cells mean increased Oxygen carrying capacity, which means riding a bicycle up a mountain without getting out of breath. And in training it means stressing the muscles all that much more than a person with normal aerobic capacity could do.

 There are a least four ways to increase red blood cell count, two of which are legal in bike racing, two of which are not. The two legal ones are training at a high altitude, and sleeping in a tent at night with reduced Oxygen levels, both of which champions have done. The two illegal ways are taking synthetic EPO and blood doping, which is removing a pint of blood a month before a race, refrigerating the blood, and then putting it back in the night before the race, leaving the body with extra red blood cells.

In the early 2000s there was no test for synthetic EPO, but a few years ago, when the test came out, samples of Lance Armstrong's blood which was taken in early tours and kept frozen over the years was tested, and all six samples came up positive. That makes 7 positive tests that were widely known to the public during his years of denial. The rest is history.

-Henry Gifford (Former NY State champion bike racer who has never taken any drugs or drank any alcohol).

Russ Sears writes: 

People could forgive the drugs and cheating, but they will not forgive the bullying and using LiveStrong as a front to further this bullying.

I have seen it more than once, when a rational guy starts taking steroids he starts having a g_d complex.

With the new sudden success, and the mangled brain, it leaves him thinking they are above justice, everyone else is blind. The changes seems so obvious to him that he is on juice. The accolades so addicting.

The justification that everyone else is doing it and getting away with it convinces him that fate has singled him out for greatness and he cannot be stopped. He is the only one capable of understanding the truth.

This was true from the kids on each stage level from the c level HS basketball team to the Olympians winning medals. It was sad and pathetic seeing the HS coach confront a juicer, it was an epic tragedy at the elite levels.

Ralph Vince adds: 

Reading Russell's post made me think "Does he mean Armstrong… or Obama?"

Drinking my morning coffee, listening to the what was Florida wilderness out back being churned and converted into housing. Local strip malls, parking space unavailable. I watched Reagan's tax cuts met with a rolling market by August of 82, then watched the largest tax hike in history, announced at the SOTU of 93, met the same interval of time later with another rolling market.

America is so big, it's economy so massive and with a mind of it's own, policy bounces off of the mammoth like the arrows of pathetic, little men. Rome rumbles on. It occurs to me that the president, in all his rockstardom and oprahglamour, is as relevant as Armstrong.



 The book Rational Herds: Economic Models of Social Learning by Christopher Chamley has many stories, models, and algorithms, that are helpful for gaining insight to markets. The stories start with the penguins standing on the edge of the ice, needing to get food but not knowing whether a killer whale or seal is waiting for them underneath. The first penguin to dive in provides much information for all the others. But it's not advantageous for him. The asymmetry between what's in the interest of the individual and the group and the advantages of social learning are readily seen by this example. The solution is for the other penguins to push the unlucky one in. The analogy of running the stops in markets with the first one to do so possibly losing money, but the others all gaining from the information is seen.

Another story is based on yellow cabs being 90% probable in a city. But an accident happening and the observer saying it was a red cab that caused it. Problem is that the observer's is only right 4/5 of the time. Bayesian analysis shows that after the first observation it's 9/13 that the yellow cab hit him. But after two reports the probabilities drop to around 48. The rate of convergence to red versus yellow follows a definite process which leads to all sorts of implications for cascading, herding, randomness, and social learning. Many examples of investment decisions based on following the leader and false decisions making from random events are given.

One wishes that the author would have followed some of the stories that motivated the book and shown how all the formulas would work for the simple examples above. The book is intended mainly for economics, social psychologists, finance people, and statisticians. But it's also relevant for anyone interested in how information travels. It's not easy reading and requires pencil and paper and working out a few examples to get much benefit from it.

I alternated reading it with modern times, and books on plants in my recent visit to Chicago. Glad to be back with you.

Jim Sogi writes: 

Sitting in LA traffic a few days ago got me thinking about individuals in a group. Ants probably think they are pursuing their own individual interests to be fed, to be safe, to have friends. But looking down on them from above shows a different picture. Each car in traffic has their own individual desire and plan but looking down at traffic patterns shows a different picture. Each investor or speculator has their own reason to buy or sell, for ex, personal reasons, business, family, taxes. But looking at the aggregate shows a different picture.

Gary Rogan writes: 

Worker ants can't reproduce and cant think. Their only genetic purpose is to help the colony survive so that the queen propagates her genes by producing a relatively small number of fertile descendents. Human beings can think and reproduce, thus even genetically they have a very different purposes, closer to the ant queen but with thinking abilities. Their natural goals are not those of the collective. 

Leo Jia comments:

I've come to think that perhaps no human can step out of the herd no matter how hard he or she tries. While there are many who realize the disadvantages of herding in a modern society and try to break free, they nevertheless follow another herd, trying to break away from the traditional ones.

I was thinking about this the other day. We understand how cells serve the functioning of our lives. They are alive themselves but work selflessly in ways defined for them to serve the body and mind. Can they be said to be herding?

Are we here to serve some upper life like ants serve the colony? That is a hard question, but if it were true, perhaps herding would be not only inevitable but also necessary. It would ensure we live by the rules, which are the only basis for our lives. By that logic, being selfish would only serve ourselves negatively.



We lost one of the great one's yesterday — Stan "The Man" Musial dies today at age 92.

One night after his longtime friend and teammate Red Schoendienst was honored on his upcoming 90th birthday, fellow Cardinals Hall of Famer Stan Musial died quietly at age 92 at 5:45 p.m. Saturday at his St. Louis County home under Hospice care.

