I always liked this post by Brett Steenbarger under the Letters Prize category. Maybe all of us should remember this before posting something:

I wanted to comment on how some old men grow old gracefully whilst others grow old grotesquely, and to look at how this effects their take on the markets. I believe that those who age worse often exhibit worse trading symptoms!

Ayn Rand used to talk of second-handers: those who derive their self esteem from the perceptions of others, not from objective achievements.One virulent form of second-handedness masquerades as virtue: the need to be needed. I suspect it’s behind the overly chivalrous and boastful demeanor, but also behind the pessimism.

The doomsayer needs followers who feel endangered and vulnerable. The forecasts of doom make the prophet needed to get through the pending calamity. No one needs a savior if the forecast is for sunny times ahead. By undercutting the sense of security of others, the doomsayer carves out a niche for himself: I will get you through the market panic, the economic collapse, etc. The same dynamic is at work with the seemingly solicitous and chivalrous man who wants his woman dependent upon him.

I’m thinking of a couple I once saw in counseling. He refused to let her work outside the home, insisting that he must be the breadwinner. She was bright and talented and, now that the children were older, wanted to work. She took up a hobby (quilting) and became quite expert at it. Eventually her quilts became collector items and she was a hot item on the art festival circuit. He was increasingly threatened by her success and tried to derail it by belittling its importance — all the while maintaining his love for her and his willingness to provide for her.

He needed to be needed: his greatest threat was an independent woman. The doomsayer similarly needs to be needed. The confident, optimistic investor is his greatest threat. To become needed, they must make others needy. Such is their benevolence.

She divorced him, by the way, and went on to become a successful instructor of quilting and crafts, owning her own business.

And 20 years after 1987, we stand at new highs and the doomsayers continue to beat their drum. Odd how we excoriate those who encouraged people to buy stock in 2000, but say nothing about those who counseled against equity ownership for the last 10,000 Dow points. If a physician sickened his patients in order to have a steady stream of revenues, no one would hesitate to call it malpractice. But what of investment advisors who fill their clients with fear in order to sell them services and seminars?

“You need not examine a folly”, Rand once wrote; “you merely need to identify what it accomplishes”. Pessimism and negativity create dependency and a psychological crippling. The need to be needed is a need to undercut the certainty and security of others. That’s why it’s a “symptom of something worse”.



 A man with an IQ of 185 recently started overwhelming me with his range forecasts. "The range today should be x to y." I told him these were worthless forecasts. But he doesn't understand. Today he came up with a nice touch. "It's pure trouble if the Dow goes below 13 870."  When the Dow did so, he sends me a self congratulatory note that I didn't read as I don't like to lose my temper during market or other times, (and I rarely do, although every day is a struggle for me, and as mentioned I have never had a satisfactory day, especially when a flexion is going bankrupt, and there is insider trading overnight). But, there is something so delphic, so self fulfilling about such forecasts. Of course it's pure trouble if the market goes below any number and by the time it does, depending on how long you wait, the chances of it being pure trouble below any day that it purely troubled to go below is terrible to contemplate. I had a dream that the pure trouble person was watching one of my kids play soccer, (he was on the Olympic Water Polo team of one country or another ((as many people who solicit ones business claim to be ), and I tried to explain that such forecasts are part of a genera that have to be true, by randomness, and my kid frowned and then headed the ball.



The ratio of stocks to bonds has very quietly lost 2 percentage points this month. Thank goodness that those that the Fed buys the mortgages and bonds from have profited as planned so that the trillions on the Fed balance sheet can be converted to bonuses and wine and the unmentionable.



"Introducing the Crony Capitalist Index"

Russ Sears adds:

One of the big lessons from the crisis was how correlated those in crony capitalism can be. Because the deception and corruption runs deep within all those in the same crony businesses.

AAA and highly rated corporations meant little. Their conjoined downfall was never within the realm of possibilities in all the models.It is interesting that those that did best were those able to see the fraud within or at least the log in their neighbors eye: versus those that, to the end thought their prior outperforming was due to their own brilliance and not undetected fraud and deception.

anonymous writes:

As high as is the ROI on crony capitalism (and I'm sure it's VERY high), it's probably even higher in other avenues of endeavor, such as for unions. Payoffs to unions under the current Administration have been phenomenal. It was also very high during the 1930s.



 The web mistress, as you doubtless know, has a very good sense of humor and her pictures are often very funny. I asked her if she could find a picture of a young kid "heading the ball" in soccer to go along with what I just wrote about the man. And it will be interesting to see if she does.

T.K Marks writes:

I've always found the selection of the photos that accompany any given DailySpec article to be a delightful adjunct and sometimes so mischievously ironic as to be sublime in and of themselves. A cornerstone of my personal philosophy is the highest forms of truth oftenmost are found in the irony. As such those photos generally resonate well with my sensibilities.

So some years ago I started wondering just exactly how those photos somehow came to be matched up with their articles. To do so I had to get inside the head of the website's art editor, someone whose identity and background I did not know. So I would play a little exercise with myself: Read the article and then try to cull the exact terms or themes from such that when entered into Google image search would yield the photo.

You might want to try this little bit of forensics with Aubrey at some point as doing so would probably help further develop astute acumen in his bright young head. I can hear you now, "Aubrey, find me the provenance of this photo in the next 5 minutes and you have permission to stay up a half-hour later this evening."



SPY daily data was used to calculate a measure of intra-day volatility normalized to current price:

(H-L) / ((H+L)/2)

SPY data was also used to calculate daily intra-day return: (C/O)-1

These ratios were used to calculate the ratio: return / (intra-day volatility) (return per unit realized volatility, intraday)

The plot of return/volatility over time (1993-present) is here.

The plot looks sufficiently random but for a number of "roundish" points in the 93-94 period. Notice that for most of the series (excepting 93-94), there were no instances of "1" or "-1" (either an up day with intraday return = intraday volatility, or a down day with intraday return = -(intraday volatility) ). But there were several instances of 1, -1 in the earliest period. Also in the same 93-94 period there were a number of "0"s for the ratio - corresponding to zero return.

Hypotheses include problems with the data (Yahoo), and problems with the ETF itself.



It is interesting to see the S&P take the same 25 to 30 point dive on the uncertainty concerning the Italy election that they did on Dec 28 when they declined to 1384 versus todays 1487. What a great opportunity to move the market back and forth whenever an important briefcase or suit is spotted at the airport, the Fed, or the Forum. 



 "What These Ants Can Teach Us About Problem Solving"

Swarm Intelligence: a single ant or insect probably isn't very smart, their colonies are.

Perhaps one can learn from this for trading in that one trading system might be somewhat dumb but a group of those can be intelligent.

Gary Rogan writes:

The way I look at it is this: the goal of most (although definitely not all, but the vast majority) of the market participants is to profit from the difference between the current price and some future price. As such, their collective goal is to discover the future price. While certainly they have no desire to willingly cooperate, their use of error averaging and cancellation and applying any real information to the goal is little different than some ants trying to move a large piece of food towards the colony.



 Aside from the obvious answer which is to make money, what do dailyspecs think is the key to managing money? Is missing a big up move better/worse than missing a big down move? Meaning, if a long equity focused fund manager was flat in 2008 but underperformed in the recent move is that good or bad? It seems that if you play strong defense you often times don't catch the big moves. Similarly, if you are all offense your drawdowns are far greater. There are, of course, specifics to each style, but I am thinking more generally regardless of method or style.

Ralph Vince writes: 


If I may….

"the obvious answer which is to make money"

Is a crazy, amateur answer. Anyone who claims THAT, is here just for entertainment (which does not mean they are playing just nickel dime either, but likely playing TOO heavy).

The number one rules is to answer what you ARE here to do. If you were running the LMNOP corp's pension…how would you define that?

If you were in a trading contest, you would have a different criteria. What would it be?

If you were managing money for granny, wouldn't that be different than a 22 year old kid with a little grubstake's criteria?

How can you have a plan, a map to get somewhere, when you don't know precisely what you are trying to accomplish, where you are trying to go. I know it may sound trivial, but that's step one. Otherwise, you just flounder.

By the way, when people say ".. to make money,: I have found that usually means they need to "make money," to cover their obligations, which is a LOT different than making money to increase their capital (i.e. their obligations are already covered). Those are tow different ballgames, and to me, to have to trade to cover your nut, is not the way to trade. Not for me anyhow, it;s a tough enough game without that on top of it!

A commenter writes: 

My first thought, FWIW, is discipline and hard work. It's like much else in life. There are naturals, to be sure, but for the rest of us, in any endeavor in which one seeks success, there's nothing like discipline and hard work.

Timothy Collins writes: 

If I HAD to choose, then capital preservation wins out. Fear and greed drive just about everyone, but I've found fear outweighs the greed. There isn't one right answer. It depends, but here is what I can tell you. If you start managing money during a time where we've had sideways action or a very slow climb or even very bullish action, folks are going to want you to outperform. If there hasn't been a recent correction or scare, then greed takes over. If you underperform, they will leave you. You can survive the first major downside move, usually, and keep most of the assets you manage. However, there will be a heighten expectation of communication, hand holding and reassurances that they next drop they won't lose as much, if anything.

If you start managing money during or shortly after a sharp decline, then most of those individuals are probably looking to make a change because they were hurt badly. They will want capital preservation, so underperformance in an up market is somewhat tolerated. Clearly doing 1% when the total market does 15% won't be acceptable, but if you deliver a decent up year during those times (say 6-8%) but avoid losses during 5-10% downswings and greatly minimize during big drops (15%+), they will be very loyal even if you underperform on the upside for several years in a row (3-4 even). People tend to remember and be loyal to protectors.

Just my view of course.

a commenter writes:

This is a superb question and one could fill an entire career answering it. It is the money management equivalent of "Does God Exist?" for a theologian. Belief in one sort of God on one sort of Continent will get you high praise, many parishioners, and a spanking nice Cassock. On another you'd be branded an Infidel and your kippah kicked in the sand. Although the asset management industry has a tendency more towards the Heaven’s Gate end of the spectrum than the Abrahamic.

another commenter writes: 

Capital preservation is very similar to when one is playing a strong defensive game and in top shape. Even a player with a weak offense, if he has a strong defense, that and fortitude can grind the opponent down.

Alex Castaldo writes: 

The business of money management requires two separate things: first the ability to attract (and retain) Other People's Money (OPM), and second the ability to successfully invest/trade. In my experience it is rare for one person to be good at both, so to have a successful firm you probably need some people who are good at one and some who are good at the other.

Raising money involves marketing skills and also good communication with the clients so you understand what the client wants and so you keep the client informed/reassured about what is going on (even when they should be worried instead!). Basically these are people skills.

For investing/trading on the other hand you need the ability to see things differently from others (so called "variant perception", seeing things that are true but that other people don't see). This skill is partly an intellectual skill and partly guts/courage to do things your own way rather than follow the consensus.



 I came across these articles today, thinking about and researching what the health care system is going to look like, now that the Affordable Care Act is being rolled it.

I formerly considered the 'health' part of my long term portfolio design a sector to emphasize, anticipating the bulge of the baby boomers turning into net health care 'over'-consumers, and in line with the long term move in the US economy to over-weight the health services sector, and the formality of that sector over the last fifty years to make sure a structured income stream is flowing into it without interruption

The article and the trail it leads to, point out that part of the healthcare delivery system is laying an 'allocation' formula, or 'curve' of who will get what level of care, over the span of their statistically projected lifetime (which 'manages' 'demand' for resources, rather than letting 'more free' market approaches prevail work) [1] [2]

I am not so sure that the sector was perhaps not 'too' successful, causing the emergence of a political will to put it under control of the central planners, and so ending that reason to over-weight it

1. "The "Complete Lives System"-why so little comment from the medical blogger world?"

2. Prioritized lives



 This is a nice piece of writing revisited, from an Alabama grad by way of NJ. A touch of the butterfly effect with the deleterious effects of reduced patronage suggested here. My Way or the highway–gangster-style resonations:

Sinatra with a cold is Picasso without paint, Ferrari without fuel — only worse. For the common cold robs Sinatra of that uninsurable jewel, his voice, cutting into the core of his confidence, and it affects not only his own psyche but also seems to cause a kind of psychosomatic nasal drip within dozens of people who work for him, drink with him, love him, depend on him for their own welfare and stability. A Sinatra with a cold can, in a small way, send vibrations through the entertainment industry and beyond as surely as a President of the United States, suddenly sick, can shake the national economy.

Read more: Frank Sinatra Has a Cold - Gay Talese - Best Profile of Sinatra - Esquire



No doubt that any cuts next month will be targeted to inconvenience the public most directly like travel, preferably during school breaks. After all if no one noticed what's to stop them from making, horrors, additional cuts.



 James Wynne, my college roommate of 4 years, won the Russ Prize given every 3 years for invention of use of excimer laser surgery. The invention led to modern refractive surgery including PRK and Lasik. More than 25 million people have received Lasik therapy. Another winner of the Draper prize was a team of 5 who were the key to inventing the cell phone. The winners were Martin Cooper, Joel Engel, Richard Frenkiel, Thomas Haug and Yoshihissa Okumura. More then 6 billion people now have cell phones.

The occasion was the National Academy of Engineering awards. On the trip to the awards, $500,000 each, I passed the BLS, and the Fed and the Service in succession. Much wailing in the paper was headlined over the coming sequestration and the terrible layoffs and reductions in budgeted salary increases. Who is to blame, the front page Post headline proclaimed. You could hardly pass a block in Washington where cranes were not aloft building new structures. What a contract of pride and revulsion I felt.

We stayed on embassy row, and the loathsome spectacle of zombies wearing necklaces holding their name tags, and multimillion dollar mansions containing every embassy under the sun, was broken in part by the sight of George Washington University students dining at Le Pain Quotidian and walking down Mass avenue as if they had not been already snatched.



I came across this interesting graph, which isn't likely much of a surprise given where the market is these days–no fear and all is well in the world. What I don't get is that absent 1987, there are few drops in the trendline, and it's been a notable feast and famine starting in 1997 or so. Question from the ignorant: what happened in 1997? There was LTM in 1998, but the upswing seems to precede that.

Jordan Neumann writes: 

Asian currency crisis. Some on this site could tell you more about it.

Pete Earle writes: 

Currency hi-jinks which began in Thailand, spread to Indonesia, South Korea, the Philippines, Malaysia, Singapore, Hong Kong, and resulted in a number of short, sharp recessions. 

Gary Rogan writes: 

I read something about that series of recessions a few months ago that seemed quite instructive to me. While there were a small number of countries that had what could be described as hi-jinks, most of them did not. The way global investors reacted was indiscriminate though, and they pulled out capital from anything that remotely resembled a dangerous Asian duck, whether or not it walked or quacked like one. This fear response can probably be generalized to how different panics start. 



 I found this article about DIY weapons of the Syrian rebels.

There is tremendous ingenuity there despite difficult odds especially as the EU and US yawn.

Were the pics only slightly different during the American Revolution?

Stefan Jovanovich writes:

Nothing happening in Syria matches the scale of the American revolution or its duration. It was not, in any sense, an uprising; it was a civil war comparable to the one that began in Britain in 1640 and it was fought between organized armies, both of which have current serving units that can trace their ancestry back to 1776.

Army National Guard and Active Regular Army Units

The American Revolution began with the New England militias and the Regular Army literally kicking the British out of Boston using artillery taken from Fort Ticonderoga and muskets that they already owned. What Washington struggled with for the rest of the war was the fact that the British were not going to stay gone but were going to use their Navy to come back. The fleet that arrived offshore in New York harbor was the largest amphibious invasion in human history - more men and more ship tonnage than the Mongols' attempted invasion of Japan, Alexander's siege of Tyre, Anthony and Augustus' triremes at Actium. It was also, by far, the longest voyage. That effort wasn't matched again in size and distance until the Allies landed in North Africa during WW II.

The financial scale is also one that we have difficulty understanding. The war lasted for over 6 years and took Britain to the edge of bankruptcy. For what became the United States the result was total insolvency.



It's time for another article roundup from me. This time around I found a couple of interesting articles related to universality.

1. "Spacing out: Plotting the distance between individuals"

"That internal calculation of impending impact kicks in and helps carve a comfortable space every time a starling swoops in to negotiate a spot on a wire and every time you pull up behind another car at a stop light."

2. "In Mysterious Pattern, Math and Nature Converge"

'In 1999, while sitting at a bus stop in Cuernavaca, Mexico, a Czech physicist named Petr Šeba noticed young men handing slips of paper to the bus drivers in exchange for cash. It wasn't organized crime, he learned, but another shadow trade: Each driver paid a "spy" to record when the bus ahead of his had departed the stop. If it had left recently, he would slow down, letting passengers accumulate at the next stop. If it had departed long ago, he sped up to keep other buses from passing him. This system maximized profits for the drivers. And it gave Šeba an idea.

"We felt here some kind of similarity with quantum chaotic systems," explained Šeba's co-author, Milan Krbálek, in an email.



Do We Live Inside a Mathematical Equation?

BOSTON—From the arc of a baseball to the orbits of the planets, mathematical patterns are everywhere. But according to physicist Max Tegmark of the Massachusetts Institute of Technology in Cambridge, it's not enough to say that math governs our universe. Rather, he believes that reality itself is a mathematical structure. What the heck does that mean? We caught up with Tegmark after his presentation at yesterday's symposium "Is Beauty Truth?" at the annual meeting of AAAS (which publishes ScienceNOW).

