Some guys blend, I juice.

Just got a new Jack Lalanne Juicer and have been juicing apples, beets, carrots, pineapples, grapes, green beans, chard, celery, grapefruit, oranges, strawberries.

It seems very healthy to drink the live uncooked juice.

The V8 vegetable juice with some tabasco and worcestershire is good.

The fruit juices with a little ginger kicks it up a notch. Juicing adds more variety than just smoothies.

The juicer is pretty easy to clean and was inexpensive.



 Out of the Wild West called Belen a thug with a cap pulled low over the brow grabbed and began shaking Maria the ´purse´ of Yellow Rose of Texas. He picked on the wrong person at 8am on March 14, 2013 at the early waterfront market. Buttons popped as the two slugged and shook allowing citizens and vendors along the crime ridden waterfront to get a make on the youth´s face. The thief tore loose the purse and ran down a long stair with Maria tumbling end for end after to gain speed.

He escaped onto the plank maze of sidewalks on stilts above waterworld Belen but he had victimized the wrong girl connected to the right bunch. The Yellow Rose of Texas Rangers was born to serve the Belen and Iquitos territory and stop crime against tourists and Peruvians.

The next day I was Maria´s bodyguard. With a bruised and scraped leg having had medical attention and another sizeable purse under a fresh blouse bouncing like a heartbeat, I shadowed her like a father. The crime scene is at the foot of Palcazu Street with one hundred concrete steps descending to the Rio Itaya. Smoked fish wafts into our nostrils at the first fish table where a senora explained past a gold tooth what happened.

´Maria has been my good client for four years. Her first daily stop when the purse is full is where you are standing to get the morning catch. Would you like to try it, senor? The youth has been watching her day after day knowing her purse would be heavy with cafe money at the first stop, and he attacked as she pulled it. Maria fought, but the youth was stronger and he ran down the stairs with the purse and Maria on his heels. She slipped and slid down the stairs.´

´Do you know the robber?´ I asked. ´I do,´ she answered.

´I know him better!´ bellowed Omar the vendor at the adjacent stall. ´He has terrorized our clients and pickpocked the tourists for years. He´s been in and out of jail, but he keeps coming back for more. The police can do nothing but raise the iron bar over his head and release him because the courts are crowded.´

I offered a reward for the bad man: 10 Soles ($US4) for the name and 20 Soles for the capture- a small fortune. And I returned to the Yellow rose outdoor tables where the day before over a gordo omelet I had seen her return bleeding and empty handed.

´May I be her bodyguard?´ I asked restaurant owner Gerald Mayauex.

´You´ll need backup,´ he agreed wisely.

I put the word out on the grapevine to Richard Aku Fowler, a legendary figure in Iquitos, who ambled up with the sun at his back even as I took the last bite of the omelet.

We explained the crime, the threat to tourism, the apparent shy law enforcement to enter the lower market, and the need for a solution. He pulled a sheet of paper out his pocket, revealing handcuffs dangling on a belt loop, and other bulges under the pants.

The Lone Ranger is a fictional hero, an ex-Texas Ranger who with his faithful Native American companion Tonto, fights for law and order in the American old west. The character is an enduring icon in American culture. Departing on his white stallion after righting a wrong, the stranger would shout, ´Hi Ho Silver!´ leaving behind one silver bullet, and someone always asked, ´Who was that masked man, anyway?´

We grabbed a motokaro taxi with a surrey fringe to the Belen market. Thousands of tourists from around the world visit the seamy, flea hopping market each year, and one asks, why? It is a ten block study of fascination of food and human odors, shouts by vendors, wonderful people, action around each bend, and you can get everything you want- even pickpockets- at the Belen market. About one tourist per week is shorn, hardly ever harmed, of his valuables. The young hoods also pick off Peruvians riding by on motorbikes with a fat wallet sticking out a back pocket. The sting is always the same: The ragamuffins hangs at the top of one of five stairwells, lying in wait like little lions panting in the heat with the Jones of a drug habit, until a prey comes, strike boldly, and scamper down a hundred steps to the river. I have been robbed of a camera, watch, and seen five other tourists fleeced. The thief is faster and rarely collared, leaving behind tourists with shrugs and scowling citizens. The Belen police are vigilant and somewhat brave, but haven´t figured out the scheme, overburdened with Billy clubs, tear gas and pistols, nor do they care even with that to enter the lower bowls of the waterfront.