This makes me very sad. He was one of the greatest to ever step on a ball field, but more importantly, a role model and honorable man.



 Eccentricity/degree of crazy is class based. If you are rich and like to chase dogs down the street while naked, you're considered to be eccentric, but if you are poor and do the same thing, you're crazy.

Gary Rogan writes: 

Eccentricity at the top is also somewhat cyclical as people often want the opposite characteristics to the last package that didn't work or simply became boring. You could argue that Hollande is far less eccentric than Sarkozy, that Putin, Yeltzin, and Gorbachev were/are significantly more eccentric than anyone between Khrushchev and them, and that the highly non-eccentric Bush Sr. led to a string of Presidents that were each differently eccentric, to coin a concept, with the last one being more non-orthodox in a number of parameters than eccentric.

That same principle works on Wall St. It's seems highly predictable (in retrospect, of course) that the dot com crash would result in a reversion to the mean in the investment bankers' wardrobes. Animal spirits that clearly go back and forth between extremes work the same way, as revulsion with past failures is probably one of the strongest forces in investment trends. The Depression and the subdued consumer spending in the US lead to the consumerist paradise which itself reversed to a kind of malaise, with a few more minor cycles that followed.

Eccentricity is in many ways like the periods of fast mutation in evolution, which themselves tend to revert to the mean. And speaking of Churchill the reversal he suffered after being thrown out of office after the war had a profound influence on him, and likely his health and was used as an example of being extremely powerful and then suddenly not, and the effects of such changes, in the book I'm currently reading. Nothing is forever, and I'm sure eccentricity will return to the British political scene in due time.

Richard Owen writes: 

Winston Churchill would sit starkers in his bathtub and dispense to his secretary notes and instructions for the Great Offices of State. Soak complete, he would towel off, don a Chinese floral silk dressing gown with matching fez hat and take bedside visits from his Cabinet. Part of the game was to leave the odd setting and peculiar garb unmentioned. Out for duty, he would don a custom made Siren Suit - a glorified boiler suit - and set forth to whichever geopolitical circus he had budgeted his day to. Sartorial fruitiness featured throughout.

What does one look for in a great leader, thinker or doer? An ability to act independently? Think differently? To consider the facts of the matter and take provocative, even painful action?

Siegmund Warburg - perhaps the only individual in the modern era to create a full service European investment bank from scratch and entirely within his own lifetime - upon his death bequeathed a large library of fine literature and other books. Within sat a unique folio of pornography, surgically extracted, before handing over to St. Paul's School for Girls for posterity. Some of Siegmund's business rules included: good manners; consideration of others, particularly juniors; ignore the fashionable; non-conformism as a right, not a duty. This does not feel familiar in today's Wall Street.

To be branded an eccentric these days can be terminal. Particularly in the American paradigm. Instead of independence, determination, or contrary thinking, it is a signal of unreliability and cause for suspicion Some of the driving factors are positive: the British eccentric has class-based roots. The public schoolboy, assured his place in the firmament, could afford to transport his playground hijinks into the world of work. Just as investment bankers re-donned their suits after the dotcom crash, so did the pressures of openness and assessment mute some of the rakish public school excess. But a paradigm can swing too far.

Who do we have leading the Labour left in the UK? Mr. Edward Miliband, an impressive man whipped into a strait jacket of conformity. He arrived by Faustian deal with the trade unions; everything he utters is calculated for short term gain. Even the passion moments - the big conference set-piece speeches - feel badly scripted with an insipid instinct for popular policy.

The batty leaked clip of Miliband repeating the exact same soundbite answer to every question thrown his way at a media scrum - whether it made an iota of sense or not - gave the impression of a malfunctioning replicant whose circuitry had badly fused. The semi-autistic response mechanism was a guerrilla tactic to cope with today's minefield 24-hour news loop.

The irony is that Miliband's constituency - the unions - have backed a man who's supposed state educated, humble upbringing, disguises a militant intellectual father, likely private tuition, and all the other bells and whistles of hidden cultural advantage. The socialistic Labour left's distaste for the British grammar school has hamstrung a generation of intelligent working class and closed off their main vein of progress to the upper-echelons. Eccentric this is not.

And the Conservative coalition? Headed by David Cameron, every inch the PR man. A better looking, more charming and affable version of Miliband? Perhaps. But we need not repeat the basic assessment - they are both ultra-Blairs. But without the Blairite flair within.

Blair himself was most definitely an eccentric. He was willing to throw his whole reputation onto the pyre for a self-styled humanitarian war in Iraq. You can assess the merits, but at least it showed spine. Blair was so effective that he construed the ensuing hate into three back-to-back election victories.

Blair, however, left a messy intellectual endowment: the idea that, today, politics doesn't matter and one just acts as intelligent administrator. And just at the very turning point where hard choices, real budgeting, became essential.

What isn't obvious from the public record is that underneath the "call me Tony" demeanour was a burning intellect. A man who insisted on rising early to pen his own speeches. An intentionality. His followers have adopted the outer shell, but are missing the flavoursome crab meat inside.

When discussing interesting investment outcomes on Wall Street, we refer to eccentric or non-systematic returns. Bespectacled, absent minded Leon Levy could thread profitable eccentricity back-to-back. Just don't ask him which subway stop he meant to get off at, next year's EPS to one decimal, or the date of his anniversary.

Wall Street now wants conformism pretending to be eccentricity. Actuaries demand excess return without deviating from the crowd. And yet we're surprised at the aggressive behaviour created.