Gary Rogan writes: 

I have long believed that the most puzzling thing about the universe is that fundamental mathematical laws and constants seem to hold reliably over vast stretches of the universe. Until we understand how a photon "knows" that it needs to travels through vacuum at exactly the same speed everywhere in the universe, or why any two objects anywhere attract each other gravitationally with exactly the same exponent attached to the distance between them and exactly the same constant attached to that equation, and any number of such things, we are just observing the symptoms of something on a deeper and deeper level without understanding how the whole thing is constructed. Sooner or later this has to come down to some fantastic explanation, like a single basic particle "painting" the universe on its own timescale, or every fundamental particle simultaneously communicating with every other fundamental particle to maintain consistency, or the universe being constructed on some level via a very small number of types of discreet building blocks that are completely invariant.

David Lillienfeld writes: 

That's the one issue I have with the Big Bang–where did all that energy come from?

Gary Rogan writes: 

Well, that's just one issue of several with the Big Bang, like

-What caused it to occur?
-What was there before it?
-How did all the physical constants settle on particular values (regardless of consistency)?

The Big Bang is just another descriptive theory of the form "the universe behaves according to these laws", but provides no explanation for the "why?" on the fundamental mathematical level. And no, religion doesn't help. The "global computer simulation" theory is highly attractive: constant laws and constants across time and space and a definitive beginning out of nothing with a lot of energy are just so easy to explain!

Gibbons Burke adds: 

Further, why are all the physical constants so precisely dialed in that if any one of the 30 or so parameters which define the immutable characteristics of the universe so tightly dependent that a variation in any one of those parameters, to one part in a million, would make life, or indeed the universe, impossible?



 It seems Turkey and Israel are patching up their recent spat with some arms deals. At one time, Turkey and Israel were close–so much so that when the recent earthquake hit, Israel was the first country to extend aid, something which was approvingly noted in Turkey's newspapers. However, since 2010, when the Israel Navy stopped an effort backed by a Turkish foundation to break the Gaza quarantine, relations between the two nations have been tense. (Relations were already somewhat troubled, but it was only after the incidence that ambassadors were withdrawn.)

Why do I bring this to attention, particularly to this site about markets? Natural gas, and possibly oil. For anyone investing in the energy arena, with the exception perhaps of electric power, the Eastern Mediterranean is–or should be–of interest. When Turkey and Israel were on the outs, Israel approached Cypress seeking a deal on who had rights to what part of the offshore natural gas fields and constructing a pipeline through Cypress to Europe.

Turkey wasn't pleased with this development, since it claimed the northern part of the fields for itself (Lebanon has also staked a claim, but no one seems to be paying much attention to it). Things got sufficiently tense last year that when an exploration rig left Israel for further explorations in these fields (in the hope of find oil and not just natural gas) last year, Turkey dispatched two ships from its navy to "patrol" the northern fields it had claimed. What the ships would have done had the rig gone into those northern fields is unclear.

At the same time, Turkey has played a key role in helping Iran work around the economic sanctions imposed by the West as a means of stopping Iran's effort to build a nuclear bomb. Hence, the surprise of Israeli weapons sales to Turkey (particularly given the concerns about the weapons going to potential terrorists), not to mention Turkish efforts to secure Israeli natural gas.

These natural gas fields are estimated to be large–not yet at the level of the Qatari ones, but the estimates have been increasing with each new exploration well drilled. Noble Energy has a big interest in these fields, and so does one of the majors (I think it may be Chevron, but I'm blocking on which one in specific).



 A Great Books program is designed to teach history by having first-hand experience reading the primary works of thinkers upon whose shoulders the edifice of Western Thought rests. The works are to be read in chronological order, to the ideas are arranged and built in the mind in the order by which Western Civilization was built. They are like building blocks.

Listening to a re-digested synthesis of all that material, selected and edited and interpreted according to some unknown theory (but likely, given today's academic gestalt to be a form of Marxism) and regurgitated into your earphone by a for-profit company undermines the very idea of the program.

Fortunately most of the Great Books are out of copyright, and so may be downloaded and read at no cost from Project Gutenberg, and that reading greatly aided by the electronic resources for learning and contextualizing available at one's fingertips in most capable ebook readers (highlighting with auto-compiled indexes of highlights, wikipedia search, web search, Google Maps).

The reasonable excuses for ignorance in this world, apart from apathy, sloth, incorrigible stupidity, and willfulness, are quickly becoming endangered species in this Brave New World, and are on the brink of extinction.



 Last night Elizabeth and I watched the 2006 Mike Judge movie Idiocracy, available on Amazon prime streaming.

It is not great cinema and only mildly funny, but it's the most subversive, un-PC movie I've ever seen. The story is based on reasonably accurate reverse eugenics (dysgenetic?) of the country becoming genetically stupider. More relevant today than when made because of all the current talk about Hispanics and even the Republican Stupid Party having to transform itself to appeal to Hispanics, the movie features a President Camacho.

Supposedly Fox wanted to bury the movie, only doing its contractual minimum in theatrical release, with no trailer promotion or screenings for critics, and open in minimal cities. But it has apparently acquired something of a cult following, with DVD revenues now nine times the theatrical.

Anyway, I was amazed how honest (if you have any fear IQ in the country is genetically declining). Although I guess the usual MSM critics, instead of having a fit over it, either didn't see it, or thought it was somehow a proponent or example of the stupidity that the movie was satirizing.



 Last Friday, February 15th, should be at least one of the minor memorial days for the Law is Fairness doctrine. Ronald Dworkin's obituary made the Telegraph, and John Burt's book on Lincoln was reviewed by the WSJ. For those of you who are not besotted by the Constitution, this may not mean anything; but for us few remaining Neanderthals it is another reminder of how how pernicious modern legal scholarship has become. Dworkin believed with all his heart that the U.S. Constitution existed to "benefit society not just by providing predictability and procedural fairness, or in some instrumental way, but by securing a kind of equality among citizens that make their community more genuine and improves its moral justification for exercising the political power it does". Professor Burt remains convinced that freedom is really just a "code word" for "racism" (whatever that means) and that markets function only as a form of "Darwinist brutality."

The belief that the Constitutions of our Union were, as written, the "law of the land" is probably the only religion that Abraham Lincoln had. He used the vocabulary that Washington and Grant did and spoke and wrote regularly about Almighty Providence; but he did not have the soldier's acceptance of fate. What he did believe was that the Constitutions were sacred documents because they represented, in tangible form, the will of the People. However, for those of us who remain anarchist enough to think that the only foundation of "the law" in this country is the United States Constitution and the Constitutions of the various states, as written. The resonance of the words in Gettysburg Address is real because it is Lincoln's own catechism as an American: "that this nation, under God, shall have a new birth of freedom—and that government of the people, by the people, for the people, shall not perish from the earth." "Fairness" - in the communitarian sense of let's all share the rich guys' stuff so dear to academics and intellectuals everywhere - was not even mentioned.



 Call it a cascade or call it the conservation of energy, or call it signaling or money outflows—- But the decline of 60 bucks of gold in a week to below 1600 intra day sends the storm signals up. It could happen while one was long. I looked at the effect of gold down 60 bucks in a week as of a Friday. And it's happened 18 times in last 13 years. It seems to have no inordinate effects statisticlly– being bearish for the stocks and oil and bullish for the dollar and bonds and gold in the next few days and someewhat bullish for the stocks on a 2 week basis.

Anatoly Veltman writes: 

Ok, so you did derive those slight biases you mention. But how is "60 bucks", and exactly Fri-to-Fri supposed to be a determinant? 60 bucks 13 years ago would be 20% depreciation; while today it's less than 4%. A few mega-funds like Pimco, Bridgewater, Paulson were not in gold until a few years ago. China, Russia were not significant players until a few years ago. EU was not in liquidity crisis until a few years ago. Cash gold was not above Comex gold. The dollar/gold relationship has waffled between negative and positive corellation last few years. There were no QE-infinity until a few years ago, no ZIRP. What if the entire this week's slide was due to China market holiday? There are just too many cross-currents for this kind of 13-year statistical sampling. Unless significantly fine-tuned, the conclusions will inevitably be of little use.



 Does anyone know anything about housing values in Detroit? Of particular interest are empty lots.

Victor Niederhoffer writes: 

30 bucks will get you a good abandoned big home without the copper. Reason has a very good video on the bargains among the abandoned and its causes from excessive service rates and unionization. Chicago is the next Detroit I'm told.

David Lilienfeld writes:

I ask because a good friend of mine, a little older, is an ophthalmologist who bought four adjacent lots off of Woodward (?) near the center of town. The cost was practically nothing. Two of the lots are empty, the other two have abandoned homes (he compared them to Ridgely's Delight (in Baltimore) in the 1960s–that area of the city was in pretty poor shape at that time. The lots themselves are "big". Marty's thinking of when he can turn his practice over to his son and retire. (I can't picture Marty retired. The man runs on adrenaline and his great rapport with his patients. He would have gone into cardiology, but he thought ophthalmologists were paid more and didn't have to work as hard–leaving him time for his woodworking and a bunch of other hobbies.) He hopes to build a "large" house on the property sometime in the next 5-10 years as a summer home. I think he's crazy, but given his investing record, which is pretty good, I have to wonder if he's just really early, nuts, or onto something. Hence, my question.

GM and Ford do seem to be on the rebound, though. What's on the rebound in Chicago, except for gun sales?

Ralph Vince writes: 

I imagine it is much like Cleveland, where you can buy property for the back taxes owed. Young people not taking advantage of this are silly.

The mineral rights under most of these places, eventually, exceeds the cost



 As a geologist whose first job was returning library books to shelves and who later had stints as a bag boy in an uncle's grocery store, I would be the last to underappreciate the efforts of the stacking professions. The following quote, however, is quite amusing on many levels:

"The next time somebody goes in - those smart people who say there's something wrong with this - they go into their supermarket, ask themselves this simple question, when they can't find the food they want on the shelves, who is more important - them, the geologist, or the person who stacked the shelves?"

But egads, what would the "snobbish"and "useless" job seeker do without the beneficence of the government secretary? After all making men small and needy is hard work.

Can one say the odds are stacked against you in finding suitable employment in the UK?

Heaven knows, the unimaginable waste of geological talent out in the North Sea that could be put to productive stacking is absolutely appalling!



 If folks would be so kind: could they name their favorite examples of intelligent and rapid economic development of poor countries (but with reasonable educated workforces, so you're not starting with e.g., Afghanistan)?

Famous examples are: Singapore, HK (although these have a unique entrepot status, and therefore wider learnings are not so great?). And then South Korea was impressive.

And of course China, but this was so big and diverse that its hard to reapply. I am looking for more "turnkey" type stories.

Those few examples went totally against the "Washington consensus" for many of their policies, much to their benefit.

Any further case studies people would recommend?

Many thanks.

Gary Rogan writes: 

Chile and the Chicago Boys come to mind.

Jan-Peter Janssen writes: 

I recommend looking at Estonia. It's a tiny Baltic state which is remarkably advanced in IT . Skype was invented in Estonia. Programming is taught at school from age seven. The government aims to reduce bureaucracy through a so-called eGovernment. It is linguistically and culturally close to Finland (where Nokia is from) and together these two nations should have the critical mass of talents needed to create a high tech industry.

Estonia is ranked the world's 13th freest by Heritage Foundation.

Richard Owen writes: 

Ok, here is a consolidated list of suggestions. Thanks to all.

Tysons Corner, VA
Reston, VA
Japan WWII
Poland (Mazowiecki)
Latvia in 90s
Drexel Burnham under Mike Milken
Jaimaica vs. Singapore



"Russians Wade Into the Snow to Seek Treasure From the Sky"

"Villagers here have plastic bags, matchboxes and jars filled with dozens of stones. One even tore a hole in the coat one woman was wearing outside Friday morning.

But this is Russia, so the excitement became tinged with anxiety on Monday as unknown cars appeared, cruising the streets and bearing men who refused to answer questions but offered stacks of rubles worth hundreds, then thousands, of dollars for the fragments. Strangely, no authorities were anywhere in sight. "



 It was surprising to hear that in the new book about being smart (and a world traveler), he talks about losses, as I have never heard him acknowledge a loss before, and he seems the most insecure and least humble of men. The loss must have been of the kind that Harry Brown writes about "we said gold would go to 950 from its then current level of 450, but we were wrong as it only fell to 450 before rising to the specified level". The false humility of it all. Similar to the Palindrome. "Well, my. This man is so honest and so good. If he calls it a mistake to just miss it by 10 bucks, imagine what he must make when he's right. I'll invest with him immediately". The perfect lie often starts with a false admission of wrongness to throw the victim off the track. Cole Porter was a master of this, i.e. his admission that he was a captain in the french legion "only because they wanted to have an American in the force". Of course, he never got near the French legion and was there to evade the draft and of course the other thing he liked to do at night. img.imageResizerActiveClass{cursor:nw-resize !important;outline:1px dashed black !important;} img.imageResizerChangedClass{z-index:300 !important;max-width:none !important;max-height:none !important;} img.imageResizerBoxClass{margin:auto; z-index:99999 !important; position:fixed; top:0; left:0; right:0; bottom:0; border:1px solid white; outline:1px solid black;}



An interesting aspect of the asymmetry between big mimina and big maxima in stocks is that given that the last 20 day minimum occurred from 5 to 100 days ago, the expected duration to the next minimum is 30 days whereas the comparable for 20 day maxima is 15 days.



 Weekly, one looks at Israel's market for benchmarks and guidance as they read our mail and are so much more scholarly than we. And to do it, I often scroll through 100 returns for every world market. In looking at these, one notes that about 90 of the markets are performing significantly worse year to date than the US. Canada and Europe are up 2% on the year to unchanged versus our up 6% are typical. Only Japan is up 10% and a few Arab countries are in our ball park. In conjunction with the run 20 percentage point increase in stocks relative to bonds, and the duration of 75 days since bonds set a big max, and the dissipation of wealth in the long precious metals, and the incredible run of max after max in US stocks, and the little woman's (who is very sagacious and always gives me good advice about the market) waving of the sceptre each morning over the head "but dear, yes. You're making, but what happens when it goes down 100 points 5 days in a row. Don't give it all back", one is somewhat less exuberant than one would be without all these Cassandra like warnings. If all my kids start calling me saying that they notice they have a few bucks in money markets receiving 0% interest, and should they invest in stocks, like they did at the height of 6000 nasdaq in 2000, then I'll know it's time to join Maturin in leaning over the boat and noting the behavior of the flying fish. Hopefully, I will take my shoes off if I fall in the water.

Rocky Humbert writes: 

Well put. Alas, the wife of the man who is long S&P calls because he sees little if any value in stocks (or bonds either for that matter, but accepts that the market is always right and he doesn't fight the fed or fight his wife) is already asking, "after the market goes down 100 points 5 days in a row, is that time to sell or time to buy?" The trendfollower replies, "depends on your timeframe."



 For about 3 years, I've been monitoring the trend in public notices of foreclosures and sheriff sales in the local newspaper. These have gone from nearly a full section 2-3 years ago, to several pages a year ago, to near zero today. Similar observations in other locals while traveling have been made.

It looked a couple of years ago that goo would be flushed from the system by the second half of this year. The upward trend in new construction, home prices and building materials in the last half of last year caught me by surprise as well.

Out here in the boonies [at least in my boonies], we were not hit nearly as hard as the coastal regions in either the housing or employment markets. In reviewing and measuring housing, let's not forget……geography matters, as does what is selling.

I wanna think maybe this is a combination of having paid down or reorganized our debt, learning our lesson about over-extending and being house-poor, having begun to save and invest and spend more wisely again, and with the market up we're feeling better about our fortunes and the future, we notice there are still vestigial housing deals out there as well as new ones, recognize they might not be there for long as home prices are increasing, and figure the time is right to buy again. Kind of like recognizing a market bottom has occurred and buying in at the beginning of the upswing.

I don't think this is a head fake, but a certain amount of prudence is not ill-advised, because, as we saw in 2007, nothing lasts forever.

Henry Gifford writes:

One time I was negotiating to buy a house and I told the seller "Your house is in mint condition." The broker in the background was cringing, and repeatedly recommended I hire a home inspector, and the only thing that would quiet her down was explaining that the home inspectors have an association, which has a magazine they read to learn about what to look for when they inspect a house, and the latest issue had a cover article I had written.

I told the seller I was going to make an offer to the realtor within the hour, and my offer would be contingent on me not dying. No mortgage contingency, no inspection, no nothing. We agree, we sign, we close.

My offer was lower than other offers that day. We closed soon after without hassle.

When selling property I generally ask for an "as is" contract, to avoid the games.

The legal side of it all says that a seller is more obligated than a buyer because "specific performance" says the seller is promising something very specific (a unique house) while they buyer is not. As a practical matter, a buyer can threaten to sue for some obscure term of the contract, tying the property up indefinitely if they are not refunded all their money.

It is all just another way honest people are at a huge disadvantage in life, but it is the life I have chosen.

Jim Lackey writes:

A hold back near nashvegas: rent exceeds the cost of carry here. Even @ 0% down FHA rate + tax tag and title (yet minus the unknowable maintain costs) if you rented it yourself, no management fees, i.e, rent 1500 per month, cost of carry 1200 on 4br all brick nice hood and schools. Yeah, if it was a cash buyer it is grocery store, wait AMZN margins so it can trade 100X earnings. lol. I just figured it out as a few of my friends have moved (bought new new) and held on to their old house and we have renters in the hood. Yet, it's still cheaper to buy new vs. used. Hipsters are in deep buying East Nashville tear down/ guy rebuild. My buddy told me it was dead 20 years ago. His new wife as a college kid bought dead homes for 3,000 bucks. Yes, you can imagine correctly.



Today was a rather interesting day for astronomers… with a bit of Russian deja vu and dinosaur demise added in for good measure. Here is my round up of multiple links for you all. Click on the numbers for the links.