Aku and I staked out the crime scene standing ten yards apart and ostensibly minding our own affairs, him examining cabbage, I feeling tomatoes, and waited. After thirty minutes the flies began to bite, but thirty minutes later a reticent fish vendor whispered in passing in my ear, ´The Rato is eating at a table one hundred meters away, follow me…´ and we tailed him there. A National Policeman in brown stood behind the eater watching every move of the knife and fork. Aku cooed, ´The perpetrator will be high as a kite from the money, but he´ll have just a few Soles to pay for the meal. Officer Vela ordered the man, ´Stand up, you´re under arrest!´ and Aku was on him in a flash, and snapped handcuffs on surprised wrists and shoved them into the small of his back. Another policeman joined us, and they marched as if Aku was their Captain for three blocks to the Sixth Street Belen police station.

´My job is done,´ he said at the entrance handing me the silver key to the handcuffs, and vanished into the market.

´Who was that stranger?´ asked Officer Vela.

´Why, that´s the Lone Ranger.´

Left alone on the station step. I trundled the hombre into the lobby past a beefy policeman with a shotgun and a keen eyed cop with an automatic rifle. The police chief´s face over the counter registered shock as he waved us upstairs. Around a corner and up a flight of stairs I met head detective Fernando Rios ´Sherlock Holmes ´ Zarate of the criminal investigation department of two.

Their office is one small room that catches the heat from downstairs with two desks, one modern computer, a shelf of documents, and the perp was roughly seated on a long hard bench. ´Senor Rato, Sherlock asked gruffly. ´What do you have to say for yourself?´

´I didn't do it.´

´What didn't you do?´

´Whatever the gringo says I did.´

Officer A. Vela S., twenty years old and lithe from what he calls ´eighteen months of very hard and valuable training at the National Police Academy on the Nauta highway, joined and explained what had happened and punctuated, ´And then a tall stranger took over, left a silver key, and disappeared.´

´Who was he?´ asked Sherlock.

´Why, that was the Lone Ranger´ said Vela.

He dissected my face with his eyes, and I began almost to fathom the profound intellect and memory of Sherlock Holmes, a trouper for 28 years. As the perp writhed on the bench in withdrawal, begging the cuffs be loosened, I explained the tourist and expat view of the Belen marketplace.

´Peru tourism has risen like a meteor that will peak in early May when 100 travel agencies land in Iquitos from around the world for a Peru Tourism Conference. They will arrive on Copa Air on one of the first international flights and be greeted by a new airport immigration agency. With the addition of a 5-Star hotel Iquitos will become the gem of Peru. The one sore spot in Shangri-La is Belen. Most tourists go there, about one in forty is robbed, and the strategy is usually the same.´ I explained the stairway escape hatches that the robbers use.

He leaned forward, and stared thoughtfully into my face. ´Thank you for bringing in Senor Rato. We will begin a police report now.´ The man gave his name as Elvis Gafica Reategui, 30-years old, height 5´7¨, weight 70 kg., pocked face, no document, with no particular address and nothing in his pockets. The gold tooth senora was brought in to identify him and sign an eye-witness statement, and left.

'He didn't resist arrest and was amicable,´' I piped, 'So there´s no need to hit him.' ´ Vela,´ ordered the boss without glancing up from the report. ´Take Senor Rato to his cell.´ A few minutes of paperwork later a burly cop entered and informed, ´His real name is Eliseo Baos Aneulo, age 30, domicile Penjamo, he´s been in and out our jail three or four times on the same charge, and admitted today´s crime.´

 ´How did you find out?´ I wondered. The head detective smiled as the officer retorted, ´I raised an iron bar over his body and he squealed.´ He did not say he hit him.

Two hours later, Sherlock put the last punishing period on the handwritten one- page report, and pushed it across the desk for my signature. I signed, with a flourish an addendum swearing, ´I do not speak Spanish,´ and shoved the document back. Then I handed the detective the poster ´Don't molest the tourists in Belen. The Lone Ranger' that he beamed over for a full minute after I snapped a photo.

There was one more thing to do before leaving the station. The silver key. I went downstairs alone to the rear building and surveyed the Sixth Street holding tank. There are two 10´x10´ block cells connected by a narrow alley where a ragtag youth slept but arose as I stepped over him. He tried to pickpocket me, but I pushed him down and asked, ´Where is your bed?´ and he curled up like a pup and slept. In one cell a misfit awaiting an interrogation or eyewitness gawked through the slats as if he was seeing a ghost. The heavy bar doors are unlocked and can be opened from the inside… but then there are the shotguns and rifles. I opened the door to view Eliseo Aneulo crashed on the bare concrete and gently prodded his shoulder. ´Ohh,´he groaned, and rolled away. I removed the cuffs, he rubbed circulation back into the wrists and hands, and indicated he was hungry. I nodded and slammed shut the door.