Ace Greenberg, penning Chairman's memos to his staff would channel the advice of Haimchinkel Malintz Anaynikal, an imaginary and often hilarious business philosopher; a figment of Ace's minds eye. If Jamie Dimon tried that today, he would be carted off the premises and branded a loon. Perhaps private partnership allowed better for private eccentricities. But something deeper, more cultural, is at work.

 To quote British banker John Studzinski: "after the dotcom crash, investment bankers were put through the meat grinder and came out robots." Warburg was so listened to by clients because he actually had something useful to say. His eclectic, eccentric outlook gave him a differentiated, potent opinion. Instead today's bankers collect endless, vapid powerpoint slides rather than bequeathable collections of fine literature. And they have opinions to match. Produce views and analysis like clockwork. But Warburg knew that producing was for the farmyard and generated opinions like manure. Quoth Siegmund: "One general reservation which I feel about some of the US investment banking houses is that they put too much emphasis on measuring, almost from month to month, what a specific partner produces. I don't even like the way they pronounce the word - not produce, but 'prodooce'. All this emphasis on producing - that is all right for a cow, but not for a human being."

Keynes, the great economist, trader, bon vivant, and political adviser was as likely to be found of an evening cottaging with the local bishop as penning a treatise on the National Product. Disraeli, a spectacular Prime Minister, was also a former bankrupt, mining entrepreneur and spiv. Try shoehorning such vitae into a political career today.

What do we have instead in British national life? Andrew Mitchell and the Plebgate inquiry, staffed by thirty full-time police offers, all straining to determine whether a politician muttered the word "pleb" to himself when heading past some cops at Westminster's gates. It's not so much fiddling whilst Rome burns as actively brainstorming more and better fuel supply lines.

Thatcher, every bit the eccentric, would have known what to do. Colleagues stung in the press by petty scandal would be grabbed by the arm and marched through Westminster's lobby. A show of support from the top; a smothering of the flame before it became entrenched in the press.

Straight-laced individuals, politicians, businessmen, forget their independence, their room for originality. Horrific, black swan events demand attention; perhaps a gun review is sensible post Sandy Hook. But don't forget the didactic nature of the Oval; exactly how FDR sucked billions of deposits back into the banks, or a gamely Reagan re-invigorated a whole nation. The lowest cost, highest impact fix would surely be a fireside chat on the benefits of sitting down for dinner daily with the family; taking an interest in your children.

On complex issues, one can't clear one's throat. The free-thinking intellect and the prejudiced have an intersection: the former will at least try on the latter's opinion to see how it fits. But don't dare be caught by the media as such.

Even the thesaurus is gripped by the modern will - it serves up for eccentric: aberrant, abnormal, flaky, crazy. Perhaps all those things. But also: essential.



 Remember the great Costa-Gavras political thriller from 1969, Z, which was so powerful in impact that even today it resonates in iterations of many a realpolitik lenser across the globe? NO bears a strong resemblance to its forebears. It is almost documentary in its unflinching reproduction of that time, the late 1980s, and place, Chile.

In that earlier film, after the murder of a prominent leftist, an investigator (Jean Louis Trintignant, sleek, young and gorgeous, as he does not any more in Amour, for all its current cachet) tries to unearth the truth while government pols scramble to cover up their participation and culpability in the murder.

In NO, a critically important work as much for what it reveals about our own relentlessly bullying and fraudulent leadership and the tricks it pulls to hide responsibility and machinations from the public, the script follows the tense efforts of subversive democratic free-thinkers to rid themselves of the torture- and murder-rife dictator, Augusto Pinochet. Pinochet (written PIN-O-8 on cars in the movie, referring to Pin + 8 = ocho = chet) after the 1973 coup displacing President of Chile Salvador Allende as head of a popular unity coalition of communists and socialists.

In the palace bombing, Allende mysteriously disappears, one of over 1,000 desasparacidos (the disappeared, numbering tens of thousands, one protest of which I witnessed in silent witness in town squares when I visited, hundreds of signs and photo-affixed placards held up by the mothers, sisters, wives and brothers of the vanished-by-government) who disappeared under the vicious mandate of Pinochet, never to be seen again.

Due to international pressure following reports of thousands of tortured and murdered and disappeared citizens under his watch, Chileno military bruteman Augusto Pinochet in 1988 was forced to call for a plebescite on his presidency. Should he "win," getting a popular YES, his presidency would be extended another eight years (unstated, but obviously: of more of the same).

Opposition leaders for NO persuade a brash adman (Gael Garcia Bernal) to spearhead the campaign for NO on the plebescite, which seems to have little hope of winning. Such is the bully pulpit of dictators who control most of the media and the low-interest, low-information citizenry. Or nameless leftwing leaders with media clamps in their pocket.

The script, exemplary for its representation of both sides of the effort to displace the dictator, provides insights on the Machiavellian doings of Pinochet's defender-domos, and the advertising and PR men, exemplified by the soulful camera-eye visage the intense Bernal, manufacturing film and tape and promotional efforts to wean the Chileno public away from frightened, knee-jerk votes to continue the murderous, genteelly rampaging Pinochet.

Unseating the all-powerful Pinochet seems to be an uphill mano-a-mano, as he counters the NO campaign with silly echoing la-di-da campaigns of his own that make the public shake their heads.