The Near Miss "Asteroid 2012 DA14 is about 150 feet (45 meters) in diameter. It is expected to fly about 17,200 miles (27,000 kilometers) above Earth's surface at the time of closest approach, which is about 11:25 a.m. PST (2:25 p.m. EST) on Feb. 15. This distance is well away from Earth and the swarm of low Earth-orbiting satellites, including the International Space Station, but it is inside the belt of satellites in geostationary orbit (about 22,200 miles, or 35,800 kilometers, above Earth's surface.) The flyby of 2012 DA14 is the closest-ever predicted approach to Earth for an object this large."


"A meteorite shot across the sky in central Russia early on Friday and sent fireballs crashing to Earth, smashing windows, setting off car alarms and injuring 150 people.

Residents heard what sounded like an explosion, saw a bright light and then felt a shockwave as they went to work in Chelyabinsk, according to a Reuters correspondent in the industrial city 1,500 km (950 miles) east of Moscow."


"Some of the numerous videos that quickly emerged of the incident highlighted a distinctly Russian phenomenon: the dashboard cam. As Business Insider recently pointed out, they are commonplace in Russia partly because of the dangerous driving conditions that lead to so many accidents, and with an unreliable police force such cameras can provide valuable evidence following a crash."


Tunguska 1908

"The year is 1908, and it's just after seven in the morning. A man is sitting on the front porch of a trading post at Vanavara in Siberia. Little does he know, in a few moments, he will be hurled from his chair and the heat will be so intense he will feel as though his shirt is on fire.

That's how the Tunguska event felt 40 miles from ground zero."

More on Tunguska


Past extinction event

A) "UC Berkeley researchers have discovered new evidence linking an asteroid impact to the extinction of the dinosaurs.

UC Berkeley Professor Paul Renne and a team of researchers, using isotope analysis, have found that both an asteroid impact and the extinction of the dinosaurs took place nearly synchronously 66 million years ago."

B) Abstract for Renne's work

"Mass extinctions manifest in Earth's geologic record were turning points in biotic evolution. We present 40Ar/39Ar data that establish synchrony between the Cretaceous-Paleogene boundary and associated mass extinctions with the Chicxulub bolid



 One sees that he has called for an increase in the minimum wage. It will be interesting to see the annual economic report that usually accompanies The State of the Union and see how economists can show that raising a cost like this will not lead to decreased employment and layoffs for the unskilled. Economists are no better than the aforementioned counselors who tortured and ruined the Biker's whistleblowers it would seem. Indeed, as Rabelais would say, almost all of our professions are as laughable and flawed but wonderful as well as the economists and counselors.

anonymous writes: 

I only listened to a part of the speech but from what I understand he, and the rebuttals that will/did follow will all try to outbid each other about calling the illegals "immigrants" who are welcome like the high achievers that they are. As Milton Friedman said, you can you can have open borders or you can have the welfare state, but you cannot have both. When 10-20 million are legalized and are finished bringing in the 50 million with family reunification and 30 million of the total will go on welfare with five kids per couple this will dwarf all the other nonsense. This is clearly not sustainable.

Stefan Jovanovich replies: 

Apologies to anonymous for this mini-rant. The United States never had "open borders" any more than it had "free trade". What it did have in the 19th and early 20th centuries were very straigntforward rules about what people and goods had to do to cross the border. People had to pass physical health inspections (1 out of 5 did not), and goods had to pay a tariff. If you did not have tuberculosis or syphilis, you got in; if your importer paid the duties, your goods could be sold here. There was no presumption that having the right to live in the United States entitled someone to vote; that required the same citizenship examination that people now have to pass and a period of residency without being found guilty of a criminal offense (the definition included the non-payment of taxes). To be eligible for what the Constitution calls "Naturalization" a person also had to have no criminal record and avoid being placed on the attorney general's blacklist. Neither of my paternal grandparents ever became a citizen. My grandfather did not because he had been on the blacklist for being an anarchist. He was one; like Bakunin he thought that nothing could justify oppression, whether it was in the name of country (vide the Russians keeping down the Poles) or in the name of the revolution (Nechayev and Marx's authoritarian socialism). Grandmother's explanation was simpler; she never learned to read English or Polish, for that matter. (She suffered from severe dyslexia.)

My grandfather never thought he had been oppressed by the government for their failure to allow him to vote. He never considered the United States his homeland; but it was his children's, and he thought that he had an obligation to defend their country so, in December 1941, after they were all grown adults, he tried to join the Marine Corps. They turned him down (he was 52); but the Navy Department did accept the enlistments of all 3 of his children. He would have laughed at the notion that the United States had an obligation to allow people who broke the law - both by coming to the United States illegally and by committing crimes after they were here - to become citizens. If the country decided that these people could stay, that was up to the decision of the citizens; but he would have considered it a grave insult if other people had been allowed to become citizens after breaking the law or being illiterate in English. As a peaceful revolutionary (the very kind all the Marxists love to despise), he believed that "if you won't do the time, you don't have the character for crime". Surely, the same rule should apply to all current illegals.



 I'm in Valdez Alaska. It snowed 2 feet the day before I got, here, and 3 feet the day I got here, and 2 feet today, and it's still snowing. When backcountry skiing, avoiding avalanches is a constant concern and a matter of life and death. I've talked to a few real experts on the subject here, Dean Cummings, former World Extreme Ski 2nd place champion and owner of H2O Heli ski, and Matt Kinney.

One of the basic ways to understand the snowpack and the potential danger of avalanches is to dig a pit in the snow and examine the layers of snow over the season and test its structural properties. Snow, when viewed cut away in a pit, shows the layers of snow over the season like the rings of a tree, exposing the various attributes of the snow. One of the things to look for is a weak layer in the snow, such as a layer of ice formed by rain or sun melt, or powdery sugar snow called hoar frost. The other thing to look for is slab formation caused by wind blown snow. The danger is when a slab slides on a layer of ice, or sugarlike snow and forms an avalanche.

The pit exposes the layers and the skiier examines each layer by touching it to feel its consistency. The skiier then isolates a 1 or two foot wide column of snow which can be 240 cm tall where that is the depth of the snow. After tapping the top and counting the number of taps, if the column of snow collapses at the icy or sugary layer, it is a sign of weakness in the snow, a potential place where an avalanche might trigger at the weak layer in the snow structure. Avalanche experts use microscopes and examine the snow crystals and see how they have metamorphed over time with temperature. A pit is only a snap shot of the snow in one area of the mountain and the snow cannot be assumed to be the same elsewhere, but it gives information about the relationship of the layers.

I could not help to think of the similarities in the historical evidence of snow to the order book. I wish one could look to see the structure of the entire order book up and down the prices. Especially nowadays with computer traders, the order book rapidly and constantly changes, but there would be information in the changes in the order book. There would be weak layers, or strong layers in the book. There may be structures in the order book near or around round numbers, and in time around announcements, closings. Even better would be to see whose orders there were. I've read that CME full members can see the tags identifying the order makers' identites. I'm sure the complete order book is available to someone somewhere, perhaps the market makers see this. Without the information it feels like flying blind sometimes. It certainly would be an advantage.



 The bent handle racquetball racquet of the early 80’s reminds me of a one month experiment with every type of adhesive on the market, about thirty in all from Elmer’s to Superglue, using various styles of gloves and racquet grips to stop grip slippage. I recognized with the onslaught of the fast ball and tightly strung racquets of the early 80's that the primary problem of most players in their entire games was ball deflection on contact due to grip slip.

It started moments after the coin toss in tournaments when the glove, hand and handle got sweaty. Everything in the strokes and strategies of millions of advanced players across the nation was right except the angle the ball came off the strings. Given a good eye or fast camera, the handle rolled about two degrees within the strongest palm. Even power racquetball’s inventor Marty Hogan screamed at the injustice. I needed a glue to stop it. Over the course of a month in my secret 'laboratory' of a Michigan garage via tedious daily hours of applying adhesives to gloves, my palm and handle, I gripped and formed opinions of the best glues… and went to the courts to test them. The best was Barge Cement and to this day I keep a quart on my desert property for all purpose contact.

The result of the glue experiment was conclusive for cement type, but over a period of ten minutes of hard play though the grip didn't slip twixt the glove and handle, it started to rotate between the hand and glove for the same misdirection. Gluing the hand to the racquet was the logical next step which I did for a new one grip system for forehand and backhand. Yet I couldn't let go during timeouts, plus the heating glue felt unhealthy climbing my circulation from palm to armpit, so I abandoned the idea of gluing the hand to handle.

The nationwide grip slippage of the early 80's due to the advent of superballs, tight strings, Tarzans hands, and double ball speeds I believe to this day is the prime reason for the concurrent historic introduction of the one-grip system that previously was all but unknown in racquetball.



 It's amazing how the general public, mostly low risk takers and even those who are relatively well off, will swoon around those that are perceived to be in another stratosphere in wealth, no matter their line of business.

Glamour and dreaming allows people to escape, and it would seem the swooning is some selfishness on the publics behalf, allowing them to ponder a life less worked.

It makes sense that the man devoting his life to others allows for a lot less interest unfortunately.

This human trait probably allows traders to gain an edge, as the public wash from one latest craze to another, and nobody likes the doormat, on its lows, going nowhere fast.



Beware the Ides of March. They come to demonstrate, not to legislate.

As damages are tallied, cash becomes king.

Opportunities abound as rubble is cleared. Swept away will be demonstrators, who rue the day they forced a great nation to the edge of the abyss.



 Queen's Lady Gaga was a huge hit globally. It was beloved in the UK. It was Queen's major seller before their "live aid" moment which spurred them on to their greatest album and peak success.

I recently read, however, that it was a dud in the USA. Queen had been on the ascendant there. Thereafter, their name in the US was on a downward spiral. Which was aberrational as Queen were major sellers in pretty much every major western country.

Why? Apparently the comedic video, featuring the band all dressed up as women, left Americans with a funny feeling in their gut.

I guess to politics, religion and honeys one needs to add humour?

The market equivalent would be Blackstone (i) buying Celanese in Germany, (ii) fussing around and doing some jazz hands in the interim, and then (iii) reselling the same company in the USA for twice the price.



 While most of you don't play racketball, I believe the hobo's history of racketball on site was very educational for those with kids who wish to play it or anyone who plays any racket sport. The torque and the backswings on the backhand and the bends in the pictures are most enlightening. One notes that there have been 4 champions who ruled the racketball world for about 5 years each, winning almost every tournament. I noted the same thing in squash, and tennis isn't too far away in that area also.

One wonders if a similar phenomenon relates to markets. e.g. is there one stock that can outclass all the others in performance for a certain number of years, like Hogan, Swan, and Kane. Eventually those champions receded due to age, competition, or injury. Is there a predictable turning point?

Alston Mabry writes: 

Obviously, AAPL is the current version of this. And looking at AAPL, one sees an example of a company that stumbles as it fails to effectively deploy the very capital it accumulates due to its success. 

A commenter writes: 

This is the measure of how good a CEO Jobs was. He may have been a great innovator and manager, but he may not have been that strong of a CEO. A good CEO assures succession, and it isn't clear that Jobs was successful in this regard. The same was true of RCA and David Sarnoff, By comparison, Alfred P. Sloan accomplished this task for GM, Adolph Ochs for the NY Times, Hershey with Hershey Foods, and the Mars family with the Mars candy business. That hasn't been the case with Apple, at least not yet. Any guesses on how long the Board waits until Cook is replaced?

David Lillienfeld writes: 

There will always be outliers.

There are also companies at the other tail with managements performing more for "enjoyment" (like me athletically–I suck at racketball but I very much enjoy playing it and when I've had access to a court, done so for 3+ hours a week). Are there stocks in which management is in it for fun rather than shareholder value "enhancement"? Sure. It isn't hard to identify underperforming companies.

As for a predictable turning point, there should to be tells in each industry, but that doesn't address your question about one sentinel stock. I don't think there is a sentinel today the way GM was in the 1950s and 1960s. (Some might argue that Johns-Manville was a better sentinel. Either way, there was a single stock.) You've got a globalized market and no one company occupies a dominant position in a sentinel industry (such as autos in the 1950s and 1960s). Of course, implicit in this uninformed comment is that a connection exists between stock performance and corporate performance.

Or have I misunderstood your question?

Alston Mabry writes: 

Just to do a little bit of counting, here are the 48 non-financial US-based cos with cash of $5B or more, with LT investments added in. The amounts are in billions of dollars, and the list is sorted by the Total column.

total cash: 729.4
total LT inv: 337.7
cash + LTinv: 1067.1


AAPL   39.8  97.3  137.1
MSFT   68.1  9.8  77.9
GOOG   48.1  1.5  49.6
CSCO   45.0  3.7  48.7

XOM   13.1  35.1  48.2
CVX   21.6  26.5  48.1

GM   31.9  14.4  46.3
WLP   20.6  22.1  42.7
PFE   23.0  13.4  36.4
ORCL   33.7  0.0  33.7
QCOM   13.3  15.1  28.4
KO   18.1  10.2  28.2
IBM   11.1  15.8  26.9
F   24.1  2.7  26.8
AMGN   24.1  0.0  24.1
MRK   18.1  5.6  23.7
INTC   18.2  4.4  22.6
HPQ   11.3  10.6  21.9
JNJ   19.8  0.0  19.8
BA   13.6  5.2  18.8
CMCSA   10.3  6.0  16.3
DELL   11.3  4.3  15.5
UNH   11.4  2.6  14.1
NWSA   7.8  5.2  13.0
EBAY   9.4  3.0  12.5
LLY   6.9  5.2  12.1
ABT   11.5  0.4  11.9
AMZN   11.4  0.0  11.4

GLW   6.1  5.2  11.3
EMC   6.2  5.1  11.3

HUM   9.3  1.0  10.3
FB   9.6  0.0  9.6
UPS   9.0  0.3  9.3
WMT   8.6  0.0  8.6
SLB   6.3  1.7  8.0
DVN   7.5  0.0  7.5
S   6.3  1.1  7.5
PEP   5.7  1.6  7.3

PG   7.0  0.0  7.0
UAL   6.7  0.0  6.7

HON   5.3  1.3  6.5
DISH   6.4  0.1  6.5
RIG   6.0  0.0  6.0
ACN   5.7  0.0  5.7

COST   5.6  0.0  5.6
NTAP   5.6  0.0  5.6

DE   5.0  0.2  5.2

Richard Owen adds: 

This is a brilliant list with many lessons.

- 80/20 rule: $2tr of surplus cash is bandied about as the figure for US corporations. Here are 50 covering over half of that sum.

- The 1% have an internal dissonance. Here is their accumulated share of National Product, all stored up and failed to be reinvested. The 1% neither wish to reinvest their cash, to reduce their share of Product, nor to have GDP decline, nor to run deficits. This is in aggregate impossible.

- By giving you will receive. By being cowardly, you will realise your fear. Tim Cook is hoarding his cash out of fear. Nobody has EVER put that kind of cash to work successfully. Not even Warren Buffett could do it on his best day. If Apple attempts to do so, they will end up hanging themselves. David Einhorn is so on the point with his analysis. And for once an activist is helping make management's jobs more secure, not less. They just need to listen. Take some options, recap the stock, make yourself heroes. Don't think you can use that cash to buy another magic wand. You will end up buying a pup. The most recent example of what might happen to Tim Cook if he doesn't see the light is the CEO of Man Group. They totally feared that AHL would stop working. They grasped at their cash looking for any credible diversification. They bought GLG at totally the wrong multiple. And then it all fell apart. All totally well intended, all well thought through. But if they had just recapped the stock - "coulda been heroes". Get out of your own way.

Steve Ellison writes: 

A couple of theories:

The crossover point from innovator to mature company occurs when revenue from continuing product lines becomes large enough that it dwarfs revenue that could realistically be expected from starting up a new product line in a new niche, was the theory in the innovation class I took in business school. Let's say that a company might develop a completely new line of business. If it were successful, it would be doing very well to get to $1 billion per year of sales of the new line within 5 years. If the company already had $20 billion per year in revenue, management would probably devote more attention to nurturing and further developing the cash cows that bring in the $20 billion than to a risky venture that might, if all goes well, add 5% to existing revenue. One might test this proposition by setting an arbitrary sales per year threshold and checking stock price movements of companies after they move past this level.

Adoption of new technologies follows an S curve pattern, driven by a small number of early adopters followed by more cautious but herdlike technology managers at large businesses, was the theory advanced by Geoffrey Moore in Crossing the Chasm. One might test this theory by looking for companies whose sales growth decelerated to less than 20% of the maximum growth rate of the past 5 years.



 Street Smarts is a new book out by the South Alabama bowtie man. There is an interesting video discussion here on being humbled by the market.

1. "Jim Rogers on When He Lost Everything"

2. A bit about his new book follows: Street Smarts by Jim Rogers

and an excerpt:

'Today, I wish I knew how to instill this characteristic in my children. I wish I could call my father or mother and say, "What pill did you give us?" Call it discipline, call it diligence, call it work ethic—­we all have it, my brothers and I. I do not know where it comes from. I wish I could find the gene. I am certainly not alone in recognizing the value of persistence—we all know smart people who are not successful; we all know talented people who are not successful. Persistence is what makes the difference.'



It is interesting to contemplate the role of overfitting versus simplicity with respect to the number of variables used to fit a model, and the predictive accuracy of same in the future. Concepts from information theory are sometimes useful as discussed in this rather technical article by Sprenger who notes "got rejected by Journals but helped him write another paper under review".