The sun was setting on another market day as I exited the building, when suddenly I was sided by a hefty uniform filled with self-importance and multiple stripes on the sleeves. He cordially introduced himself as the new shift ´Sherriff´, adding, ´Word is going around on the case, and I wish to thank you, and especially the Lone Ranger.´ I gave him some change to buy our thief a meal, and left.

The next morning Maria the Purse was the hero of Belen and did not need a bodyguard any more. They cheered

and showered her with spinach, bananas and greens for her own kitchen as she made the hour round of 80 kilos for the restaurant. For the first time a policeman stood watch over each Belen staircase as one patrolled the stem on a motorcycle. The case was closed and Belen is safer for a time.

 Sherlock has forecast the fate of the thief in the legal procedure. He will be held for about four hours and released. Since the robbery was for 300 soles ($US120) it is a misdemeanor, far less than the 1400 soles required for a felony to send him to the Brazil Street carcel. Assault is not taken into account unless it causes a serious injury. There must be a testimony to make a police report from either the victim or, as today, the eye witness senora Gold Tooth. Since the thief has a record and address he will be sent a notice to appear in court. ´It will be ignored,´ guesses Sherlock. In another week a second notice will go out, a third, and then ´We will start looking for him. If I didn´t release the mugger today I'd lose my job. We do about five reports daily at the Belen station alone. The courts simply do not have the time or money to process cases that do not at least pay for themselves.´

Tourism is on the rise outside Iquitos too, in Lima, up at Machu Pichu, around the Amazon and throughout this national paradise. The Texas Rangers of the old American West had a saying, ´One riot, one ranger.´ Now two centuries and half way around the globe in Iquitos their aims are to help the police, update the antiquated laws, change the revolving door court system that puts Senor Ratos back on the streets in four hours, and to make Peru a safe tourist haven.



 One queries whether Passover, Yom Kipper, or Rasha Shauna is bearish for stocks and will say a prayer of atonement and share a torte if it turns out not so.

Anatoly Veltman writes: 

You mean Sell Rosha Shana Buy Yomkippur did out-perform Buy&Hold?

Ralph Vince queries: 

But what about Passover? What about the full moon and a shorting a (very) quiet market?

Jeff Watson writes: 

Back in the pit days, during a quiet market, locals would start selling the market down to where it would trade and order flow would start coming in.

Anatoly Veltman writes: 

Can this be a way of creating "real world" demand?

Jeff Watson adds: 

Sure, the grain companies use this same concept in the reverse to bid up the front month to get farmers to kick out some of their stored grain into the market. Right now look at may corn/wheat spread. It is treacherous and the big grain companies are slugging it out with that spread. I'm avoiding it like the plague, just like I avoided that gold/platinum inversion 1.5 years ago that went out to $150. Too rich for my blood. Very rarely does corn trade premium to wheat. Vic even asked me about doing the trade when corn was 2 cents premium to wheat(where wheat usually commands a 50% premium to corn). I told him I wouldn't touch that trade with a 10 foot pole. In my case, fundamentals and gut instinct kept me from stepping on that land mine. It's been fighting for a week, and I just prefer to be long a little May wheat and have some other months and exchanges spread. I hate risk, and also hate gambling unless I'm the house.

Anatoly Veltman writes: 

The gold-platinum, of course, was entirely different as no Gold is ever consumed. It went out to at least $225 (we should ask Rocky if he knows the high tick, and how long the price was available). To my recollection, the spread double-topped in unusually brisk manner, i.e. the record prints didn't last more than overnight.

Richard Owen adds: 

What is it about spread trades that make them so treacherous? Gold/plat, corn/wheat, the Volkswagen stub, etc.

Is it because the mis-pricing is so "obvious" that people get greedy? Because it's a matched trade, they allow too much for a positive hedging effect? And because they want to trade the spread, they focus too much on maintaining the relative basis, rather than using risk-management appropriate to a gapping short, even if it screws up the net position?