WAG THE DOG (1997) and, more recently, ARGO (2012), come to mind. The public is being manipulated cunningly by those adept in the memes of persuasion, cajolery and propaganda massaged with pretty faces and breezy photography. Camerawork, and acting are uniformly superior. Hard to discern, sometimes, whether this is a staged film or a documentary.

Most Americans have zero idea of the abuses of South American near-dictatorships. News stations rarely report on anything below Mexico, unless it is an Earthquake of epic dimensions. Newsmagazines? Scarcely today even picked up (Newsweek is now solely online–not that anyone cares), so whatever they report is long-ignored.

Perhaps one failing of the film is that the interior dialogues and discussions assume a level of sophistication and familiarity that might be entirely beyond the Beyoncé- and Kardashian-addicted crowds that jam the multiplex. NO is not for those low-brow types. They get the current burnt frankfurter-and-mustard likes of DJANGO and THE GUILT TRIP. Low-hanging fruit requiring zero knowledge beyond where to sit one's glutamus down.

It is startling to see clips of Christopher Reeves (before his terrible accident), the traitor Jane Fonda, and [my faux husband] Richard Dreyfuss, on air with their actual testimonials, back then–amazingly, on behalf of NO, the side the audience clamors to support.

Excellent film worthy of awards already promised.

Go to see NO?




The bond market is pricing in inflation of 1 or 2% a year for the next 10 or 30 years. Yet every repub and every free market person predicts a catastrophic rise in inflation and interest rates. Who knows better? Paul Derose, Bill Gross, and Zachar and the thousands that at the margin adjust prices every day based on the expected future events, and their desire and past ability to make a profit, or the free market groups. What a waste of energy it is to concentrate on this red herring rather than the slavery.

John de Regt comments:

The way I see it, either this massive govt intervention is the new new, or supply and demand will kick in, and interest rates will go up. All the western governments have discovered the magic elixir of QE, and either it will end, or it won't…



The bond market is pricing in inflation of 1 or 2% a year for the next 10 or 30 years. Yet every repub and every free market person predicts a catastrophic rise in inflation and interest rates. Who knows better? Paul Derose, Bill Gross, and Zachar and the thousands that at the margin adjust prices every day based on the expected future events, and their desire and past ability to make a profit, or the free market groups. What a waste of energy it is to concentrate on this red herring rather than the slavery.

John de Regt comments:

The way I see it, either this massive govt intervention is the new new, or supply and demand will kick in, and interest rates will go up. All the western governments have discovered the magic elixir of QE, and either it will end, or it won't…



 What have we here. Like an opponent who keeps hitting it to your weak spot over and over again, and beating you, and refusing to give up on a winning day, for the ninth day in a row the market is within a few points close to close for 12 of the last 13 days. And the only day it was up big, it closed just 3 points above the open on 1/10/2013. And we haven't had a decline of more than 3 points since weak longs were wasted out on 12/28/2010. You have to give the mistress credit. One notes that even a 3% decline in the Nikkei yesterday was not enough to overcome the resilience, the indomitable upswing from 1384 to 1457 in 12 trading days of the S&P. What else do we have here. One notes that there has been a run of 12 days without a decline (of a 1/4 of a % or greater than 1/4%). And its only happened like that for 12 days without sustenance for the bears just on 5 occasions since 2007. The expected moves after such hiatuses are neutral to positive for the next 8 days. There was just one occasion where the market went for 21 days without a decline of at least 1/3%. That was followed by a big decline of 1%. Hats off and hold all tickets.



 What a field day for robots, market makers, and petty traders. The last 7 days, it was impossible to make a profit by going for a few points from the open. Indeed, the average open to close move has to be about the lowest in years. The market makers love this of course because they can bid a little below and sell a little above and always make a profit. And anyone who tries to sell from fear or buy from greed has to lose by the end of the day. Also, day traders who want to eke out a reasonable profit. It reminds one of the change in speciation when all the nitches in a environment are filled. Nothing will change and the rate of change will be gradual until a major change in the environment is filled. The grains seem to be outside of their nitch as they are unstable. And the nikkei continues to rise relentlessly after 100 years of decline. As does the dollar appear to be unstable in a declining state also. But all things considered it shows the fallacy of the punctilliated equilibrium, egalitarian communitarianism of the Goulds and their fellow travelers by giving an example of how gradualism can continue for ages without a change in the environment and nitches filled. I realize that the only thing I've left out is flexionism and the idea that has the world in its grip. It's that also, but I can't put my finger on it now as the market might have a big move, while I figure it out.



After a long journey, one notes that platinum is back at a premium to gold this morning. As I am fond of saying, every market price (except 0 and infinity) gets seen at least twice. The only uncertainties are how long it takes… and how far prices move before being revisited. Next on the arcsine law agenda (with statistical apologies to Dr. Phil): The WTI / Brent oil spread….



Wonderin, from anonymous

January 15, 2013 | 1 Comment

 If the actions speak louder than words and all the rest is talk, Japan has made clear they are buying up to $500 billion in US bonds and notes in short order to add to the $1t they already have. That's good enough for me to believe US debt cap record of 16 for 16 will stay unblemished. At least someone still loves our flawed hero, aka the dollar.

It could all be set to refrain of What's the Use of Wonderin' from Carousel

What's the use of wond'ring

If he's good or if he's bad

Or if you like the way he wears his cap

Oh, what's the use of wond'ring

Is he's good or if he's bad

He's your dollar and you love him

That's all there is to that

Common sense may tell you

That the ending will be sad,

And now's the time to break and run away.

But what's the use of wond'ring

If the ending will be sad?

He's your dollar and you love him,

There's nothing more to say.