 Pilgrim Nuclear Power Plant, near Plymouth, Massachusetts was forced into a cold shutdown, due to a loss of offsite power (LOOP). This is not a big deal, but I'm sure some of the FUD folks will make hay out of Pilgrim's situation.

First, the need for power in New England is diminished. Current load is off by the equivalent of three nuclear plants right now. Projected load at New England's hub was supposed to be 16,980 megawatts and the actual load is 14,240 megawatts. So the temporary loss of the nuclear plant affects price, but not supply.

Second, when a nuclear plant loses offsite power, it is supposed to shut down. Usually, it shuts down without operator assistance.

Offsite power is used to power the plant's internal lights and equipment. Station service power comes from the grid, into the local switchyard, to the station service transformers and into the plant's power distribution systems. I'm guessing the LOOP problem is in the nearby switchyard, which is a huge substation and the origin of major transmission line(s). If there is a problem in the switchyard or in the transmission lines, then there is no transportation available for plant's produced power.

When there is a LOOP, diesel generators automatically activate. In US nuclear plants, there are three diesel generators, any one of which can handle the station's full load. One generator feeds the "Train A Circuit," which serves all critical loads, including battery chargers. Another generator feeds the "Train B Circuit" which feeds the redundant system of vital loads. The third generator is the swing - it can switch between Train A and Train B circuits. The Train A and B circuits are color coded, physically isolated, electrically isolated and the swing generator is a "break-before-make" swing (to maintain integrity of electrical separation).

Generators are frequently tested and test results are reported to the NRC. There is adequate amount of fuel available on site to power the generators for days (I forgot how many days are required under 10 CFR).

Currently, Pilgrim's diesel generators are operating as planned. As the nuclear plant finalizes its cold shutdown procedures, the load on the diesel generators becomes less critical. Depending on the design, vital systems needed to cool the primary system and to assure cold shutdown.

In the unlikely case where all three diesel generators fail, there are at least two banks of redundant batteries. These are massive lead acid batteries, which are hard wired into the redundant systems. Diesel generator failure will cause the batteries to supply energy without even a second of delay. Batteries are downstream and they feed four redundant vital circuits. Vital circuits are designed for instrumentation and control and they are color coded, physically isolated and electrically isolated.

Now the FUD folks (Fear, Uncertainty and Doubt) will argue that Pilgrim is a lot like Fukushima. There is enough truth to the statement to make the comparison seem valid. But the comparison is completely bogus and fear is unwarranted.

Like Fukushima, Pilgrim:

   1. Was designed by General Electric
   2. Is a Boiling Water Reactor (BWR) Mark I design.
   3. Is 40+ years old
   4. Has an ocean-facing site.
   5. Had a LOOP incident

Unlike Fukusima, Pilgrim:

   1. Has an upgraded BWR design
   2. Is designed to manage LOOPs
   3. Has access to unlimited amounts of fuel oil
   4. Didn't experience an historic earthquake
   5. Didn't experience a historic tsunami
   6. Didn't experience a historic earthquake, THEN a subsequent tsunami,
   AND a LOOP, THEN a loss of fuel oil
   7. Didn't incur any physical damage to any part of the facility

If you can keep objective distance from the Fukushima incident, you might appreciate that their plant's design. Their 1960-era design withstood an historic earthquake and it kept on tickin'. It withstood a subsequent tsunami of historic proportions and it kept on tickin'. It withstood a subsequent LOOP, and it kept on tickin'. Later, and only after the subsequent loss of fuel oil, did some units at Fukushima fail. It took four simultaneous failures before some units became crippled.

Keep in mind; some other units at Fukushima remain largely undamaged. Those undamaged reactors could technically return to service and provide electric power to the region. For policy and practical reasons, it isn't going to happen, but from an engineering perspective, it is technically possible.

Before memories fade and fear media takes over, it should remain clear that Fukushima did not cause the original earthquake, or the tsunami or the LOOP. There was a massive earthquake and massive tsunami, which damaged an entire coastal region, including local nuclear, coal and gas power plants.

Don't let the FUD folks make you go loopy over Pilgrim. While the station experienced a LOOP, a far more serious incident happened nearby. There was a 17-car pileup on one of Boston's highways. Pilgrim's LOOP will be reported nationally. The pileup will be relegated to page four of the local paper.



 This is an amazing clip of a magician performing the card trick "Sam the Bellhop", which is "without a doubt one of the best card tricks you’ll ever see." (from Big Geek Daddy).

The other week I was at a social event where they brought in a "corporate" magician. I've always wanted to see someone cut aces from a deck in person — and sure enough, the guy said it was easy.

So we went off to the side — I inspected the deck and shuffled it myself. He cut the 4 aces in 10 seconds…unreal!

Jeff Watson writes: 

Notice the very subtle technique he used to get the guy cut the cards exactly where he wanted it cut. Notice the crimp? Notice the Mechanic's Deal? The rest was false cuts, false riffles, false shuffles and very nice subtle pass throughs. He had the deck set up beforehand, and not a single card was moved despite all outward appearances. This guy is pretty good, but you can't listen to him, just watch the hands, and only the hands. His patter reminds me of the noise that the mistress uses to deceive us and relieve us of our cash. One could probably improve their speculation game if they just concentrate on the movement of the hands and ignore the noise. 




Directed by Steven Soderbergh

A cleverly plotted film that only reluctantly becomes evident, SIDE EFFECTS is a roller-coaster Hitchcockian ride starring a taut Jude Law, and a nearly unrecognizable Rooney Mara, a buttoned-up Catherine Zeta-Jones and Polly Draper (she of the whiskey voice from "Thirty Something").

Hate to say too much about the plot, since one of the rewarding parts of seeing this film is discovering what's going on, but nominally: A young New York couple's tidy world unravels when a new anti-anxiety drug prescribed by Emily's (Rooney Mara) psychiatrist has unexpected effects—on patient, husband (Channing Tatum) and others. Don't expect Tatum, beefcake delectable, to visit through more than the briefest of celluloid. The baddies in this thriller are not whom or what you originally think, especially given the title. BTW: The pharma industry now dubs them "adverse events," which neatly avoids the chilling taint connoted by the earlier, more popularly known term.

One of the choicer elements of the film is its exceptional photography; one sees a Gotham that is not the tired vernacular. This scenic Trou Normand may coast under one's cognition radar, but it is elegant, almost-Gordon Willis-level cinematography (from Woody Allen's more elegiac films), a gift floated to the receptive viewer. Audience members, many of them apparently physicians and therapists, gabbed with each other afterwards, discussing their take on the goings-on, comparing notes from their practices.



This is an awesome article.

"Who Was the White Road of Stalingrad?":

Lidiya Vladimirovna Litvyak was the young fighter pilot with the bouquet of wildflowers in her cockpit who shot down a dozen of the Luftwaffe's best pilots to become the highest scoring woman air ace of all time, writes author Bill Yenne.



 On Thursday, February 6th, at the Junto, Ivan Eland delivered a talk about the misplaced fears about oil shortages and how it has led to bad economic and political positions and interventions. He talked about 11 myths taken from his book "no war for oil".

1. no viable market exists for oil
2. Big oil colludes with OPEC to stick consumers with high prices.
3. Global oil production has peaked and the world is running out of oil
4. Oil is a special product of great strategic importance.
5. A strategic petroleum reserve is needed in case of emergency.
6. The us should become independent of oil, foreign oil or overseas energy
7. Oil price spikes cause economic catastrophes.
8. Us policy is to maintain the flow of oil at the lowest possible price.
9. Possession of oil means economic and political power.
10. The US must defend autocratic Saudi Arabia because of oil
11. Dependence of Europe on Russian energy is a threat to us security.

The gist of the argument was that high prices lead to increased supply and substitution of cheaper fuels and more drilling activity. And that oil producers were often the beneficiary of us policies which were designed to help them rather than the consumer. I believed that the talk was sadly needy of some scholars who knew something about oil that could have presented counter arguments or facts to the debunking of the myths that Eland presented. It was the kind of talk that needed some energy experts in the audience to present the opposite case if there was any. And I felt that the arguments made would not have persuaded anyone, except the vast majority that believed in the myths already. I wonder if any of the people knowledgeable about energy on this site could comment on the veracity and verisimilitude of these myths.

David Lillienfeld writes: 

Was any reference made to the West African oil fields or the Eastern Med fields (they may be as big as the Qatari natural gas fields) or even the new North Sea fields? (I won't get into the Brazilian or Mexican oil activities (Pemex is supposedly shedding some of the featherbedded/political spoils jobs it has), though they may be significant in the future.) Few analyses seem to factor these sources into the discussion, and while there are lots of geopolitical issues in play (Israel-Turkey-Cypress is but one potential flashpoint), the economic ones haven't been pushed to the side (witness some of the political stability emerging in West Africa (relatively speaking, of course)).

I don't know the book, but from these 11 points, it sounds remarkably US-centric. I gather no mention was made that the agreement between FDR and the Saudis was as much about the US-UK rivalry as it was about access to oil (which the US didn't need at that point–and didn't think it would need for some time to come. If I recall correctly, much if not most of the Allied effort in WW2 ran off of US oil. (One of Churchill's major accomplishments as First Lord of the Admiralty was moving the HRH Navy off of coal. The result was faster, more maneuverable ships able to stay at sea longer. But to do that change, the British needed a secure source of oil, which it had in the Persian Gulf. That's one of the reasons that Britain's 1970 decision to withdraw its troops from bases in Kuwait was significant.)

Stefan Jovanovich writes:

In 1904 - 7 and a half years before Churchill was appointed First Lord of the Admiralty - the Journal of the American Society of Naval Engineers was publishing the Report of the Liquid Fuel Board of the U.S. Navy. (You can find the Journal as an eBook in Google Books - search Journal of the American Society of Naval Engineers, Inc, Volume 16.) The conversion from coal to oil was already taken for granted. What people were struggling with were the very real technical challenges that had to be met in dealing with a liquid fuel that burned much hotter than coal - the shapes of the boilers themselves, the design and metallurgy of the boiler tubes, the advantages and problems of the super-heated steam that oil could produce, etc. What the same volume of the Naval Engineers journal also has a is a brief note detailing how many problems the British were having in their fleet exercises with the conversion and how many of those problems could be attributed to the inferiority of their metallurgical skills. The business about Churchill would be a bad joke if it were not representative of how much "history" has now become the endless copying of self-promoting gossip and rewritten press releases from the newspapers of the period. (It does, however, remind one of why it was around this time that Mencken decided he had had enough with newspapers and looked for somewhere else to write the truth.) .

This is not a rip on David. It is, however, another of Stefan's rants about the corruption of historical scholarship in modern academia. When a profession becomes nothing but an endless retelling of secondary sources, it develops the idiocy that medicine had when it was only practiced by reference to what Aristotle and Galen wrote. Churchill's taking and receiving credit for converting the British Navy from coal to oil is absolute nonsense. It is nonsense that is dutifully repeated in all the current discussions on the topic of oil, and it is a pure example of the peer-reviewed lie.

David Lilienfeld responds: 

Since the Royal Navy didn't function off of its subs and destroyers, I don't think one could use the use of oil in those ships as a proxy for the navy overall.

The problems the British were having with their metallurgy around 1920 (+/- 5 years or so) had impact beyond the Royal Navy. Wasn't there the suggestion that the brittleness of the rivets in the Titanic's hull when the Titanic struck the iceberg rather than a long gash in the hull that was responsible for its sinking?

Stefan Jovanovich replies: 

No Navy in the world had finished abandoning coal for oil before WW I because they had not worked out the problems. What I questioned was the assertion that Churchill or Fisher, for that matter, had somehow shaken the Admiralty out of its lethargy; that is part of the Churchill myth, and it is complete and utter crap.

The British submarines were not oil-fired; they ran on what the Brits called petrol (our name for it would be diesel). It was the same technology in basic design now used on every modern railroad locomotive -diesel to electricity to motive power.

It was not beyond the metallurgical skills of Harland and Wolff to have used different rivets. The alternatives were well-understood by them and by the Board of Trade. Tim Foecke's analysis is that "the builders used stronger steel rivets where they expected the greatest stress and weaker iron rivets for the stern and the bow, where they thought there would be less pressure, he said. But it was the ship's bow that struck the iceberg."

The questions about the rivets have nothing at all to do with the metallurgical problems everyone faced with the conversion from coal to oil.

Pitt T. Maner III writes: 

Taking on one of the myths.

On #3. Global oil production has peaked and the world is running out of oil

1)  from (a nice overview report) the BP Energy Outlook 2030 (January 2013)

"The world has ample proved reserves of oil and natural gas to meet expected future demand growth. At the end of 2011, global proved reserves of oil were sufficient to meet 54 years of current (2011) production; for natural gas that figure is 64 years."

2) The USGS has a good page on the latest publications related to ever changing assessments.

3) A slide presentation with interesting graphs showing how predictions were made and have varied over time. Basic idea:

"The conventional (or static) approach to exploration is rapidly changing to the dynamic (petroleum system) approach, and this transformation is the most profound shift in the petroleum business in a century. "

Henry Gifford writes:

I do know a little about oil and boilers. Some of what I've been hearing makes little sense, which could be one clue to how much to believe other things someone says on a topic.

I have never heard of a metallurgical challenge to burning oil vs. coal in a boiler. When heated they both (and natural gas and gasoline and wood) pyrolyse into a soup of Hydrogen and Carbon molecules, which then combine with Oxygen in the air. Same as any hydrocarbon. They also contain a little Sulfur, which produces Sulfuric acid which eats the boiler if it is cooled below the dewpoint temperature, which is about 400F. Same problem with modern fuels and modern boilers or furnaces or water heaters, as found in most basements today.

The story that oil burns hotter than coal is nonsense. All Hydrocarbons produce a soup of Hydrogen and Carbon which produce a fixed quantity of heat when burned. The temperature is a function of how quickly that process takes place in how small an area. You can today pay $15 at Home Depot for a propane torch or $60 for a propane torch. The $60 torch makes a hotter flame from the same fuel by mixing it with air better. Same fuel, very different temperature, same amount of heat of course from a given quantity of fuel. Ships burning oil make less smoke, and because the machinery and fuel and handling equipment take up less space, can go further and faster.

The story that oil is necessary to produce superheated steam is also not accurate. "Superheated" means heated to a temperature higher than the boiling temperature at that pressure. The Freon returning from the cold side of your air conditioner is "superheated," despite being very cold at that point. The old steam locomotives superheated the steam, as do steam engines powering turbines, this to prevent liquid steam impinging on the turbine blades.

As for oil being strategic, I think access to Middle Eastern oil had a lot to do with WW1. The German navy adopted oil sooner than the British did, both on the eve of WW1, both gradually with many dual-fueled ships built. The British had to import oil by tanker, the Germans started building a pipeline. A straight line on a map from Berlin to Baghdad goes through all the countries that fought on the German side, except one in the Balkans, where one day a prince was shot, soon there was an unbroken chain of allied or occupied countries stretching from Baghdad to Berlin.

As for WW2, Roosevelt was quoted on the cover of the NY Times as saying the US embargo of oil to Japan "was tantamount to a declaration of war" 6 months before the surprise at Pearl Harbor. The fighting in Burma was not over access to coconuts. The German invasion of Russia had a Southern thrust aimed at oilfields, and there were very heavy allied attacks on the German controlled oil fields in Romania. In the middle of the war US and German fighter pilots both went into battle with about 300 hours of training (except the Tuskegee Airmen, who were black, therefore considered mentally inferior, thus returned for additional training, twice, or maybe nobody wanted them to fight, and so they ended up the best trained pilots around, which helped very much with survival rates and proficiency), soon the German hours were dropping because of fuel shortages, and ended up well under 100
hours with the classroom ratio constantly increasing, while the US training
hours increased for the rest of the war. The Germans fought with the ME-262, a very real and very practical jet fighter, and reportedly towed it to the runway with horses to save fuel. But, I think the horse story is not true. I heard the air force used cows because the army had all the horses. The Japanese built the largest battleships in history, and sent them out without enough fuel for a return trip (but with thousands of young men on board).

Or parents' and grandparents' generation came to control the world through, in significant part, access to oil.

Do I think oil is a strategic material?

I don't think the US military is in the middle east for a shortage of falafels or for women's rights.

The reports that there is 50something or 60something years of supply so we don't have to worry sound to me like good reason to worry, if true. Toward the end, or even near the end, things will get very expensive, and probably scarce - those numbers are for today's production, with a constantly increasing population and with more and more people buying cars and air conditioners.

The US military runs on one fuel: diesel. Also called jet fuel or #2 fuel oil. The difference between diesel and #2 fuel oil is taxes, and a dye -thus the clear plastic fuel tube on every diesel car. The same stuff, or virtually the same stuff, drives all tanks, planes, jeeps, ships (other than large nuclear ships and subs), subs, trucks, etc. There are reasons for this.

Oil of one sort or another (gasoline or diesel) has a Watt-Density far in excess of anything else by either weight or volume. Compressed Hydrogen has only 1/5 the Watt-Density of diesel by volume even after being compressed to 300 atmospheres (4,400 PSI), which of course requires a spherical tank, which won't conveniently fit into an airplane wing or between the muffler and tailpipe of a car. Far in excess of batteries or anything else. Batteries can power a car for a while, but that volume and weight of gasoline or diesel would power a vehicle much, much further. And forget planes with batteries. And the military is not giving up planes. Nor tanks or other vehicles, and they want them to travel far and fast - they will burn diesel until or unless something with more power is discovered.

Is oil scarce? How much is left? I have no idea, but I don't think BP was drilling 5 miles deep in the gulf of mexico because it was easy.