Rocky Humbert writes: 

IMHO the reason the spread trades are dangerous can be attributed to several phenomena:

1) Price Anchoring and false assumption bias. People believe that just because the spread between X and Y has been bounded previously means that this is a law. In the case of stocks, in the fullness of time, it's a good bet that every stock must eventually either merge, get taken over, divest or go backrupt. Otherwise, one stock would take over the world. This means that if you are long GM and short Ford (because it always traded within X bucks), you will eventually blowup. And because GM/F is a mean reversion trade, it has the typical person adding as it goes against you. Can you trade around it and get out at a profit? Sure. But that is intellectually dishonest versus the original motivation. I suspect trading around the position is, in reality, what most profitable spread traders do. They don't put it on, add to it and wait for total reversion. In the case of commodities, there are short-term supply and delivery issues, so even if you are conceptually right, if the convergence doesn't occur before the contract expires, you will incur a permanent loss since the mis pricing doesn't exist in the next contract. That's the case with C / Wheat right now. Corn is at a premium to Wheat in May. But at a discount in all of the other months. So you need to get the price and the timing right. Or you will lose money.

2) Difference versus percentage. I find that people look at the spread as X minus Y. They often ignore X / Y. As prices rise and decline sharply, the ratio becomes more important. But it's not how most people's minds work. For example, a 2 cent mispricing when corn is at 250 is quite different from a 2 cent mispricing when corn is at 736. Oops make that 695 (limit down)

3) False Volatility Assumptions. Assume the price of X0 and the price of Y™ and you are trading X versus Y. And assume that the spread moves up and down $1. People mistakenly think in terms of $1 on 100 … and that's not a big move. In reality, you are trading the spread of $1 and so when it moves to $2 , that's a 100% change — no different from Apple going from $444 to $888 . Don't laugh. I can't tell you how many people fall into this intellectual trap.

4) Butterfly traders. Before interest rates were pegged, I used to chuckle at the 2/5/10 butterfly traders in the bond market — who would do the trade in MASSIVE size. And they'd talk about how the 2 was cheap to the 5. Or the 5 was cheap to the 10. Deconstructing the butterfly trade revealed that (almost all of the time) the P&L of this popular duration neutral curve trade moved with the direction of the 5 year. So it really was a bet on the 5 year rising and falling. And everything was dwarfed by that.

When I was worked with Kovner, he always hated spreads. He would say that it's hard enough to get one trade right. Why add to the aggravation and try to get two or three trades right?



 Some may remember a book appearing in 1961 titled, Black Like Me, describing the experience of a white journalist passing as a black man in the Southern US during the middle of the civil rights movement.

It seems there is a Jewish counterpart of this book , set in present day Denmark, but instead of passing for someone black, it's someone Jewish.

The conclusion of the article, while perhaps not startling (that anti-semitism in on the increase), is sad.

Plus ca change, plus c'est la meme chose.

Unfortunately, with economic stress increasing in Europe, I expect anti-semitism to do the same.



 In the classic romantic comedy "His Girl Friday" the major plot is how Cary Grant wins the girl and keeps his best reporter from marrying. But the comedic subplot is how pseudo science gets sold to the public by throwing in key phrases so that public thinks they are more sophisticated than they really are. Not only are they up to date on current events, they understand the great social science and political thought behind it.

The newspaper wins by appearing on the cutting edge. The politicians aligned with the social scientists win since their theory is pumped. The public, though duped, wins by raising their self esteem. But in the days when women could be the comedic folio, to achieve this, the facts must be made to fit the theory, and it is only the reporter and her editor that are in on the joke.

A simple mathematician wonders how "eigenvectors" overcome the placebo effect of pseudo sophistication of wine tasting. And the mostly tea drinker in me asks the emperor's clothes buyer, "Is not the fun in the adventure of the trip, not the destination?"



 I would encourage every child of college age, and parent, to NOT do it.

I have niece at Miami of Ohio. She studies accounting to eventually take her CPA.

She can take all of her accounting classes from better institutions, online and for free. All the content — the very best of content — is available online and for free. Why not take the classes offered by Wharton?

Why not learn about differential equations from those teaching it at MIT?

The major colleges and universities are very disturbed by this trend, wondering when the dupes who keep paying to send their kids to their schools will wisen up — they KNOW they need a new business model, it's only the relentless nature of human momentum that keeps them going here. They are well-aware the only reason people are attending in person and paying is to get the diploma — the content is available for free. (The kids end up taking most of their classes online anyhow.)

It's the 21st century. I look at the nonsense at Florida Atlantic University, and other second tier colleges, and they appear to be an utter waste. I cannot speak for the Ivy league schools or other top academic institutions, though, as an outsider, they DO offer their content for free and online.

To bypass this I think is a sin, and that doesn't just pertain to college-aged young people, but to the rest of us as well.