Victor Niederhoffer adds:

If all free market people would get off the hobby horse of saying we're going to have hyperinflation and that we have to do someting different and this is the key to their program, and their worries, and concentrate on incentives, and cronyism, and entitlements, and class warfare, and on the growing class of non-productive slaves to the higher powers, the non-American way and how great it would be if people were left free to choose and rise, and the hatred arising from the drones, the world would be a much better place, and their efforts would not be so fruitless and dysfunctional.



 OK, it's $90 a copy but it still has to be required reading for any of us SpecLististas who want to continue babbling about history — War, Strategy and Military Effectiveness by Williamson Murray, Oxford UP.






 New Years eve brought the biggest best waves of the year to Kona. In the morning it was triple over head, clear blue sky, perfect shape, completely glass on the water without a breath of wind, and only a handful of friends out. It doesn't get any better. That afternoon the waves got even bigger. Just before I went out a huge wave cleaned out the entire line up and washed people on to the rocks. They got out with white faces and minor injuries. I had a perfect day where I did not fall once, did not get caught inside and caught each wave perfectly and rode it to the end. All in all a very rare day, one to remember for a lifetime.

Lack recently wrote about not making any errors. My son used to play Mortal Kombat video game as a kid and when he beat the opponent without suffering a single injury it was a perfect fight. It's the kind of day when you enter perfectly at the bottom tick and your bid is taken in size, and it immediately starts up, you ride it all the way and exit right at the top. For some reason it's not the kind of thing you can do at will, nor does it happen all the time. I had been training so felt strong, and there had been waves for the prior two weeks. Mentally I felt good. I wish I knew the secret to achieving such good results with more consistency.

Jeff Watson comments:

The key sentences, "I had been training, so felt strong, and there had been waves for the prior two weeks. Mentally I felt good. I wish I knew the secret to achieving such good results with more consistency."

Well played Sogi San. And you answered your own question.

Meanwhile our waves have been thigh to waist high and the SUP has been getting the workout, not my 9'6" or fish or any other board in between. It's really a drag living on the pond of the Gulf of Mexico.

Craig Mee writes:

Sounds great Jim, good job indeed.

Having a consistent plan before you paddled out, and it seems conditions were relatively steady, probably allowed for a strong take off with commitment each time. Finally, as you felt comfortable, you were probably more likely to squeeze each wave for everything it was worth. Your day, your market, your result– excellent.



 One concept common in turf handicapping is the speed rating. It's not so much whether the horse wins the race, but what its fastest time was for a given quarter or some such. One wonders what the ideal predictive speed ratings for markets are. If we come up with the answers, we may be able to contribute to the ecology of the system and possibly prevent our losses from being as great as the public.

Gary Rogan asks: 

At first glance, I'm wondering is the history of speed ratings for any markets likely to be as predictive of the future as it is at the track?

Russ Sears writes: 

When someone is starting training for distance running, it is important to understand the maximum heart rate. Then training is geared around this number. The pace you should run to achieve different objectives is a range of percentage of this number. For example a speed workout, you might want to hit 90-95% of this rate. For a recovery run, maybe 60%. As you learn the pace to achieve these objectives you can stop measuring your heart rate and then go off feel.

However, as you get fitter, it becomes more about the recovery time to a base rate. The time it takes for your heart to get close to pre-workout rate will get shorter as your fitness increases. Then as this get shorter, you can increase the pace or shorten the recovery time between faster intervals.

It would be interesting to carry this over to individual stocks with volatility analogous to heart rate. Shocks such as earning numbers analogous to workouts. I hypothesis "fit" companies are ready to take more risk and have higher expected earnings. Whereas those whose long vols are increasing may be more likely to fall apart if they take more risk.

Anatoly Veltman writes: 

I think that Chair is often faced with an exit problem. Statistics prompt justifiable entry– but then one is prone to take profit too quick, or not be sure what to do about a loser, which only looks statistically better and better the more it's losing.

Therein lies the huge difference between binary outcome in most sports/games, and the investment field. I recall one Palindrome saying: "it's not whether you've picked a loser or a winner; it's more important how much you have ON when you're having a real winner".

An avid observer of track and field legends since watching my first Mexico Olympics live on Soviet TV in 1968 (the black power pedestal protest contributed to airing of that broadcast!), I always attempted to grade medal performance against the world records. I can name dozens of great Olympians, who peaked out during certain Games (sometimes 4 years apart, and even 8 years apart!) — and never held a world record in their event; and vise versa…phenomenal record holders, who've failed to taste Olympic success. But most of them did achieve both — which, again, makes statistical sense.

Alston Mabry adds:

A core "speed rating" question is around the effect of news events such as earnings surprises. The nature of earnings surprises has changed over time, as companies have learned to manage earnings more precisely: "Rich Bernstein Explains Why Missing Earnings Estimates These Days Is Such A Disaster". And then there is an assumption that market efficiency means any true surprise will be reflected in the market within minutes. But is this true?



 I recently received a letter from an auctioneer stating that "I can see the screen if people are going to bid on the internet. We can see if they have the mouse over the bid button and are thinking about bidding. Like your trading robots, this is quite sophisticated these days for what you can do and see online, bidding from both sides".

Wow. If this is true on auctions that have a volume of 1 million tops, imagine the incentive and effort that could be put into seeing what the latent trades are in our field. I notice often in the bonds when I put my finger on a key, there is a move against me before I have put it down. But I have attributed it more to my paranoia about being front run by robots in the past rather than the type of cheating that apparently was routine in computerized poker games where the adversary was able to see your hand, "merely as a check on the level playing field".