The President of the Old Speculator's Club writes:

This thread reminded me of a book I read years and years ago and which became a classic of sorts. The book is "Delilah" and the author, Marcus Goodrich. It's a huge book, a lengthy and, at times, a difficult read as it goes into minute detail on the men and operations of a pre-WWI destroyer…coal devouring monsters that make some of Aubrey's accommodations look luxurious.

The book was published in 1941 and was the first of two that were to complete the story. Over the next 50 years (until his death in '91) Goodrich labored over the second book - sometimes spending an entire day "perfecting" a single sentence. The second manuscript, reportedly incomplete has never been made available to the public.

How big a deal was it back in '41. Goodrich became a minor celebrity, and good enough and popular enough to write the original "treatment" for "It's a Wonderful Life." He later married Olivia DeHavilland. Little was heard from him after that - he once stated that if he couldn't finish the second book he'd "probably burn it."

Carder Dimitroff writes: 

I'll give it a shot. You can write a book on any one of these statements

*1 no viable market exists for oil*

This is a partially true statement. There are several markets for oil. There are two major markets (WTI and Brent) and several dozen regional markets. Most are not pure markets. Some are manipulated markets.

Complicating the issue is the fact that crude oil is not a physically fungible commodity. There are attempts to address physical inconsistencies using normalizing techniques to achieve a financially fungible commodity.

The challenge is refineries. Refineries are designed to process specific types of crude oil. For example, many refineries cannot accept some of the heavier oils. As such, the refineries often set their own bid for a specific type of oil delivered to their facilities, but they will not bid other oils. This complicates markets' handling of basis differentials.

Under these circumstances, the so-called market price is only a broad indicator.

*2. Big oil colludes with OPEC to stick consumers with high prices.*

This is an inflammatory comment that misdirects issue. The comment assumes there is only one market for oil. It assumes producers are only interested in the public good. It also assumes OPEC producers have a lot of flexibility in setting prices. These are all incorrect assumptions

Of course, producers want higher prices. It's a business. But if OPEC and the majors collude (with other producers) and force significantly higher prices, demand will decline and revenues could be compromised.

*3. Global oil production has peaked and the world is running out of oil*

This is a tricky question. First, there has to be consensus on the definition of oil. It may surprise consumers to learn oil production figures often slip in production for ethanol and natural gas liquids. It's not a dirty trick. Petroleum is used primarily for transportation fuels. Ethanol is also used for transportation fuel. Some, but not all natural gas liquids are used for transportation (and that is why their price is often indexed to oil, not natural has).

It's a tricky because the question links two unrelated issues. The question suggests production has peaked because the world is running out of oil.

It's also a tricky question because it assumes production is currently limited by drilling constraints.

It is true new production can take time to respond to market signals. It is not true that the world is close to running out of oil.

*4. Oil is a special product of great strategic importance.*

In general, this statement appears to be true. But adding context would be helpful.

*5. A strategic petroleum reserve is needed in case of emergency.*

In general, this statement appears to be true.

*6. The US should become independent of oil, foreign oil or overseas energy*

Again, this statement is packed with three, mutually exclusive ideas. It is true, the US and all other nations should become independent of oil. So far, no practical substitute has been found.

It is true that the US should become independent of foreign [crude] oil. Assuming this independence includes Canada and Mexico, there is no practical option for the US to go it alone.

With respect to other primary fuels, the US is already energy independent, or almost energy independent. We are completely independent when it comes to renewable energy (hydroelectric, ethanol, biomass, wind, solar and others). We are energy independent when it comes to energy efficiency. We are net exporter of coal. We are virtually energy independent with respect to natural gas.

We import over 90 percent of our nuclear fuels. We can and should produce our own. But market forces favor international sourcing.

*7. Oil price spikes cause economic catastrophes.*

This may or may not be true. By definition, a spike is a short term event. As such, it may have greater political consequences than economic impact.

*8. US policy is to maintain the flow of oil at the lowest possible price.*

This is both true and false. US domestic policy is generally indifferent towards flow or price. Military policy is to assure unimpeded flow in vital areas (Middle East and Indonesia). Federal energy policy seems generally indifferent towards world crude oil prices.

From time to time, administrations do respond to political pressure to reduce prices. The fact is their options are limited.

*9. Possession of oil means economic and political power.*


*10. The US must defend autocratic Saudi Arabia because of oil*

True. But it does not matter if they are autocratic or not.

*11. Dependence of Europe on Russian energy is a threat to US security.*


Finally, there is a fundamental element of the crude oil business that many cannot seem understand. Sometimes I think they don't want to understand.

The simple concept is that oil wells deplete. This idea seems elusive to many. Further, in order to replace depleting wells, market forces will motivate producers to (or should) seek the next marginal well. The next marginal well usually has higher production costs than the production costs associated with exiting wells. But decisions from sovereign producers are not always economic.

Production costs mean levelized costs, not lifting costs. It includes transportation costs to get product to market. It also includes market adjustments needed to financially normalize oil quality.

When you put it all together, the world is not running out of oil. The world is running out of cheap oil.

These are two important points:



With respect to Point 1, there has been significant volumes of credible work by intelligence analysts to confirm this statement. Yet politically, our leaders don't seem to believe the fact-based evidence. Most intelligence analysts will argue that that the Islamists don't hate us for who we are, they hate us for what we do. Yet you hear the opposite story on capital Hill.



 I've never met anyone with more diet experience than I, simply stating the fact. On the American skid rows I sup elbow to elbow with the bums with little indigestion, and dine among smiling peers on the back streets of Calcutta. This is a short history of why.

In the first twenty years of my life there was a full belly four times from age 10 to 14 when the family had enough money to go on mother's birthday to go to the Swedish Smorgasbord. The other 364 days of the year at the family tables in California, Idaho, Pennsylvania and Michigan we did not starve but there was never seconds, and I was active and got the same meager portions as my smaller brother and parents. To this day I don't understand why they chose to keep the family slim; perhaps a hangover from the Depression.

With little to compare hunger to I assumed it was a way of life. So the four trips to Swedish Smorgasbord began a revelation to have the stomach full and feel the food surge in the blood. Then for four years from age 12 to 16 there were annual four months during wrestling season of starving to make weight while working out heavily daily. Plus, I had became the Forrest Gump of running– not fast but steady– and the topic of ridicule for it. Besides wrestlers, other sports who know little food and much workout are boxers and horse jockeys; read Laura Hillenbrand's excellent Seabiscuit where down the backstretch appears a three page analysis of weight loss among jockeys before stepping on the feared scales. The methods include spitting for hours to reduce ounces, jogging in a sauna for 30 minutes in a rubber suit to sweat off precious ounces, laxatives for an extra boost, and a dozen other techniques we employed in high school wrestling. Then you stepped off the scale, took the first drink of water in two days, and wrestled. The feeling was extraordinary and exhilarating.

Continuing in veterinary school I became interested in the scientific end of food in nutrition class and observed animal diets, sampling dozens of feeds from dogs, cats, horses, cows, chickens and geese, and studying their teeth. There is no better way to get to know the runt of a litter than getting down on all fours with them around the communal bowl.

I began diet experiments and once ate McDonald's hamburgers for one week for breakfast, lunch and dinner when they were 15 cents and two million sold. Then I gained as much weight as I could drinking eight instant breakfasts daily plus as many meals as I could stuff, and more than once was asked the price of milk by grocery shoppers, $.25 a gallon, who assumed I was the stocker. I wrote the Carnation Company to endorse an early weight gain program but they sent gift certificates and hand claps for more instant breakfasts to climb from a fighting 175 lbs. to 200… and absolutely could put on no more weight.

After university I read James Clavell's epic Shogun and was so taken by the starvation black pits that I fasted for one week on water. In another experiment in a two month period I reduced from 175 to the goal 150 lbs on a daily fare of 1500 calories while working out six hours as a professional racquetball player and accomplished it, and then ate a single long carrot that I will never forget.

I vowed at the tip of that carrot never to go hungry again, but have, and always to treat myself to seconds and more when I like, which I do. Yesterday in Yurimaguas, Peru, I went to the ice cream parlor and bought four cones for $1 each. Then down the street another store scooped four in new flavors at $.75 each. I stepped outside to a street vendor who dished five for $.50 each. On comparison, the first store had the best ice cream and I returned for three more cones.

Today there is the ultimate satisfaction of continuing to get to know food.



It is interesting to contemplate the ecology of the grind, the vig, the infrastructure, as the market mistress each day is content with a 12 or 15 point range and 1. 78 million contracts of volume. Apparently this is enough to feed the eagles, hyenas, worms, and detritovores.

Jeff Watson writes: 

Better add slippage, market friction, and outright mistakes to the kettle.



I recently saw this article: "Armstrong Sued Over Prize Money" . Sure to be the first of many lawsuits against him. 

 It's worth remembering that doping constitutes only a tiny part of an athlete's activities. Most of their time is spent training, in the gym, exercising, dieting, etc. You cannot transform an out-of-shape and overweight cycling wannabe (me!) overnight into a Tour winner simply by giving him dope.

We all know Armstrong's story but it's worth repeating. Testicular cancer that spread to his brain and to 12 golf ball-sized tumors in his lungs; given less than 50% chance of survival; refused a cancer treatment that would damage his lungs; insisted to his doctors that he would survive return to competitive cycling when they were telling him that he would be confined to a wheelchair.

His remarkable recovery wasn't due to doping, but to his determination and will.



 It is remarkable they found remains

Of Richard Three, the King that none could tame.

The discovery of the body of Richard III this week could be a hoax. However, I think not given the carbon dating, the matching historical features of the body, and the evidence of DNA linked to known descendants. It is history and legend transported to the present. Richard is made famous by Shakespeare who depicted him as one of history's greatest tyrants. True or not, I believe the Bard was most concerned with universal truths ahead of historical accuracy.

Along those lines, I am reading an interesting book on the forms of poetry. All the Fun's in How You Say a Thing, by Timothy Steele. Poetry of 14th and 15th century England was evolving from Old English to a newer form. Word accent, syllable-count, and rhyming pattern were the essential features. Most popular was an alternating accent (iambic), with 5 segments or feet per line (pentameter). The works of Chaucer, Shakespeare, Milton, Johnson and Pope were written in iambic pentameter. Modern poets like Robert Frost use it as well. Close to me, I can recall my Grandfather teaching me poems. He kept his favorite works by Samuel Johnson and Walt Whitman near at all times. It is relevant still, and learning the forms of verse makes poetry more meaningful.

I think of rhythm when generalizing about prosody, as I do in sports, music and even markets. The early markets in England were developing along with the Great Poets and perhaps there were mutual influences. The patterns in verse are made interesting by exceptions and variation, not unlike markets. On this stormy Northeast weekend, dust off the books of poems from university days.

It's true that time's well spent with poetry.

For snowy days and children full with glee.



It is interesting and useful to measure the tendency to continuation or reversal in a series. It's particularly useful for markets because many traders like to go with or against in a period. And some measure of whether this works or not, and how it's changing provides a rudder.

The usual methods of measuring it rely on the serial correlation coefficient, but this tends to be disrupted by extreme or missing observations and doesn't have stable properties for many non-normal distributions. Non-parametric measures that rely on ranks, runs, or moves above and below the median, or curve fitting for consecutive observations have often been used. Cowles started the whole subject for stock prices by looking at sequences and reversals in consecutive prices.

A measure that I have been working with that is relatively new and has many advantages is to consider the concordances and discordances in a series. This method is based on work done by Kendall in rank correlations with his statistic, Kendall's Tau. A key article in this area that provides an excellent foundation is Ferguson, Genet and Hallin, "Kendall's tau for serial dependence" and "Bandt Ordinal Time series analysis".

The method of concordances and discordances starts with looking at 3 consecutive observations in a series. Let's call them p1, p2, and p3. If p2 > 1 and P3 > p2, that's a positive concordance. If p2< 1 and P3 < p2, that's a negative concordance. All the other rises followed by declines, or declines followed by rises are discordances. (Note that there are 6 permutations of the 3 numbers and only 2 yield concordances.)

To make it more tangible consider the levels in stocks from Friday 1/4/2013 to  Friday 1/11/2013                                  

day        Date                  Level       change    rank of change                            

Fri           1/4/2013         1458                                      
Mon          1/7/2013       1456       -2          2              
Tues         1/8/2013        1452       -4         1      
Wed          1/9/2013       1456        4         4                                      
Thurs        1/10/2013      1467        11        5                                     
Fri            1/11/2013      1467      0         3

To measure the momentum in the series of changes, one must compute all the consecutive one day discordances, + the number of consecutive 2 day discordances + the number of 3 day discordances. It is best to focus on the ranks. If the consecutive pairs of ranks reverse there is a discordance. If they are in the same direction, there is a concordance.

Comparing Mon to Tue and Tue to Wed, one notes a discordance.

Comparing Tues to Wed, and Wed to Thur, there is a concordance.

Comparing Wed to Thurs, and Thurs to Friday, there is a discordance.

Now start with ranks 2 days apart.

Mon and Wed and Tue and Thur are in concord.

Tues and Thur and Wed and Friday are in discord as Thur rank is higher than Tues and Friday's rank is lower than Wed.

There is one 3 day comparison. Mon and Thur, and Tuesday to Friday are in concordance. Thus, there were 3 discordances and 3 concordances. It turns out that the expected number of discordances for a time series is ( n-2) ( 3n-1 ) / 12. since n is 5 , the expected number of discordances is 3.5. An exact calculation is possible and shows that 3 or less discordances has a prob of 20%.

How can this measure be used? First, it provides a nice estimate of the degree of correlation between the consecutive values of a series. The question then arises, how can one predict subsequent momentum based on past momentum. It turns out that that there is a tendency in the series that we have looked at , for periods with high concordances to be followed by periods with high discordances, i.e. momentum changes from period to period. This would have to be quantified with the period one is interested in, a week, a month etc.

I will report further work on this in future. I would like to thank Doc Castaldo and Mike Chuprin for their kind assistance on this project.

Fabrice Rouah writes: 

Very good point. Non-parametric methods are definitely preferable for financial time series that rarely meet the normality or linearity assumptions required of many parametric methods. Another example of parametric methods are t-tests and ANOVA. To compare returns between different groups one is better off using their non-parametric counterparts, namely the tests of Wilcoxon, Mann-Whitney, Kruskal-Wallis and many others.



 There are these roots in Hawaii that were shown in Jurassic park where the dino eggs were.

They grow 30, 50, 100 feet and choke out trees around it.

Kind of like Microsoft, Apple, Google, Berkshire.










 Few historians of any sport endure long enough to actually see in live action the legendary competitors they write about. Having started my racquetball journey well over forty years ago, when Leach and Ektelon were California backyard industries pumping out a racquet a day, when the handfuls of players at YMCA’s strewn across the USA used wood clunkers in but two national tournaments per year that we hitchhiked to and lived on hospitality room grub and couches to try to win a T-shirt and little cup… in the sport of racquetball that is just over fifty years old, I can honestly say I have seen all the greatest players play with my own four eyes.

That doesn't mean with certainty that I can pick out the greatest of them all. The problem in making this determination is an inconvenient truth that the fifty year old game has evolved so much over the last four decades that it's next to impossible to compare one era to the next.

The racquets have grown to double head size, much lighter and better made. The strings are strung with 400% more tension than when I hit the court. The doubly faster ball moves like a hummingbird instead of a sponge, the scoring system today is different with shorter games, and many rules changes have obliterated early strategies and given rise to new ones. The sport was and is called racquetball but the greatest players throughout the four eras really played different games.

What I can objectively deliver is a comparison of the very best, and the best of the rest, of each era… and maybe you can decide who was the greatest of them all.

We can divide racquetball in to four distinct eras since the first national tournament in 1968. Each with its own version of the game, personalities, strategies, equipment, rules, and one great champion. The Pioneers competed from the first National event until the mid-seventies. The players of the Golden Era vied from the mid-seventies through the eighties. The Modern Era of the sport consisted of the nineties to the mid-two thousands. The Current Era is the last five years through the present 2013.

We will examine the champion and top ten contenders of each era of racquetball. Of course, some long-lived players crossed eras, but I have listed each in the era he most identified with, and no player is listed in more than one era for this exercise. Once we journey through racquetball history and its best competitors, you will have as much information as any authority on the sport to form an opinion on who is the Greatest of All Time. It will be an informed opinion based on decades of history, and I believe your truth is your truth and you’re entitled to it.

The Pioneer Era

 The pioneers of championship racquetball were more often described as Docs than Jocks! We played sweaty chess, a slow strategic contests won by the smarter player and not the best athlete. We played with an extremely slow ball with wood frame and new-fangled medal racquets strung at less than fifteen pounds tension in two out of three games to twenty-one point marathons. The ball only moved 90mph and typical rallies went six or eight shots before a point ended. How accurate was the Doc moniker? Well, five of the top ten of the era and numerous contenders just off the list had Doctoral level degrees in medicine, dentistry, law, psychology, and in my case veterinary medicine.

The hands down Champion of the Pioneer Era was Charlie Brumfield. Bill Schmidtke's forehand was slightly better than Charlie’s, my backhand was superior, Steve Serot ran circles around the bearded wonder, and in a nutshell Brum wasn't especially graceful. However, the one thing he did as much as the rest of us combined was to win. Charlie Brumfield was the most intelligent, determined competitor in the history of our sport, and would and did do anything and everything to win. He invented the Sword and Shield method of play to protect a weak backhand, the donkey kick to clear central court, the crack ace with Carl Loveday’s, ushered in the ceiling and around the wall balls, utilized referee bullying, crowd management and sending soiled doves to upcoming finalists’ rooms at the midnight hour. Charlie was known as The Holder of All Titles which was accurate. He won multiple IRA National Singles and Doubles Championships, multiple National Invitational titles in doubles and singles, and when pro tournaments rolled around in 1973 three Pro National titles on tour, and a pair of Outdoor National singles and doubles championships. He beat all of the best in the biggest competitions of our era including a twenty consecutive tournaments streak. That’s saying something among the Docs.