Here is a table

Expectations of gold when above and below moving average in new millennium .

.....................Expectation next 5 days above mov avg    gold below MA
length of mov av
....80                 1.7            1.4
....40                 1.8            1.0
....20                 1.0            2.5
....10                 2.2            0.7
.....5                 1.2            2.0  

Thus, we save Dr. Kim some use of minitabs  and conclude that gold below 20 day moving average slitely more bullish than above and all the rest random.

All based on 1500-1800 observations a side.           



 When gold was money, its price was measured not in currency but in what it could buy. From the adoption of the Constitution to WWI, except during the Civil War and Reconstruction, the price of gold as currency remained the same — 1 ounce was $20; measured by what it could buy during crashes and depressions, gold's "price" went up. That was equally true during the periods when the dollar was not redeemable in gold at the Constitutional standard — 1873, after 1932; in all these panics what gold could buy in the world's markets has increased. That is to be expected; it is a tautology that, during panics, the prices of things other than money go down and the price of money goes up, and gold has been the world near-money even when it has not been legal tender in the U.S.

George Parkanyi writes: 

I think that gold is difficult to read. It's not a slam-dunk by any stretch. In a rapid deflationary scenario where credit markets seize up and no-one trusts counterparties it could get hammered with everything else - people having to liquidate to cover margin calls, just needing cash to meet other obligations and so-on. Also you wouldn't be able to finance it. There would be a complex interplay between flight to "quality" and scrambling to raise cash. And inflation seems to be mixed bag; specific pockets of it - there seems to be plenty in food and energy, but little wage inflation in a globalized economy with a lot of cheap labour still around. Consumer electronics still seem to be trending down.

On the other hand you do have seemingly unstoppable currency debasement underway (the main gold bug meme), and interest rates practically at zero. And bank runs could be good for gold since the issue will be about parking cash somewhere other than in a bank - gold would sop up some of that. Equities at the moment I believe are benefiting from a shift in the perception away from the "safety" of fixed income. Sovereign debt everywhere really does look like crap because of the unsustainable amount of it - why would you tie up your wealth in it? You see it with companies starting and/or increasing dividends because of investor demand for income they're not getting from debt. Debt markets dwarf equity markets, so if this is a real trend, equities, and commodities in the mix somewhere, could go a lot higher. But at some point all this selling of debt will increase interest rates, which will then work against the economy, equities, and commodities - including gold.

Then there are other dynamics. They say central banks are buying gold right now. Bullish or bearish? That's taking production off the market (bullish), but then they have all that more to turn around and dump on the market if the agenda changes again (bearish).

Gold itself hasn't been hit that hard recently - 16 or 17% perhaps from its high - but the miners have been massively hammered, mainly - and I find this ironic - because of high operating cost inflation. I'm thinking its overdone and a fairly old story, setting the stage for at least a bear market rally (the rationale for my current trade), but the market's not agreeing with me so far.

Larry Williams writes: 

You make some nice points. I see a strong 4 year cycle operating in gold that called the top real well 2 years ago and suggests a low yet to come.



 Before work I drink two double espressos. I wouldn't have the courage to leave the house otherwise and go to work. I just rely on jitters to move me uncontrollably and eventually I bounce out the door. An espresso around my house/work costs approximately $3.00. That's $6.00 a day. I drink these on weekends as well, so, that would be around $42 a week and there are two of us in the house. $84 a week. We go through around $10 beans per week. We also need to factor in cleaner for the machine, but I bought industrial bulk cleaner for $20…it'll last a year or two even with weekly double cleans. We also give others a coffee when they come around. I'll ignore that, however.

I bought the coffee machine for around $800 on special and it makes a very tasty cup. We've had it since late 2007. So, we've been drinking $4,368 per year for four years, so $17,472 for the life of the machine. Only $2,080 for the beans over four years. All up, I think we're ahead. There are power costs and so on, but, they're minor. We've probably saved, conservatively, around $13,000 in the last four years.

Here is a good article reviewing the best home coffee machines.

Jeff Watson writes:

I drink a lot of Cuban Coffee, which is espresso, and is very sweet. My pot cost $12 at Target and I've had mine for at least 15 years.

I buy Cafe Pilon which is priced at 4 bricks for $22 and that's a 2 month supply, figuring 4 cups a day.

It takes less than 5 minutes to knock out the coffee.