It is hard enough to stay losing at a sustainable pace to the flexions who get info from the circular offices and the marbled steps of the hill, but one has a inimical aversion to having the robots take one to cleaners also. In Waitskin's book he describes how in his wrestling matches he and his Taiwanese opponent would react to each others thoughts and not movements, and I often wonder whether words or extraneous thoughts could have a negative influence on the rate of loss that one is entitled to have in trading. That's why I ban them in office.

Anonymous writes: 

Any trading interface that has the user queue up a trade, say in a popup window like — does, could easily send that fact up the line. The value of such data is obvious.

Jeff Watson writes: 

See, nothing changes. Back in the pit days, when the broker would look at his paper order, I would look at his eyes to see the direction they went which would indicate whether he was buying or selling. If he was buying and I wanted to sell at a little higher price, I might bid against him hoping for him to increase his bid so I could squeeze out an extra quarter cent. I also learned the skill of reading through paper, which was profitable. Detecting mouse moves, or detecting eye movement, it's all the same thing, the inside players always have an edge over everyone else, but as one might say, plus ça change, plus c'est la même chose.

Anatoly Veltman writes:

It reminds me of the good ol' days in the COMEX silver pit, where with the market down 5-10% on the session and the leverage of 30:1, a commission house runner would approach the crowded pit with a stack of tickets near the close. Like any smart local, salivating, I would chuckle "they ain't buy orders to be done…". As a matter of fact, the most famous story of all had a Merrill broker buried with paper yelling "at even!", and the local grabbing him by the collar gasping "what even??", and the broker spitting out "any even you want!!!"

The better approach yet took hold by the early January 1980, when Hunt Brothers and their followers went one way only, day after day: buy, buy, buy. Smart traders hired additional temp arb-clerks, whose only assignment for the day was to monitor the movements well off the trading pit: namely, at the WTC garage! As the floor broker, known to execute for Hunts, was about to roll into his parking spot at the exchange, the news of such a "silver moment" would be relayed upstairs and make waves around the world!



Japan, from Duncan Coker

January 14, 2013 | 1 Comment

Even a forex novice like me could not help but notice a 25% increase in the value of the Euro vs the Yen, over the last 6 months. At the same time a record $155 million yen paid for a single Bluefin tuna at auction in Tokyo. Nikkea 225 up 27% last year, most I believe of any developed economy. Not to be dismissed also, the 150 inch snow base at Niseko ski resort, more than any in lower 48 states or the Chamonix valley. Japan seems more relevant than ever recently.



 The public has no right to lose as much as they do. It's the system not the public. Antoni losing 6 in a row at LA as he tries to get the Lakers to play speed ball with 100 year old players. The public following a system of buying the crosses in the moving averages or seasonality in the market as they get front run or trying to take out 1/2 a point in stocks in an hour when the high frequency boys are ahead of them in a hundred ways and can afford to lose infinite amounts with their interest free loans from the partners in high places.

Luck is a big factor in results. The skill stays constant (except for the other team keying in on it) but the results are random. The Knicks were guaranteed to lose 10 in a row after Smith, one of the worst eyes in the league won 2 games with non-percentage threes and became their go to man. After a run of success in performance, do expect the subsequent performance not only to revert back to the mean but to go below as the other team plays harder. After a streak of wins in a row, a team is likely to start losing. The Knicks won their first 10 home games, and then lost 3 in a row as they got over confident and got off to down 25 points in the first half in a few games because they weren't hungry enough. After 6 up days in a row in spu's the expectation is for -0.5% the next day.

A team that relies on one player to make it for all is likely to lose. Melo made 30 points 5 or 6 games in a row and the Knicks were able to pull off some lucky wins as a consequence. But as Deng said, "Melo's one of the toughest scorers in the NBA. The shots that he makes are the shots that you want the other team to take but those are shots he makes … Carmelo is the ultimate scorer" the coach Thibodeau said. Note how they encourage the opposing team to continue in their guaranteed to losing ways. The market always leaves enough on the table for the public to lose more, and encourages them to keep in the game until the huge killing day when it gets them all out like the day before Christmas in stocks when it's ready to turn.

It's not the trades its the system. Antoni making his team lose wherever he goes as he tries to force the system on his players and smiles complacently on the sidelines as if it's his players fault rather than his. The market player trying to take out a 1/2 point in 30 minutes because they have to go to work or take care of the business or kid, with a real vig of some 50%.

A one horse team is likely to lose as Kobe and Anthony show. If all markets are going down and one or two are going up, trouble is in the air. Slow and steady wins the race. The thunder make all their recruits become part of the community and memorial before they play. No night life but respect for everyone is their key. They got rid of the bearded high falutin player who wanted too much money for their low media community and have the best record now. The market that goes up with a little volatility is a better reward to risk than the highly volatile high profile one.

Okay. Considering I don't know anything about basketball as my uncle Howie likes to remind me (" you said it "), what should I have said or what biggies have I missed. In my defense the same things are true in racket sports which I do know about and how loathsome it is to see the three worst sports in the game now held in such veneration. Time heals all wounds and in 10 years, I can be expected to receive many "legendary" awards in my field (albeit I was never a bad sport I think).