Just behind him, the Top Ten Contenders of the Pioneer Era in no particular order: Bud Muleheisen, Bill Schultz, Bill Schmidtke, Craig Finger, Paul Lawrence, Steve Keeley, Steve Serot, Mike Zeitman, Steve Strandemo and Ron Rubenstein.

The Golden Era

 The Golden Era was aptly named at the highest point in the history of our sport. The game was evolving in the Golden State California and burgeoning across the nation with the first pure racquetball court clubs, female tournaments, the first pro tours, and Hollywood stepped into the courts. Many of the top players sported in imitation my golden afro and mismatched colorful Chuck’s tennis shoes. The game was being played by as many as fifteen million players worldwide. A couple of top professionals made as much as a million dollars in endorsements in one year, Sports Illustrated covered tournaments, and some events were nationally televised during prime viewing hours.

The Golden Era game was played with racquets the same head size as the original sticks but much lighter, strung with more tension, and hitting a much faster ball. A plethora of new manufacturers jumped into the sport, and larger racquets were introduced toward the end of the era. The Golden Era game saw shorter rallies with balls blazing at 130mph where the Docs, having little time to think, were supplanted by the pure Jocks. An accurate term was coined that sticks to this moment- Power Racquetball! You see, the new equipment, bulldog player physiotypes and erupting mentalities spawned new strategies and rules. The 21-point games switched to 15-points, the 11-point tiebreaker added, the screen serve was invented and combat by a side wall server line, ceiling shots became vague memories, and legions of thrilled fans urged ‘Serve and shoot!’ to break the front wall bottom board.

The Champion of the Golden Era, Marty Hogan, was the best athlete of the day and in my opinion the best natural athlete to ever hold reins on the sport. A physical dynamo sporting a golden afro and using the same and sometimes inferior old equipment, he regularly smacked the ball 20mph faster than the next biggest hitter. He hit shots at such speeds as never before that two new ones evolved- the jam serve and splat kill. Marty's unprecedented pendulum power swing smashed with equal power backhands and forehands. His drive serve was the most potent and copied weapon of the day. Hogan was number one of fifteen million players and a dominant personality with the most endorsement contracts in history. He won the Leach NRC Nationals five consecutive times when it was the biggest event in racquetball, plus more total events per annum than any other player for ten consecutive years. At his peak, Hogan went over a year without losing a single match in singles, doubles and outdoors. He even took the paddleball Nationals from me, the reputed legend of wood, to prove he was the second Holder of All Titles and the best of the era.

Just short of him, the Top Ten Contenders of the Golden Era in no specific order were: Mike Yellen, Dave Peck, Jerry Hilecher, Davey Bledsoe, Bret Harnett, Rich Wagner, Craig McCoy, Gregg Peck, Ruben Gonzales and Ed Andrews.

The Modern Era

 The Modern Era was played with big racquets that were both light and powerful, almost identical to the ones used today. The Tarzan players with driving type A personalities vied in three out of five games to eleven with the fast Pro Penn Green ball and a new one serve rule to elongate the serve and shoot rallies. Most of the top players of the Modern Era started in junior competitions during the Golden Era, and many were the offspring of noteworthy racquetball players. The second generation players with their super-sized racquets took the game to a new level with 170mph shots the norm in a pro contest. The swing of the era became less pendulum and flatter with extreme body torque and explosive contact. The fast furious pace demanded early swing preparation using fast twitch fibers and mesmeric alertness. The US Open replaced the Leach Pro Nationals as the gala event of the year.

The Champion of the Modern Era was Cliff Swain who to me resembled a praying mantis stalking and blowing the ball to kingdom come. Swain was a jock like Hogan with less bulk and a half-step quicker, with a fierce will like pioneer Brumfield. In addition to sharing these sports traits of the earlier champions, he was a lefty with a serve that was eclipsed by an eyeblink. Television cameras couldn’t follow the ball, much less the service returner. Cliff introduced the flat back-swing, and early swing preparation that is popular today. He won more professional titles than any other player in history, and was the number one ranked player for six years in a testy competitive era. Swain never went a single year without losing a match as Hogan had, and never won twenty in a row like Brumfield, but he was equally impressive in reigning for nearly twenty years from 1985 to 2005 at or near the top of the sport.

The Top Ten Contenders of the Modern Era again not listed in any particular order were: Sudsy Monchik, Jason Mannino, John Ellis, Mike Ray, Drew Kachtik, Andy Roberts, Jack Huczek, Mike Guidry, Tim Doyle and Tim Sweeney.

The Current Era

 The Current Era is played almost exactly like the Modern with a couple of improvements. The racquets are still big and getting better every year. The ball frequently travels over 175mph, matches are still the best three of five game. The new Purple Pro ball is a tad slower than the Green of the Modern Era, and the two serves allowed in the original game have replaced the one serve rule. In addition, line judges in big matches watch the serve line and the overall officiating is improved. Jason Mannino, a champion of his own right from the Modern Era, now heads the IRT, and the pro stops have gone international including Canada, Mexico and all over South America.

The Champion of the Current Era is Kane Waselenchuck. Kane is a lefty with a power serve, flat back-swing and early swing prep, and a crushing competitiveness. At the same time he pleases the juniors with trick shots on his knees and behind the back. He seems capable of doing anything on a racquetball court except loosing. Kane has lost only once in the last five years, before recently retiring after a match injury. He is by far the most dominant champion within one era in history, and the gap between him and everyone else is vast.

The Current Top Ten Contenders in order after Kane are: Rocky Carson, Alavaro Beltran, Jose Rojas, Chris Crowther, Shane Vanderson, Ben Croft, Tony Carson, Javier Moreno and Charlie Pratt.

Four Eras and Four Champions

So, among the four eras and champs who is the best? Ask yourself: Who holds the mythical Crown of the Greatest of All Time? A simple query may give you the answer to the mystery of the GOAT. Would Kane be just as dominant and rack up undefeated seasons with a prime Cliff Swain, Marty Hogan and Charlie Brumfield? If you believe the answer is yes, then you've answered the question and Kane is clearly the greatest. If you believe the answer is no, the debate is open and your opinion is probably stronger and more informed than ever.



"The fraudster who fooled a whole nation: Portuguese media pundit exposed as conman":

"As an ex-presidential consultant, a former adviser to the World Bank, a financial researcher for the United Nations and a professor in the US, Artur Baptista da Silva's outspoken attacks on Portugal's austerity cuts made the bespectacled 61-year-old one of the country's leading media pundits last year.

The only problem was that Mr Baptista da Silva is none of the above. He turned out to be a convicted forger with fake credentials and, following his spectacular hoodwinking of Portuguese society, he could soon face fraud charges.

Mr Baptista da Silva's conversion into the latest must-interview figure on the media circuit began when he turned up last April at Lisbon's main philanthropic institution, the Academia do Bacalhau, with a large supply of business cards – which, it later turned out, bore false credentials – and an impressive-sounding dissertation entitled Growth, Inequality and Poverty. Looking Beyond Averages which, it also transpired, was "borrowed" from its writer, a World Bank employee, via the internet.

At the time, Mr Baptista da Silva also claimed to be a social economics professor at Milton College – a private university in Wisconsin, US, which actually closed in 1982 – and to be masterminding a UN research project into the effects of the recession on southern European countries. He even, some reports say, tried to pass himself off as a former adviser to Portugal's President, Joaio Sampaio, and the World Bank.

Blessed with such an impressive CV, Mr Baptista's subsequent criticisms of the Lisbon government's far-reaching austerity cuts, as well as dire warnings that the UN planned to take action against it, struck a deep chord with its financially beleaguered population.

According to the Spanish newspaper El País, his powerfully delivered comments at a debate at the International Club, a prestigious Lisbon cultural and social organisation last month, were greeted with thunderous applause and a part-standing ovation.

Then, in a double page interview in the weekly newspaper Expresso in mid-December, Mr Baptista da Silva continued to denounce the government's policies. That was followed by an interview for the radio station TSF, appearances in high-profile television debates and well-publicised meetings with trade union leaders to advise them on economic policies.

Yet in the country's jails, Mr Baptista da Silva's sudden appearance among the intellectual elite caused amazement among his former cellmates. A colleague from his old school, lawyer Ricardo Sa Fernandes, who had come across Mr Baptista da Silva behind bars by chance when visiting one of his clients, told Visao magazine that when he saw the convicted fraudster on TV he was "staggered by his ability to put his past life behind him".

Mr Baptista da Silva's comeuppance began when the UN confirmed to a Portuguese TV station last month that he did not work for the organisation, not even as a volunteer, as he later alleged. Further media investigations uncovered his prison record and fake university titles, though Mr Baptista da Silva's claims to have studied economics have not been categorically disproven.

After sending out a press release blasting his former journalist friends and colleagues for what he called a "witch-hunt", Mr Baptista da Silva has now disappeared completely from public life, and there are reports he is under investigation for fraud charges by the police.

Meanwhile, the media's search for an equally articulate and charismatic replacement critic of the government's economic policies – although perhaps not one with such overwhelmingly impressive academic credentials – continues apace."



 My trip to the ophthalmologist began ten days ago with a variety of transportations including three days on a triple-deck launch up the Rio Marion, a collective water taxi for a day, motorized canoe for another along the Rio Huallaga, a day hitchhike in a pickup truck to Tarapoto, and a final ten hours by bus from the Amazon jungle up to Piura, Peru in the Andes.

The nation is divided into four sections geographically for medical treatments. If you want kidneys go to Trujillo, for legs to Aeroquip, I travelled to Piura for eyes, and you get your heart in Lima.

Dr. Luna, after a thirty minute exam for $40, said my eyes were fine for jungle walking, and tried writing and reading in mirror image from right-to-left as an eye strengthener. He commented that ‘Vision is like any exercise that may be trained in the gymnasium of a book’,

I don’t need laser or lens surgery, but he wondered why I didn’t wait for him to make his quarterly rounds to Iquitos. All of the geographic specialists make airplane rounds about the country performing examinations in their local colleagues´ offices to ferret patients who need to travel for operations in the specialty cities.

The geographic division of Peru with swinging doctor rounds makes sense because each specialty– kidneys, orthopedic, eyes and heart- requires expensive equipment that individual doctors and hospitals can’t afford. So, for example, with eyes there is one laser machine and a dozen ophthalmologist offices huddled in the same building or block

So, I’m returning to square one in Iquitos by launch, boat, canoe, truck and bus, you see, and awaiting the quarterly arrivals of the other specialists, though it’s likely the honest doctors will find nothing to operate on.



 Have any of you been to Argentina lately. What is the situation on the street. I am thinking of going there on the way to Antarctica later this year. Is it safe?

Vince Fulco writes:

One thing to seriously consider even though it sounds like you are going thru mostly modern areas, Amex has an extremely affordable medical expense insurance while traveling. For a few hundred bucks, as I recall < $250 for my wife and I when we traveled to South Africa, they'll airlift you out of spots and take care of many extraordinary medical expenses. Considering you'll probably never use it but if you do, fees can run tens of thousands of $ depending on what your normal health insurance covers, brought us piece of mind. Everything can be done online.

Larry Williams writes:

Careful on med-evac policies

I just lost my best buddy here; heart issues. We tried med-evac but the reality is 1) you need a local doctor to agree to release, which they will not do unless stable and 2) before the plane/jet wheels up they must have admitting dr and hospital at the other end.

That takes a long time to arrange

Best is to charter. Don't tell anyone of medical issues-get aboard and then go to closest emergency room to airport.

Carder Dimitroff writes: 

I'm sorry for your loss.

I would like to add to your thoughts. Once in the air and within US control, request the pilot use the LIFEGUARD call sign. This will notify the FAA to give the plane priority handling, direct routing and airport priority.

In addition, here may be a helpful link.

A commenter adds: 

First: LIFEGUARD has recently been changed to MEDEVAC to conform with ICAO international standards.

Second, and most important: If you are in ANY WAY fearful that your medical situation may be life threatening, communicate this CLEARLY to the crew and they will declare an EMERGENCY.

MEDEVAC flights get priority handling when they request it. But EMERGENCIES — well, let's just say that controllers will move heaven and earth and every airplane in the way to get that aircraft on the ground at the airport of the pilots choosing.

Most domestic airlines subcontract to a company that has professional medical staff on call 24/7 that assists them in determining the best course of action for the patient. They will get a doctor on the radio directly with the flight crew to assess each situation. 





 Have any of you been following this bone of contention for the anthropologists.

'In a lengthy and angry rebuttal on Saturday, Diamond confirmed his finding that "tribal warfare tends to be chronic, because there are not strong central governments that can enforce peace". He accused Survival of falling into the thinking that views tribal people either as "primitive brutish barbarians" or as "noble savages, peaceful paragons of virtue living in harmony with their environment, and admirable compared to us, who are the real brutes".

He added: "An occupational hazard facing authors like me, who try to steer a middle course between these two extremes, is the likelihood of being criticised from either direction."'

(Link from Marginalrevolution.com)

Stefan Jovanovich replies:

Only Professor Diamond could see himself as "steering a middle course". When a snarky questioner at one of his UCLA appearances suggested that tribal warfare was chronic precisely because no individual member of the tribe had any property that was truly private, his first reaction was bewilderment. His second was less than polite academic rage when the questioner noted that Jean Jaures' sad comment that the poor had been so patriotic at the beginning of World War I because "their country was the only thing they owned". Central governments only exist because of war; that unfortunate fact is why the founders of this country were so adamant about having ours be strongly limited in scope and scale.



 An expert has great comparative advantage in their area of expertise.

They say it takes 10,000 hours of study and mindful practice to become an expert — not to mention the natural talent, and the practice time it takes to maintain expertise.

Since a work lifespan is ~50 years — along with time needed for play, sleep, food, and social interaction — it would be unusual to become expert at many things. Which suggests that the economic fuel of comparative advantage is not likely to go away.

How is expertise possible in ever-changing markets?

Jeff Rollert writes:

I recommend the book Mindfulness, which contains the research work of Harvard psychologist Ellen Langer on observing and problem solving.

I practice some of her ideas when I walk to work…



 I read an interesting article recently about Darwin and his pigeons:

Pigeon breeding, Darwin argued, was an analogy for what happened in the wild. Nature played the part of the fancier, selecting which individuals would be able to reproduce. Natural selection might work more slowly than human breeders, but it had far more time to produce the diversity of life around us.

Here is a whole website devoted to Darwin's pigeons.

Mockingbirds interested Darwin too and look to have caught his attention before finches.

They were particularly popular in my Alabama Great-grandmother's generation for other reasons.



 Two customer anecdotes:

Anecdote #1

My wife goes into Tiffany's and asks the salesperson to measure her ring size. The saleswoman looks at her with one of those "you don't belong in here" expressions and tosses her the ring of samples for sizing across the counter. (My wife measures her finger and walks out — in a moment eerily reminiscent of the scene on Rodeo Drive in the movie Pretty Woman.) 

Anecdote #2

I drop off my car at the Lexus dealer and I tell the rep that I need new brake pads and rotors. Two hours later he calls me (and I expect to hear that the bill is several hundred dollars). Instead he tells me that I'm good for at least another 5,000 miles and that he didn't do any work. The only reason I took the car in was because the mechanic who performed my required annual inspection said my brake pads were worn out.

Many business lessons here.

Jim Sogi writes:

I ordered a custom made down jacket from an outfit in Washington called Nunatak.  A guy named Tom claims he makes the garments. I"ve read elsewhere he jobs it out. They make high end outdoors gear. When I ordered it, I paid in advance and he said it would deliver in 8 weeks. Okay, I understand that. 10 weeks go by with no word, so I email…No response. I call… No response. Another two weeks go by. I email again, and get no response. I figure its a rip off scam, so I call my credit card company. The day before my expedition the guy calls and says he will mail it to my son's in LA. It never gets delivered. When I ask him, he goes off on me and says, "Wow, I apologize for setting off your anger issues….I believe Walmart has what you need in the future. Tom" This is supposed to be high end custom gear, and I would have bought thousands of dollars of gear if it was any good. Is this anyway to run a business? What an unpleasant experience. I've never had this kind of antagonism from a vendor, ever, much less a custom operation. I hope this gets put on the website so others don't have similar problems with Nunatak. The guy was not pleasant to deal with or reliable or helpful.

Mr. Kris Rock writes:

He must have been Colombian and knew from hacking your email you were headed to Argentina.



Country                       Oil Production               Rigs

Saudi Arabia              10 million barrels/day         50
United States              6 million barrels/day          1,400

Source: Georgia Tech Strategic Energy Institute



 The locals are ingrained to take on this sort of borrowing, to get a start and try to move ahead, at considerable vig.

But it's catch
twenty two for the banks. It's easy pickings early, but would they do better long term by easing the compatriots up the
ladder instead of putting grease on it?

For what markets in what locations is price determined by such ingrained processes by the national players?

"World’s Most Profitable Banks in Indonesia Double U.S. Returns":

Borrowers like Suryadi have helped make Indonesian lenders
the most profitable among the 20 biggest economies in the world,
according to data compiled by Bloomberg. The average return on equity, a
measure of how well shareholder money is reinvested, is 23 percent for
the country's five banks with a market value more than $5 billion, the
data show.



Look at this chart. It's the Ibovespa Futures Contract (mini).