Dylan Distasio writes: 

My company recently eliminated the free Green Mountain brewed coffee as part of a bean counter initiative and switched over to Flavia packets which is a very poor substitute. I have been going downstairs to buy a large cup of coffee a day for $2.67 but am looking for a cheaper alternative.

I am about to order one of these aeropresses based on the reviews I've read of the device and the coffee it makes. It is essentially a gentle one cup espresso maker which can then be turned in a cup of Americano if desired simply by adding additional hot water.


 So I got my Aeropress and wanted to report back my coffee findings to the group. I am a huge fan of this device and believes it consistently brews a delicious cup of coffee quickly and easily. The only downside I see is that it can only brew one cup at a time. For me, this is a non-issue though since I am using it at work and not for a group. Even if I used it at home (I am considering getting a 2nd one for that purpose), my wife does not drink coffee. I have a Keurig I had bought for convenience at home in case I wanted a quick cup of joe on the weekends. There is no comparison between the two not surprisingly; the Aeropress blows the Keurig with its k-cups out of the water.

Just a little additional background on my coffee habits…I drink my coffee black with a few exceptions…I generally don't like SBUX brew. I am with the folks who call them Charbucks. I prefer McDonald's or Dunkin Donuts coffee, but will drink the SBUX Blonde or an Americano (espresso plus hot water) there under duress. I am not a coffee snob (at least not yet) so you will not be hearing me talk about brewing beans picked out of civet droppings or $1000 burr grinders.

I picked up a bag of whole bean Jamaican Blue Mountain coffee from Costco for my first brews with the Aeropress. I am using a burr grinder versus a bladed one but it is a relatively inexpensive Mr Coffee one I bought years ago when I was experimenting with a Braun Espresso maker. I am grinding relatively fine somewhere between espresso and french press.

Once the coffee is ground, it is a very quick, simple process to brew a tremendous cup of coffee. The Aeropress comes with a measuring scoop which I use to scoop around 2 - 3 scoopfuls into the device after placing a fresh filter disc at the bottom. I then pour relatively hot water obtained from the dreaded Flavia machine onto the grounds and stir with an included stirrer for approximately 30 seconds (they recommend 10 seconds). I then insert the plunger piece into the waiting grounds and with some elbow grease slowly press the coffee down through the filter leaving the grounds behind. After that, I add additional hot water to my coffee mug to craft an Americano. I have tasted it undiluted and it is also delicious. I'm not really sure it would replace an expensive espresso machine since it is not applying the same pressure, but for me, it is a nice cup of what the Aeropress folks call espresso.

Clean up is simple. You just unlock the piece that holds the filter in place, and plunge the grounds into the trash. After that, it's a breeze to rinse off.

One of these would also be great for travel and camping/backpacking. It is pretty small and easy to carry.

In case you didn't notice, I am sold on the Aeropress. I'd highly recommend checking it out if it sounds like a good fit for your purposes. I'm looking forward to experimenting with the grind settings and some different coffee beans in it.

Just to continue this discussion, does anyone have any whole bean coffee recommendations to try?

For those of you interested in debating how many angels can dance on a java bean, check out also. The minutiae available for coffee lovers there may blow your mind.



 "Editorial wiseacres," says Mr. LeRoy, "may preach that such efforts as Hubbard made are of no great immediate value to the world, even if successful. But the man who is born with the insatiable desire to do something, to see what other men have not seen, to push into the waste places of the world, to make a new discovery, to develop a new theme or enrich an old, to contribute, in other words, to the fund of human knowledge, is always something more than a mere seeker for notoriety; he belongs, however slight may be his actual contribution to knowledge, however great his success or complete his failure, to that minority which has from the first kept the world moving on, while the vast majority have peacefully travelled on with it in its course. The unpoetical critic will not understand him, will find it easy to call him a dreamer; yet it is from dreams like these that have come the world's inspirations and its great achievements."

from The Lure of the Labrador Wild, by Dillon Wallace

I just finished the book regarding the above event which ended with this quote. Though not on as grand a scale as the Shackleton story which we got into in a big way a number of years back (I still possess about a dozen copies of the special edition Vic had printed up), it still made a good read. I'm mentioning it not as a recommendation but as one of the benefits I've accumulated while lurking on this site.

An overwhelming majority of our commentary (understandably) regards the probability, markets, economics, politics, foreign affairs, etc. I've read much of it, understood a little, learned a little, misunderstood a lot, and, if anything, have become not a better investor but a more cautious one.