Anatoly Veltman writes: 

There was a lot in there. But I'm wondering about just one thing: "getting them all out" Xmas…And the reason I'm wondering is that the current actions are "getting them all in"; while the well-forgotten idea was to be getting out on approach to records, once all of the election props go used up. So there goes public again…

"Uncle" Howie Eisenberg writes in: 

Your analogies to the market may be right-on but once again you demonstrate your proclivity for creation of "facts" to support your premises. J.R. Smith's career and 2012/2013 3-point percentage are .368 and .346, respectively. Using the latter, his expected value on a 3-point attempt is .346 X 3 = 1.04 which is equivalent to better than 50% shooting from 2-point range (expected value = 1), a very good percentage. Thus having Smith shoot 3-pointers is not a bad gambit. Of course it would be a lot better for Novak, # 4 in the league in 3 -point percentage to be shooting more of those 3s.

There have been many winning teams that relied on 1 player for the bulk of their offense, e.g., Minneapolis Lakers: Mikan, Phila Warriors:Chamberlain, UCLA: Alcindor. Of course it's best when there are several major options. In the NBA these days, winners usually have 2 superstars. The Lakers have 3, plus Pau Gasol, the acquisition of whom led to the Lakers getting to 3 NBA finals in a row, winning 2. That leads to your point about D'Antoni.

I readily acknowledge that whether it's because of players not getting back for fast breaks off failed 3s as you quoted Felton, or other inadequacies of his coaching, there is no "D" in Antoni despite the correct spelling of his name. You are absolutely correct in noting that D'Antoni is insistent on his teams playing his style no matter what the particular makeup of the team is. Yes, the current Lakers don't fit with the type of running game he espouses. Not only does he not maximize the potential production of each player's talents like Gasol's greatness in the post and superior passing ability, but he insists on using novices with limited ability like Darius Morris because he's fast and leaving 14 year veteran, Jameson, who has a career average of 18+ points a game on the bench. Jim Buss should have listened to your warning when he bypassed the greatest coach or manager who ever lived to save a mere 16 million dollars over 2 years. D'Antoni is the greatest disaster to befall LA since the Northridge earthquake and may even rival LA falling into the sea in Superman I. Christopher Reeves is no longer here to save us and although Jeanie Buss just received a ring from Phil Jackson, unfortunately the Lakers cannot expect a similar gift resultant from Phil's genius. He may be marrying Jim Buss's sister but Jackson is now forever estranged from the Lakers because of Buss's stupidity. Woe is us!



 Returning from a visit to Georgia and Alabama I had the opportunity yesterday to drive from Montgomery, Alabama to West Palm Beach, Florida by way of Dothan, AL, Thomasville, Ga., Valdosta, Ga., I-75 and the FL Turnpike.

A few observations caught my eye:

1. BBQ does very well in the South. Dobbs in Dothan is celebrating 100 yr. anniversary despite a wide range of reviews .

2. DEERE farming equipment was everywhere in Southwest Ga. Wide load sprayer trucks being transported on the road. Lots of new equipment in various sales yards. Perhaps they are gearing up for future season? Large Bales of cotton were seen wrapped in yellow plastic. Clumps of just harvested cotton everywhere along the roads and in the fields.

Overheard a trucker say that things a bit slow at start of the year though as he awaited new loads to haul.

3. Thomasville, Ga. downtown area is very vibrant and quite appealing. Lots of shops and nice restaurants for a "sleepy" southern town. My favorite artisan cheese company has a neat wine, cheese, and cured meats "pub"/restaurant there  Many pretty Southern Belles noted. Liam's is quite popular.

4. Dollar General, Radioshack, Alfa Realty/Insurance, TJ Maxx, and many other regional retailers appear to survive and thrive in SE AL, SW Ga.

5. More hotels were seen along the route. Many in N Florida had full parking lots last night. There is a fair amount of military presence in the general area of SE AL and SW Ga–Fort Rucker in AL and Moody AFB (Valdosta) in Ga.

6. Pay phones are hard to find when you enter a cell phone "dead zone" and need to make a call. Almost extinct. Even Luddites need an iPhone.

7. CSX was inspecting the rail lines along the Bainbridge, Cairo, Thomasville, Ga. corridor. I remember several years ago when only abandoned rail cars were seen on those tracks.

8. Lots of advertising signs still empty along I-75 in South Ga (and advertising for new clients).



 I've been hearing from friends around Silicon Valley about the extent of the brain drain that's been going on at HP for the last several years (BW looks at the past 2 years, but it's been in progress for longer than that. The most recent HPQ effort at M&A didn't help matters. A friend put it eloquently: "I get that they can write code. I get that they can't design a circuit. I get that they have no clue what something has to be to be called a system. I get that we're becoming the real-life version of Dilbert. But can't they do something as fundamental for a tech executive who no longer knows much about tech as making an acquisition without getting ripped off? That I don't get." Others have told me about the dysfunction present in many parts of the organization. Someone from my synogogue back in Foster City who was laid off by HPQ during one of Carly's "right sizing" exercises (and who was crushed at the time) is overjoyed that he's no longer there. He told me that his friends still at the company are dispirited at best. Not a good situation.

A great American institution is dying. HPQ is the longest-lived company I know of in Silicon Valley. Hopefully, others will learn from its demise.




Practical Hints for Investing Money
Francis Playford, Sworn Broker
Smith, Elder & Co., London, 1855
google books

p. 36


The National Debt, which has previously been stated as amounting to between seven and eight hundred millions sterling, is considered by a great number of persons as a great national evil, and not without good grounds; as a proof of which, the payment of the Interest or Dividends consumes, at ordinary times, more than half the national revenue. The whole amount of the revenue is estimated at £52,000,000 a year, of which £27,000,000 are consumed in payment of Dividends, leaving only about £25,000,000 available for the remaining expenses of the Government;—thus clearly showing that as our necessary taxation is more than doubled by the payments required by the National Debt, it is an undoubted evil, involving the country in the necessity of supporting a very heavy annual burden in the way of taxes on the many leading requisites of civilised life.