The (mini) lobagola move and subsequent extreme noise occurred in only ONE SECOND. The rest of the noise occurred in one minute.

The chart depicts 10 tick bars.

There was unprecedent volume.

The times and sales showed LINK, a HFT Institutional Brokerage Firm (now owned by UBS, and open only for institutions and foreign investors), as the solely buyer during the up move, and the main seller during the down move (during noise period).

Again, this took place in ONE SECOND. It was 10 A.M. (New York time), during the release of US economical numbers.

Talking with a wise Computer Science player, this is possible only if you have:

1. Hardware programming (chip);
2. Extreme co-location at the Exchange (he used the term "into the Exchange mainframe").

It's scares one to death, as reminds us the 2010 flash-crash (which sounded to me as a "market nuclear bomb test".)



The professor once performed a beautiful study to see if all the turning points that one could retrospectively select

to be short and long a la birinyi who shows almost 5 times the market drift by getting in and out of the bear and bull markets with 20% being a fuzzy base line , —– and he found it completely consistent with randomness. It was a model of what a good study should be. Perhaps he will share it with us again, or at least tell us the drift. 

Richard Owen writes: 

That would be great to see. It is definitely one of the most mumbocentrically diverse areas of asset analysis and a firm and incestuous friend of the buy and hold debate. The more important corollary to the depressing corollary would therefore be that successful investing is almost entirely about the quality of your liabilities? Would a Japanese salaryman wealth manager with the Professor's report in hand have been able to maintain a career? If not, would he have been right to get a copy of Taleb out to console himself?

Charles "the professor" Pennington writes: 

I have kind of forgotten how that went, but I will see if I can find it.

There was a study of something kind of along those lines from Big Al and/or Kim Zussman not so long ago that was very compelling, covering dozens of possible trading strategies, but only one or two could thread the needle and do better than random.

Russ Sears writes: 

Not as rigorous as the Professor's, but I did a back of envelope study of the Dow from 1900 to 12/31/2012. Not including dividends, just the index.

There were 20 beginning of the years where the Dow was less than it began 10 years (of course these have overlapping decades).

What do do if you retrospectively find yourself in a "Secular Bear Market"?

The next year change in the dow average +14.35% min - 23.5% max 59.6% stdev of 21.1%. Whereas the overall was 4.7% and stdev of 20.9%.

Likewise the next ten years change based on roughly 20% steps of prior 10 years (again overlap) This only covered 1910 to year end 2012 since I needed 10 year periods before and after. There were 2 years 2008 and 2009 that the decade prior was negative, both had positive next years. But we do not know what it will be in 2018 and 2019 so they were not included. Here the overlap does matter since the next 10 year periods are not independent. 

Count  group avg Range for Group    Next 10 years  Range for group 

19     -16.8%     -49.7%       1.4%     108.5%      -3.6%     271.7%
19      16.9%       2.0%      33.0%      82.0%     -39.0%     238.8%
19      60.2%      35.4%      98.1%      95.8%     -15.1%     240.1%
19     137.9%      98.5%     169.4%      75.2%     -39.8%     323.4%
18     240.9%     172.7%     323.4%      96.8%     -49.7%     317.6%

Richard Owen writes: 

Very kind and thoughtful work! Apologies to be very dumb: what periods do the five groupings of 19 counts represent? And group avg [col 2] (I would have thought trailing? But the premise is those periods were negative?) The "excluding divs" heuristic so common for stock analysis is, I guess, one reason why we need King Dimson so badly.

Russ Sears writes: 

The period in the five groupings in the next decade. Hence, may double, triple or more count some years. It takes some time for the "past decade" to move into another grouping.

A Warning that Engendered the Discussion from Victor Niederhoffer: 

Please don't write more as you have threatened about "secular bull markets" or "secular bear markets" that can only be described in retrospect and have no predictive significance, and are mumbo jumbo and depend on random selected starting and ending points and would only lead our fine readers to wallow in absurd, unhelpful charlatanism.



 I was watching an interview of Jim Rogers the other day and he was discussing why he ultimately settled on Singapore as his new home. He's clearly very into Asia for its growth potential (and issues he has with how the US is being run), and moved there with his family so his daughters would learn Mandarin more easily. When asked why Singapore and not, say, Shanghai or Hong Kong, he said he really liked those places, but they were just too polluted. So a man moves hundreds of millions, if not billions of dollars to one country but not another partly because of the relative cleanliness of the air. Now China has announced tighter air pollution regulations (ostensibly not necessarily to accommodate Jim Rogers). Of course there's a lot of new chatter around platinum and palladium (used in catalytic converters), but is there some kind of a bigger trend emerging? - "Do business here - we're cleaning up our mess."



 It has been a while since the dailyspec discussed the potential for mayhem in the Straits of Hormuz. So far, the greatest threat to American interests has come from our own Navy. It has been nearly 4 years since the USS Hartford collided with the USS New Orleans. The "accident" injured 15 sailors; the repairs to both ships cost over $100M.

The folks at StrategyPage just reported some of the details of the accident report:

1. There was no one supervising the sonar operator when the collision occurred

2. The sonar operator was not, in fact, looking at his screen at the time but talking to a fellow crew member

3. The ship's navigator was not plotting the ship's course but "doing something else, while listening to his iPod"

4. The officer in charge failed to raise the ship's periscope to scan the horizon before the ship breached the surface

In total there were 30 errors in procedure.

Chris Tucker writes:

Complacency and sloppy work are very difficult to control after they have taken hold of a work group. The proper place to kill them is in early training. People who are responsible for large numbers of other peoples lives and/or for highly valuable property need to be trained in active vigilance early in their careers. Unfortunately, safety is a boring topic to most — it lacks the intrigue of the higher mission, it lacks the luster of fancy technical gadgetry, and because it is something that has to be practiced with diligence day in and day out, at all times, it is difficult to keep at it.

But safety and its execution is absolutely essential to any complex operation. Organizations and systems that require precautions have to inculcate a culture of safety and then impress it into their people regularly. It can never be treated as a one off training item and then checked off as completed, it has to be pressed, again and again and drilled into the subconscious so that it comes automatically. Active surveillance, much like active listening, is a skill that requires practice to master.

I suspect that in the crossing of an active shipping lane like the Straits of Hormuz, that submarines use active sonar, but I have no idea how frequently they ping. Probably on the order of once every two or three seconds, much more than that and there is insufficient time to capture reflected signals without interfering with them. The point is that an operator, especially at a time that requires extra vigilance — like surfacing, needs to actively direct his attention to his equipment and scan for threats at least once every three seconds.

While this sounds easy enough, it requires a great deal of will and energy. Distractions constantly compete for attention and need to be reduced. Again, training is the only way to control this and create an environment that rewards attentive execution of duty and punishes the creation of distractions and sloppy behavior. I suspect that if the navy chose to drill procedures in vigilance and active surveillance as often as they train for emergencies or attack maneuvers, the frequency of these incidents would be dramatically reduced.

P.G writes: 

Excellent stuff on complacency, but "culture of safety" might be too strong a goal for any place in the military. It's true that the Navy is the service where war most closely resembles peace. Most naval ships in WWII saw only a few hours of combat over the years' duration. Day-to-day operations were quite similar to peacetime ops, with the environment (including friendly ships) being the principal enemy. But the few hours of combat were the whole point, and it seems to me that safety must not be so deeply ingrained that it cannot be easily discarded when the necessity arises.

Paolo Pezzutti writes: 

Western navies nowadays are dealing with decreasing budgets, changing operational scenarios and threats, issues in recruiting and retaining the professionals they need. All these factors are tightly linked. The level of ambition of naval forces is questioned in terms of requirements and capabilities needed. The threats is different from what it was at least two decades ago and attention is growing mainly for maritime security tasks. Hard to justify expensive investments to develop complex and futuristic weapon systems. For sure maintaining the fleet efficient and effective is tough at times when navies are struggling not to reduce numerically their fleets below critical thresholds. Recruiting highly skilled professionals and most of all retaining them is also critical. They need to find a motivating environment that meets their expectations. Innovation and technology are allowing the reduction of manning on board ships and submarines in order to achieve the compression of operating costs. This is also introducing risks because each member of the crew has more tasks than in the past to perform and no redundancy. On the job training and management of emergencies are issues to deal with. More focus over the past years is on modelling & simulation to train crews ashore although any sailor knows that these solutions cannot fully replace experience gained at sea. Some have questioned the extent of manning reduction that was envisioned as acceptable only a few years ago based on lessons learned developed on new constructions. The quality of training is key as days at sea spent each year tend to decrease. Incidents are the expression of this situation. Training concepts and processes have to change and adapt rapidly to this environment. As budget and personnel decrease, this is the challenge of this decade. 

An interesting sidenote about, "Stick close close to your desks and never go to sea, And you all may be rulers of the Queen's Navee!":

The object of Gilbert's satire is not so much the person of publisher and politician W. H. Smith as the system that in essence de-professionalized command positions in the British armed forces, and promoted those with wealth and political connections rather than military ability. Thus, Gilbert was in effect attacking the long-standing aristocratic tradition of purchasing commissions. Instead of "serving a term" as a midshipman (which was the conventional route leading to officer status and ship's command), Sir Joseph has taken a strictly political route to the Admiralty.

Russ Herrold writes:

A former officer (here: identified as JG) from the US Navy who served in submarines inter-lineates replies to the article you linked to:

Sub commanders are under a lot of pressure to keep their sailors from leaving the navy (JG agrees). But the long periods submarine sailors spend away from their families creates pressure to get out and take a civilian job close to home. (JG agrees) The submarine sailors are very capable, and highly trained, people. Getting a better paying civilian job is not a problem. So sub captains try to keep the crews happy. That often leads (JG: Bull Shit!) to lax discipline. (JG continues: just lax discipline with this command)

Interestingly the article's remarks about generally available better substitutions employment were not addressed in the initial comments back to me; in following up privately, JG thinks the author is over-stating the substitution opportunities …

But then that makes for a more urgent article, then, doesn't it?

Chris Tucker adds: 

My whole point is that these people are professionals and should be behaving like professionals. They are in positions of responsibility and need to act as such. There is a tremendous amount of self validation that comes with knowing that you know your business and that you act accordingly. People that understand this arrive at work with their heads held high and don't just talk the talk but actually walk the walk. They don't feel entitled to anything unless they've earned it themselves. This is the kind of behavior and path to self esteem that needs to be engendered. It is not about safety, per se, probably a bad choice of words on my part. It's about being a professional, about being an expert. And about wanting to be those things. It's about knowing what needs to be done and doing it properly, correctly and without fail.



 There's a new book out (free for review by academics/professors) by a Marine Corps Captain that may be of interest (combining aspects of Thorp and Buffett). The book is called Quantitative Value: A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors.

The author, Dr. Wesley Gray, Ph.D. (Univ. of Chicago), also has been discussing topics related to those recently mentioned on the Dailyspec.

1) We propose a model that is designed to identify bull-market and bear-market regimes. We examine correlation between stocks and bonds as a signal. Our hypothesis is that negative correlation between long bonds and stocks represents a bear-market regime, and a positive, or non-existent correlation, reflects a bull market regime.

2) We study whether the presence of short-term investors is related to a speculative component in stock prices using a new measure of holding duration. First, we characterize institutional investors' holding durations since 1985 and find that holding durations have been stable and, if anything, slightly lengthened over time. Second, we document that the presence of short-term investors is strongly related to temporary price distortions, consistent with a speculative stock component in stock prices as modeled in Bolton, Scheinkman, and Xiong (2006). As short-term investors move into (out of) stocks, their prices tend to go up (down) relative to fundamentals. As the presence of short-term investors is strongly mean-reverting, this creates a predictable pattern in stock returns. We document such predictability using both valuation proxies and asset pricing tests.

3)  This is Gray's take on the similarities between investing/portfolio management and kite surfing!:

A laundry list of similarities for your review:

* Learning how to kite surf, first requires that you learn how to fly a kite (duh).

* Investment realm: you need to know accounting, basic finance, and how to use a calculator before investing.

* After learning how to fly the kite, you need to drown a few times.

* Investment realm: start investing with small amounts and take your lumps early. I'd rather invest with someone who's suffered a 50% drawdown than someone who has always made money.

* Never go full throttle on your kite–and NEVER panic when you crash and burn–or otherwise you'll really be fu$í.

* Investment realm: stay away from leverage and "hanging at the margin's edge"; when the market is blowing up, don't panic…just release the throttle, swallow your pride, and drift to a soft landing.

* Flying downwind is easy, fun, and builds confidence, but you also need to learn how to fly upwind, which is hard and frustrating, but it may save your life.

* Investment realm: Going with the flow of a bull market is easy and not really skill, but may give an investor the mirage of skill. The real skill comes in learning how.



 My parents always send a box of honeybell oranges while they snowbird in Florida to escape the midwest winters.

While fresh squeezed OJ is always an enjoyable indulgence, honeybells take it to a whole other level. I highly recommend partaking should one ever get the chance.

Jeff Watson writes: 

I have a honeybell tree, and OD on them during season. while the honeybell OJ is the best in the world, it also makes the best screwdrivers and orange ice cream. 



One notes that after the 6 negative Januaries, the average change the next 11 months was + 7%. After the 4 positive Januaries, the average change was 3%. Thus, another speculative canard bites the dust as was guaranteed to happen. Only a Shiller or a writer of musicals based on the elephant man would continue to love such a barometer. And it would be a good caution to keep in mind for other seasonarian ideas, where out of date correlations, originally found by retrospective and multiple classifications, are shown to be overcome by ever-changing cycles and randomness at the outset.



 A shout went up on the Rio Marañon bank at Sanamariza, Peru, this morning and an elderly man took off his hat and passed it among the citizens milling on the muddy bank. When the hat got to me I asked why, and it was explained as the Peruvian version of a speedboat zipped around the bend and rammed the shore in the standard docking. This was a medevac of a sick child.

I had been stranded awaiting the weekly Launch to escape this high jungle town down to the lower Amazon, and the sick boy was my ticket out. I passed the hat without dropping a coin, but approached the captain climbing out the boat and asked if he was going downriver to San Lorenzo to which he brightened at the prospect of a paying fare and told me to sit tight for thirty minutes.

He returned gingerly hoisting an IV drip of Suero fluid above the head of a teen in a white smock, the town nurse, who cradled an eight-year old boy as the fluid dripped at a drop a second through the clear IV tube and well-taped needle into a vein on the top of his wrist. They picked a way down the ten-foot bank into the waiting rapido boot, followed by the bedraggled mother and fathered, and then by me, and then a mysterious senorita with the best legs in the Amazon who forgot to put on her underpants.

The rapido is the size of a tin rowboat with a sizeable 40hp Johnson outboard motor and a white shade canopy. The nurse inserted a needle into the IV tube and slowly injected about three CC's over one minute of a drug he wouldn't identify, though he said the patient had weathered a high fever for four days and very sore throat. I could see no other symptoms and the first thought was tonsillitis, an English word that no one recognized. The youth's eyes rolled in the sockets with nearly zero consciousness.

The drug must have been a sedative to have waited until the second before departure to inject… and so slowly. It got a boost when the captain tugged the motor start cord prematurely and the last third of the medicine jerked into the child's vein. The nurse climbed out the boat instructing no one in particular to keep the IV at a drop a second, and scampered up the bank.

The patient had no jacket, no blanket to cover his feverish body. I sat in front to break the wind and looked over everyone. The strikingly handsome people of this region are Peru's former head hunters and the only tribe in the nation to remain unconquered through history. Five percent have single thumbs on one hand or the other that is an apparent genetic recessive display looking more like a big toe than a big toe looks like a big toe, while their other thumbs are normal.

The mother dropped her blouse and began to breast feed her other child who twisted the dark nipple hungrily, the long-legged senorita stared at me, likely the first Caucasian she had seen except on TV, and I took the sick boy's pulse at 80 beats a minute, but strong, and only his fevered brow was a worry.

The 20' boat accelerated to 25mph down the quarter-mile wide Rio Marañon as the white tarp bobbed up and down on the captains' hair where a foot dark halo was rubbed into the fabric. To this day I cannot explain why a few minutes later he chose to veer off the wide river into a shortcut stream. In seconds weeds grabbed the propeller, the boat scrapped stream bottom, the motor conked and we were set adrift in the 5mph current. The rowboat spun like a pinwheel, and everyone looked perplexed but stared vacantly.

'Where are the life jackets?' I hollered over the passengers to the captain, who shrugged.
'Where is the paddle?' I yelled. He stooped and ripped a slat out the boat bottom and began paddling to straighten the boat. The father did the same, and so did I, as the mother continued to breast feed her baby to keep it from crying during the dizzying spin, and the long-legged girl shut her eyes.

Thunder clapped. It began to drizzle. The boat struck a bank sharply and the IV quart bottle cap twisted open and spilled onto the patient. Mother pulled a red-and-white checkered tablecloth and covered her sick child just before nature´s storm hit hard.

We needed the motor to escape the twirl. I yanked a 5' long floorboard and a bit river wise from the past two weeks along Amazon tributaries stood on the bow as I had observed and plunged the slat repeatedly into the water on either side of the boat until it struck bottom, lifted it out and pointed the captain the deep water. The propeller needed 16'' clearance to miss the river bottom, and the plummet found it.

The boat spun for fifteen minutes, but now the captain cranked the motor and we emptied back into the greater Marañon.
In an hour the storm abated, and an hour later the boy's fever broke likely due to the rehydration and sedative. In one hour more we docked at San Lorenzo near the hospital and the mother and father sped their now conscious boy away. He smiled at me, I nodded and paid the captain $50 for my fare, and stepped into the new town.