The real benefit has come from the many posts that touch on unrelated or distantly related topics. I can't tell you of the several times Stefan has driven me crazy by rebutting an argument by beginning with "You must understand that (fill in the blank) was a constitutional scholar…" His rebuttal, (and to be fair, those of others) were steeped in legalisms that seemed contrary to apparent "original intent."

Subsequently, I purchased a copy of the Anti-Federalist Papers as well as the Federalist Papers, "The Skeptics Guide to American History," and "Great Debate: The American Constitution" (both from TLC). Still other site topics resulted in buying "Understanding Complexity," "Power of People: Classical and Modern Political Theory," "Questions of Value," and others. In turn, these led to interests (some permanent, others passing) in Voltaire, C.S. Lewis, Homer. and other names I had constantly seen referenced but which I had never made the time to read.

I'm not attempting to list achievements but to lament the many years I wasted not inquiring into these and other topics. And it's not that I was unaware of this. Years ago, in the Chicago Daily News, Sydney Harris wrote five columns a week — usually about 500 words each. I really had little in common with Harris' view of the world, the theater (his always caustic reviews were credited with killing big stage productions in Chicago for years), or his politics. But, brother, could he write a great essay.

My favorites were headlined with "Things I Learned on the Way to Looking Up Other Things." And that's the point I want to make here: this List had led me down paths, which have branched into other paths, that I never would have been aware of. One of those "paths" led me, most recently, to Project Gutenberg which most everyone is familiar with. However, I discovered they offer a daily RSS feed…and on any given day (save Sunday) they add anywhere from 35 to 70 new titles.

I've discovered there are many very good books out there which are largely unknown and out-of-print; many deservedly so, but some which really deserve to be read. I'm passing this on only as a point of information The List has opened many new non-financial vistas which I greatly appreciate. My only regret is starting so late.



 Pulled into a local gas station or "servo" as we call it here in Australia…and a particularly chatty attendant told me (twice in as many visits) to fill up because the price was going up the next day… It never has. But he did shed one light, he said not many people are getting out for easter and filling up the cars, only 20 bucks here, 20 bucks there. If you could attach a measure on the pump, and see how many full "extractions" there are compared to how many small "tops up" there are…we might have a leading indicator of sorts, local specific. 



Lives there not one spec here                                                 
whose profits have caused all hope to disappear                                 
who's meager talents and frailty                                               
would not qualify him for disability

Here are some good definitions on the 54 million American with disability.

David Lilienfeld writes: 

That's an ADL-based definition, and includes persons with Alzheimers, Parkinsons, and several other conditions–including osteoarthritis, which is prevalent among those of us over 50.

Scott Brooks writes:

Still, that's 17.25% of the population. That's 1 in 5.8 people on disability. That number should give even an ardent liberal like David pause.

We have over 15% of American's on food stamps (of which many are both on disability and food stamps).

We have 40 million on SS.

How many taking Section 8 housing? How many others "entitlements" are we paying out?

TBTF bailouts.

How many government programs can even an ardent liberal find in the budget and say, "the government shouldn't be doing that"? I'll bet there's more than a few.

Let's start a contest and all throw $100 into a pot. The winner is the person who correctly identifies the "straw that broke the camels back".

Stefan Jovanovich writes: 

David's liberalism is to be treasured. Liberals have been the people who — throughout American history — got the rest of us to admit that the country had a problem. The difficulty is with their command and control solutions — public education, for example. Penitentiaries (thx friends), planning for land use, minimum wage and child labor laws, drug laws — the list of foolish solutions is endless. (I am not saying these are David's). The "welfare" problem is real — there are tens of millions of adults who are too slow sick or stupid to be profitably employed. That is the problem; what we constitutionalists have to do is find a solution. Offering up the market is a good way to begin the diagnosis but by itself it is the same kind of malpractice that had doctors blaming ulcers on their patients behaviors.

Russ Sears writes: 

Rather than disability a better definition would be unrecoverability. What spec still here has not had their dreams shattered more than once and has not, after some soul searching, found the strength to get up and learn from it.

Frankly, hope is fickle, fleeting, but it only appears to be extinguished. After a few hard runs in the woods and a few days time, hope has always reappeared and shown a path to turning the pain into greater future strength. Not that the path shown is ever easy or sure, but it has always reappeared, sometimes 360 degrees from the path I thought was the way previously.

Running has taught me that training is mastering recovery. 

Jeff Watson writes: 

And right away, getting back up on the horse after he's bucked you and cracked a couple of ribs is very important. Or, when you are surfing in huge waves, wipe out, break your board, and suffer a three wave hold down and nearly die, grab another board and paddle right back out….who knows you might get the ride of your life.