On the other hand, however, it must be remembered, that a very large portion of the Debt was incurred during the administration of the late Mr. Pitt, and under subsequent Ministers in the course of the long struggle with revolutionary France, for the purpose of enabling our country to oppose the grasping ambition of the first Napoleon, which would otherwise, in all probability, have united nearly all the Powers of continental Europe in one overwhelming descent on our shores, and reduced, most probably, free England, to a mere Gallic province. From this extent of misery we are happily spared; and, however great the cost, we cannot but feel that we did not make the sacrifice in vain.

As respects the reason for having raised it by means of Loan rather than Taxation to the required amount, this will be self-evident from the vastness of the sum found necessary for empowering us to resist the enormous forces arrayed against us. In a word, it would have been simply impossible.

On the other hand, it is advanced by some,—a statement, the bare supposition of which will, no doubt, startle some of our readers,—that this Debt, notwithstanding the serious evils which were mentioned, is so thoroughly incorporated with our National habits and institutions, that, from being an evil, it has, in fact, become a Public advantage; inasmuch as, without its existence, numerous persons, who now live in comfort and a perfect sense of security, would have no means for safely investing their Capital. Widows and children, almost innumerable, now derive their sole and entire support from this source; and even the poorest, who have saved the amount of a few pounds, as a provision for their old age, hasten to invest it in the secure Asylum of the Public Funds, or, in vulgar parlance, "put it in the Bank." By such procedure, it can scarcely be denied that Trade benefits largely; for persons living on Dividends, it will be seen, are customers, without being rivals and competitors for a share of the profits; though, no doubt, it may be argued on the other side, that Trade is thus deprived of large sums that would otherwise be devoted to it, and thereby much limited in its operations. Vast sums are also yearly brought into the country and invested in the English Stocks by foreigners, availing themselves of the far higher character for security possessed by our Funds over those of other countries.

Thus, therefore, in this vast Debt, both evil and good are the indisputable result. That it has done good, we know by the evils which it enabled us to avoid in past times; and we are also sure that a numerous portion of all classes has been benefitted; though the very great increase of Railways and other undertakings paying fair Dividends, supplying the Public with a more extensive field for Investments, and gradually acquiring more and more of the Public favour and confidence, will, in this more speculative age, detract from any such plea for the necessity of maintaining so enormous a burden upon the country. In brief, it seems doubtful whether in any other country in the world the result of so enormous a Debt could, by any possibility, have appeared so beneficial.

That warfare of any magnitude cannot possibly be carried on by the Nation from its ordinary revenue, has been fully borne out by the results of the last few months; and experience proves that a lack of resources at the onset is most disastrous. This being the case, it is necessary that ample funds should be obtained in the most popular and expeditious way: though, nevertheless, we must not lose sight of the injustice inflicted on posterity by an unscrupulous resort to, or abuse of, the numerous facilities provided by a great mercantile community for contracting Government loans. Our Financial Reforms, too, have in late years done much to alleviate the burdens of the State, and the reduction of the National Debt has made great progress, operating alike beneficially on the value of, as well as the Public demand for, all classes of Government securities.


The variation in the price of Funds—a subject so vitally interesting to a large portion of the Public—is due to several causes which mutually affect each other. The first of these is undoubtedly supply and demand, which is the criterion of price respecting every kind of property whatever. Next is to be considered the price of Bullion and the state of Exchange with foreign countries. The Funds are also very powerfully affected by the rate of Discount fixed by the Bank of England, which varies considerably at different times added to which, they are powerfully influenced by the actual or supposed stability of the Government, and its consequent power of keeping faith with the Public creditor. To exemplify the confidence with which the Public treat the British Funds, the fact is worth noting that Consols and the price of good Freehold Land in England generally move pari passu, yielding nearly the same rate of interest for investments, and at thirty-three and one-third years' purchase, being equal to Consols at par. Land, therefore, at twenty-five years' purchase, is equal to Consols at 75, and in like proportion.

All the Government Securities, in fact, and Consols more particularly, are vastly influenced by a constantly increasing demand, owing to the vast number of Trust accounts continually arising from the deaths of Capitalists, Deeds of Settlement, &c, which generally compel Trustees to invest the Capital or Funds committed to their charge in Government Securities; the result of which is, that enormous amounts are sometimes locked up for many years. Sums of money, also, pending the decision of Chancery suits, are invested in this manner. Now, as this process of absorption of Stock out of the market has long gone on, and still continues to increase, it must in time become an important feature for consideration; particularly, when it is remembered that in all cases of reduction of Interest or Conversion of Stocks, the Act of Parliament authorising such conversion or reduction, usually holds Trustees, &c, harmless from liability for submitting to the same.

Some parts of the surplus Capital of our great Joint-Stock Banking and Assurance Companies, as well as the accumulations of Savings' Banks, are also invested in the Funds; but as the latter are only temporary investments, when anything causing an unusual demand for money occurs (as, for instance, convulsions of trade or a bad harvest), these large companies, as well as the Savings' Banks, become extensive sellers in the market, and create for a time what is called "a panic,"—that is, a great and sudden fall in prices.

keep looking »


Resources & Links