 I have a large collection of vintage vinyl records including many Beatles albums, Dave Brubeck, John Coltrane, Rolling Stones, Jefferson Airplane, Herbie Mann, Freddie Hubbard, Miles Davis, John Renborne. It's pretty classic. I firmly believe that vinyl records, despite the hissing, crackling and popping, contain more information, more emotional content, and are more moving than digitized music. As soon as a vinyl record is on, people start dancing and moving. Digitized music does not have the same quality.

I have wanted to digitize them for years and finally got a turntable with a USB output and built in software to transfer them to the computer and smart phone for under a hundred bucks. It's working well with full 44k sound files sounding better than compressed MP3 format.

The hissing and crackling brings back many fond memories of spilled beer and dancing.



 As near as I can discover, my first "American" ancestor was one of the Hessian soldiers rented to the British for use in fighting against the colonists during the Revolution. He was captured at Trenton and paroled and, instead of returning to his command, hired himself out as one of those "Pennsylvania Dutch" farm laborers whom Benjamin Franklin detested. Within 50 years his descendants were no longer Roman Catholics but Methodists living in Georgia; by the Civil War they were in Alabama and Mississippi — still on the losing side. One was with Evander Law's Brigade.  The other, who was a rich man, somehow managed to spend 4 years in Barksdale's Brigade without even making it to the rank of corporal.

The Hessians were all "pressed men" — conscripts who were literally forced into service by the same recruiting techniques that the British Navy used (the very ones that were among the primary grievances that provoked the Southies in Boston to become Sam Adams' loyal followers). Even though most of the Southern branches of my family still prefer to start the genealogy with the Hessian's respectable children (which still qualifies everyone to be a Son or Daughter of the Confederacy), as an unreconstructed Yankee, I prefer the Hessian. I like to think that disgust for the draft is one of my better genetic inheritances. If I am fortunate enough to have grandchildren, I pray that neither the grandsons nor the granddaughters will have to break the law by refusing to participate in the charade now known as "Selective Service". If they take after their ancestors, they will be willing to volunteer: but they will not let the government tell them where their duties of service lie.

Jim Lackey adds: 

The lack's first recorded Military was the civil war. He survived, so his dated service was near the end of the war. I wasn't an officer so I didn't attend war college or any true military history classes. I defer to Pete or the other officers and historians on this august site.

Yet one can still tell you a map and a compass can and will take you anywhere. With my manchild (17 year old) on a Bama trip he made fun of my in the van nav technique at 6am. I retorted kid we will be cold and tired and driving out of here at midnight. The phones did not work in the valley and I refuse to use GPS on carz.

One of the things about Chicago childhood was it was too easy to navigate by map or memory. For years I traveled by dirtbike on RR tracks or powerline dirt cuts. At Ft. Knox I had no struggle adapting to on foot map and compass…Yet in Germany on a fast moving tank one can out run his map in 5 mikes.

Point? In Nashville or anywhere S or East, one can visit any civil war battle field, take a history book and do the stage to battle advance and or retreat on foot. One can imagine an all day forced march into and out of a fire fight with bad food no sleep and my gauche, I have only explored these fields in good weather.

I admit to never reading one word of Civil word history until two years ago. I find the entire war too much to bear. However a few of the battles S Nashville, and the surrounding areas to be quite interesting on a topographic map reading exercise. I can imagine marching up from Bama, sending my cav due east then attacking on foot with a battalion. There was quite a few balzy moves by the South in the awful war. I find the short swift battles and counter attacks most educational. The huge mass of troops is in all of history, to me is boring. The outcome was decided before day break. The after the fact of what went wrong is almost a bad joke. Some of the recounts on 91 are so silly I laugh. I do wait to read the 2003 recaps in good books if there ever is one.

Yeah the battle of Cowpens in the revolution or the battles of the 1860's around these parts N Ga the Cav counter attacks or attacks on the egregious Union supply lies are very exciting to walk through. Only a history book can describe Grants Forging and engineering work on the rivers to attack mass in force are a bit interesting. WW2 I was forced to learn all about the Battle of the Bulge or Ardens as that was my units history. Patton is far less interesting as a commander when you see his route or axis of attack and know the situation of the German. One day I'd like to visit the Ukrane and or Russia to look at the actual lay of the land. Those were some wicked battles. Yet the history often blames the German command. I am sure there are some reasons on the Map that many have failed to mention.

When you actually walk that last mile and top the crest and imagine an entire Battalion (or Army) when your at Brigade strength after marching all night all day and then go strait into attack at supper time.One can only imagine… as after a full nights rest, then driving 20 miles and walking just 5 up the trail to the hill. Then thinking we will be here all night and all day tomorrow under fire. Good lord, war is hell..



One has always felt that the unemployment rate is much more important than the jobs created because the seasonal adjustments so much dwarf the other things that the adjusted jobs created is meaningless. At least with the rate, you get the numerator and denominator adjusted by the same meaningless number so that in a sense the worthless seasonal adjustment cancels out. It is curious how the unemployment rate has now ratcheted up to a politically unfavorable level after the election as have so many other things like the Mideast situation. Everything was on hold until after the fair haired boy won. One is reminded that according to what I read, French equities went up strongly during the French Revolution.

I have never had any good insights into macroeconomic policy and so many people are more sagacious than I about this and other things that at least I know not to base any trades on my macro analysis. Even if the vast majority were not more sagacious than I on this subject, all it takes are a few big ones at the margin to put prices where they should be so that any insights I had on this subject would just contribute to vig and fear as the market moved against me and I had no rudder. One is also reminded that the market could move with you for random reasons when you are lucky. And that would make you twist on a string in the wind also.

The simple post medieval pre-enlightenment man who apparently runs the world's leading technically based fund was a very astute businessman. He bought a system from a colleague mathematician at MIT, It was supposed to generate 50% a year profits… But the Simple person from Harvard said, "look, if it makes much more than 50%, it's not working and you're not entitled to your agreed upon share. Okay?" Fine, the MIT guy said. My goodness, sometimes professors don't have much common sense.



Sweden turns itself around. Predictable results from moving in the free-market direction and paying off debt, yet the US has to learn the lesson on its own mistakes.

"Nordic Lights: The Nordic countries are reinventing their model of capitalism"



 I am reading Ari Kiev's book The Psychology of Risk.

He argues that goal setting is most important in trading success. Instead of trading passively at what the market offers, one should first set his own goal, then develop a strategy based on the goal, commit enough risk, and trade with faith toward the goal.

Does anyone have any experience or thoughts in this approach?

Gary Rogan writes:

Leo, I just found it interesting that the language sounds like the industry-standard language of "financial planning", other than the faith part, in that that language involves "understanding the customer's goals", "finding their risk tolerance", "establishing a plan to achieve the customer's goals based on their risk tolerance".

Does he believe in some sort of "you dial the risk, you'll get the return if you believe hard enough" kind of thing? As he explains it, is the purpose of "faith" so that you don't chicken out when things get tough or as something else?

Ralph Vince writes: 

From the time I was 19 or 20 years old and a coffee-cranked margin clerk, until now, I have witnessed that the number one determinant of success or failure is a defined criteria (or lack of).

As Kerouac put it:

Two flies, You guys, What are you doing here?

So what are you doing here? If you're just here "To make a better return on your money," you may want to give your criteria a little better consideration.

What are you willing to accept as risk, how will you contain the risk to that? What's the time horizon? (the most overlooked aspect in investing, bar none. We live on a planet of delusion where people are using asymptotic, long-run values which often diverge greatly from the reality of finite time).

Pension funds are able to do this — articulate their criteria, as well as anyone. They need to keep to a specific liabilities schedule. Institutions tend to trump individuals in this regard.

You can tell the compulsive gamblers — the individuals without a specified criteria, disaster is imminent.

So…what are you doing here and when do you need to get it done by?

Gary Rogan replies:

But Ralph, and I'm not at all trying to be facetious, what if I have a hundred bucks, willing to lose fifty and want ten million in a year? Aren't your capabilities/means/methods at least as important as all the other factors put together?

Ralph Vince replies: 


Ha! Maybe your plan is a deep OTM option….parleyed 6 times in a row, with half the $100 ?

Without a specific, detailed, articulated criteria, I cannot determine my exposure plan. I don;t have control over what the markets will do
– I DO have control over my exposure.

The whole thing gets you out onto that lumpy landscape I call leverage space, and without getting into the nittygrittynasties of that (and acknowledging you are IN leverage space whether you like it or not, and it is applicable to you whether you acknowledge it or not), let's say your criteria is exactly as you defined. Well that sounds like some sort of portoflio insurance, yes? Your strike price on that is $50. Now, given that there is a peak to leverage space, portfolio insurance runs from that peak (as a % exposure) to 0 (as a % exposure) as your equity decreases to $50 (where your exposure is 0).

So now, given that you have articulated a criteria, you can plot a path through leverage space. In other words, you can create a specific plan to achieve that criteria in terms of your desired exposure.

Leo Jia adds: 


I am only a quarter into the book, so still can't comment on all your inquiries.

You are right, it does sound somewhat similar to the financial planning language. The difference perhaps is that the goal is meant for a daily goal or very short-term goal. It should be set at a level as high as one can stretch. One should clearly envision the realization of the goal to make sure that he WILL achieve it. Only by doing this, one can be ensured to devote all his power to achieve the goal.

The faith is to ensure that one does not get chickened out easily. It helps one to steer away from common beliefs one grow up with, such as staying safe.

Victor Niederhoffer writes: 

The power of prayer in markets and life for extending life and gains was well studied by Galton who noted that insurance companies did not reduce the rates for boats owned by divines nor was their life expectancy greater.Having faith in a market reaching a goal, will not alter the counts as to whether to hold for the end or the middle or the reverse. It will just cause unnecessary vig.

Leo Jia asks: 

What about the faith not in a religious sense? Shouldn't one have faith in oneself, in one's well-designed strategy, and in one's ability to reach the goal?

Ralph Vince writes: 

I return to this thread, which, despite it sounding like a hokey, self-help sort of thread, is, as I mentioned, the single-greatest determinant I have witnessed through the peephole of my own experience watching and participating in the trading world. It is what transforms those who are lured here for all the wrong reasons, into dull successes at this endeavor.

Especially as an individual trader, it's so easy to get sidetracked, derailed, spun around and disoriented by the markets. And if we agree that quantity is, over the course of N trades, at least as important as direction (the latter of which we don;t have much control over, and that a gentleman's bet and betting the house — the spectrum across there determines the weight of the specific risk on us), and that quantity is specified by a plan to achieve our criteria, then it is exactly the execution of that "plan," which becomes the vital exercise in trading. And without a goal, without specific, well-articulated criteria, you cannot craft the plan to execute — you are just waffling, flailing.

(And these goals the individual can craft should be more clear than that specified by the investment committee of an institution, because as individuals, you can set a higher bar than a committee of bureaucrat-types).

The exercise then becomes one of executing the plan, something quite boring and clerical, but, to me, something that has resulted in extreme trading success. I won't elaborate further, there are plenty, always, not experiencing success and my aim in this note is to point them in the right direction to achieve one pathway to that success (as I believe there are likely many, though I am only familiar with this one). Granted, I am very familiar with the linkage between achieving a criteria, specifying a path to achieve it, in terms of simple mathematics, but this is not something someone cannot learn and familiarize themselves with to a greater level than i have.

Since doing so, I have encountered success with this that I did not think was possible. The execution of the plan turns you into a trading apostate, relegating most market-related exercise, entry & exit, selection, etc., to their rightful place as secondary or tertiary concerns, contrary to what most believe.

No, I'm not going to detail my specific plan — it's unique to the criteria I am seeking to achieve, and the point of this note is to further highlight the critical importance of criteria and plan. Along these lines, what I later found echoed what I was discovering about my plan in a book called "Great By Choice," by Collins and Hansen, specifically the "20 Mile March" notion as it pertains to specifying such criteria-plan relationships as detailed here for trading and their execution.

I doubt most will bother with what I write here. Growing up in the raucous world of Italians and Jews and their gambling, the lure of a little self-created danger and excitement — the little rush of that, is what draws most to this arena and keeps them here, though they don't see it that way.

Gibbons Burke writes: 

Great post, Ralph. It brings to mind CompuTrac/Telerate's Teletrac software, which was originally named TradePlan. It was built to facilitate putting into practice the old Frenchman's wizened admonition "Plan your trades, and trade your plan." Unfortunately it was a bit weak in an area you championed, sizing your trades appropriately, but in many other respects its design remains one of the best for indicator and rule based analytics.

Ralph Vince writes: 

And, if the Chair will grant me a pardon just this one last time (regarding the French, a topic of seemingly poisonous exosmose to our regarded Chair) the number one rule I have learned of the markets and life: "Never face the Old Frenchman. Never. In anything."

Leo Jia comments: 

Hi Ralph,

Thanks very much for the inspiring posts on this thread.

Your point (if I understand correctly) is that the single purpose of a goal is to define the size of the trades. I understand size is very important but am not very clear on how exactly a goal works on that.

According to some literatures (yours as the most prominent), size is determined by how much one want to lose on each trade based on his strategy, and to win more, one has to increase the size, but there is an optimal size beyond which one's return will diminish. Isn't all that simply mathematics and how aggressive one want to be? How does a goal serve here?

On the other hand, how aggressive one want to be is very much influenced by his faith (or his illusion) on how successful his strategy will be. A key question I often have is how one can be so sure that his strategy will work as tested so that he can simply increase his size to the optimal level in order to maximize his return? And this doubt also applies to execution.

Would you kindly explain?

Ralph Vince responds: 


You're asking me to explain an awful lot, too much for a simpled response I fear. Let's say there is a risk proposition, a potential trade or wager. If I am going to play it one time, what I stand to make as a function of what I risk is a straight line (from a gentleman's bet, i.e. risking nothing, where f, the fraction of our stake we risk, is zero, to risking the house, f=1.0, where the line goes from 1, that is, risking nothing we make a multiple of 1 on our stake after the proposition, to some value > 1 where we risk the entire house).

For a subsequent play, where what we have left to risk is a function of what ocurred the first play, a curve begins to form (and thus you can see how the notion of a "horizon," that is a finite number of plays is an important parameter in all of this). No longer is the peak at f=1 when we have more than 1 play. The peak begins to move from 1.0 in the direction towards some value > 0 .

And I can show mathematically (because this is NOT a story about may, but about graphic visualization) that, absent knowing where that peak will be in the future, that the long-term best guess for this peak is p/2, that is the percentage of winning periods divided by 2. If I expect 50% of my plays or periods I have a position to be winning, then the best guess for this peak is 50% / 2 = .25. I am not going into the mathematical reasoning behind that here.

There's more….a lot more now. A curve has formed. The curve has a shape, and the story is in the shape of the curve and all the geometrically important points therein (I have catalogued these and discussed them at length to a disinterested world). And you are neccesarily on this curve when you trade this instrument, whether like or not, acknowledge it or not, and likely moving about this curve — and you are paying the consequences and reaping the benefits of where you are on this curve.

And here's the thing — you have control over where you are on the curve, and where you are moving on it. You don;t have control over the trade. And the thing you have control over is the difference between a gentleman's bet (where nothing is at risk) and having your entire life at risk.

Now, you have a criteria. Someone asked earlier on this thread for a particular criteria, which sound like a sort of portfolio insurance, and thus, a path can be plotted on this curve to accomplish precisely that.

There's a lot more to the geometry of this, and the paths on the curve (or surface in N + 1 dimensions, where N is the number of components you are trading), but people prefer to be blind to this but they do so at their peril and cost.

Newton Linchen writes: 


When I finally understood Kahnemann's proposition, that people (including and - specially - me) are not "risk averse", but "loss averse", and later recognize that was this "loss aversion" that caused me to lose more than I needed to, (since I have always researched trading strategies), the next logical step was to dive into your work.

I'm now at the point of embracing your ideas about the leverage space "for good", because I finally realized that trading requires so much toil… that it's simply not worth it if you don't aim for the maximum goal.

In other words, trading is difficult regardless of anything else… So why not do it for the maximum available profit?

That of course, requires courage, since humans have a great deal of loss aversion - and it's only possible when one realizes that it's just not worth it if you don't aim at the zenith.

Ralph Vince writes: 

If you want to Newton, and you have the stomach for it. If that's your criteria — growth maximization and drawdown be damned, then yes, you want to be at what you expect the peak to be over the future horizon of holding periods you are going to engage over.

Me, I'm old and cowardly. I like to sit on park benches with a shawl on…


These are already things everyone is already doing, i.e. they ARE moving around in this leverage space, like it or not, likely moving about it, paying the consequences and reaping the benefits of a location in a geometry which has extreme bearing on his fulfillment (or not) of his criteria. Your guy employing the mean variance approach has, as his criterion, maximizing expected (1 period!) gain with respect to variance (usually within some specified other constraints, like without using margin, without more than x% in any one group, no short sales, etc). He is still invariably in leverage space, moving about it. (Further, in assuming the main facet of his criteria, maximizing return vis-a-vis risk, wherein he specifies risk as variance in that return, is mathematically misguided as variance is a diminution in [consecutive] return, and not risk, i.e. it is already baked into the return portion, i.e. the altitude in leverage space, as one considers consecutive return [i.e. reinvestment]).

It's not a matter of maximizing return, alone or with respect to something — unless that is ones criteria. Regardless, we are in leverage space, moving around, and can craft our plan our path through or stationary location within this space to satisfy our criteria.

And, absent a criteria, a "goal," the virtue of which was questioned at the trailhead of this thread, there can be no plan as nothing is being sought (other than perhaps entertainment or some form of self gratification). And if one does have a goal, a plan can be crafted to try to achieve that goal.

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