 Review of Trading Bases, a story of Wall Street, Gambling, and Baseball by Joe Peta

A timely book here just ahead of opening day, Peta relates a lifelong love of baseball and statistics, his experiences as an equity desk trader for Lehman Bros. (15 years) and his subsequent battle back from a horrifying injury sustained by being run over in the streets of NY by an ambulance –as if his Lehman experience wasn't enough to endure. He suffered a "Theisman grotesque" leg break that left him depressed and basically rehabbing alone in his NY apartment with wife and family living on the west coast.

His passion for trading snuffed by not being able to work, hopped up on pain meds, and trapped in the apartment leads to him to watching more sports than ever before. A baseball lover at heart and a statistical junkie, Peta finds a reason to wake up in the mornings. He decides to try his hand at making a statistical model that would identify edges for baseball team wins and losses that would provide him with a betting edge over the Vegas Line.

Peta eventually creates a hedge fund that bets baseball games that returns 41% in 2011 with similar daily volatility as the S&P 500. The book outlines Joe's views on gambling. Baseball is his preferred niche since the juice/spread is the smallest in comparison to other sports, the ability to use statistics to get an edge is available, and the natural alignment between the better and the team– rooting for your team to win versus the convolution of winning and beating a point spread.

Joe explains his model with care, logic, and facts–backing up his assertions with anecdotes, experiences and back testing in terms of the body of baseball evidence from the historical stat stockpile. He builds on the pioneer work of Sabermetrics, Bill James, and Nate Silver. In general his system uses time tested relationships of team win/loss records, runs allowed/runs scored, starting pitching assumptions, WAR/PECOTA analysis, and more. He relates his journey on a monthly basis showing his results, the breakdowns of what went right and what went wrong, his acceptance of a "lumpy" higher return than a smooth more accepted rate of return by clinging to the belief that reversion to the mean will occur–eventually. He uses a concept called "cluster luck" to identify "lucky or unlucky" pockets in team's prior records that should be ignored and removed from overall estimates. This is a key to his being able to form an opinion against the betting line of under or over valuation. His model then picks matchups that should be bet on and he uses a very systematic approach to determining the amount of the fund to bet on any one game–essentially using fund manager skill sets.

One notable opinion of his describes his fondness for "skill sets displayed" versus the recording of errors (mistakes committed and sometimes unfairly attributed). He uses SIERA (skill-interactive ERA) for pitcher evaluation and special modeling for playoffs and interleague games. He also walks the reader through his decision making process for when to tweak the model or when to stand pat—. Over tweaking will result in removing the natural capture of mean reversion. Joe has a friendly writing style and comes across as genuine, interesting and likeable.

I think any spec would like this quick reading book–you will learn something here about baseball stats and baseball betting theory; you may well enjoy the woven storyline of his trading career experiences as these snippets and stories move betwixt his model outlining. It is written for an above average mind, but its not too heavy to put someone off who doesn't deal with wall street or modeling on a daily basis. I read ever page, every micro-print footnote, and every end note.

Ken Drees adds: 

I could not find a section or passage by memory or a reference from the index to overall management influence on single game outcomes or win expectations. One chapter deals with playing from behind and how "small ball" played to cut a two run lead to a one run game is a bad practice–playing not to lose instead of playing to win–giving away your upside to get a better feeling that you are "doing something"–almost like a job justification strategy–manufacturing a run, playing to tie instead of win. Peta backs this up with data –pages 204-206. Obviously management is taken into account when overall seasonal expectations are determined. But the managers don't play on the field so they are not highly considered in Peta's analysis. I would think possibly it may come up as a side data point in the playoffs –having more of a weighting than regular season. It may be that widely popular managers may in fact swell a line up for a team and thus give you a better opportunity to make money against–like the NY Yankees as Peta points out are a marquee club who usually get premium priced in certain situations regardless of true odds.

Interestingly –he bets both national and American league games–turns down activity during interleague play since data is less deep for those occasions and also scales back during the playoffs.

In the chapter, "Focusing on the Wrong Data", Peta parts company with "a total lack of regard for management/soft skills mentality" that some of the sabermetric followers employ. He cites a player's manager, Ron Washington of the Rangers who is loved by his players and who makes a critical decision in game 3 of the world series tied one game a piece. He Gives veteran Torrealba –a 2011 95 game starter at catcher, a "deserved" start over the much better performing player at that time during the season, Mike Napoli. He juggled the line-up and in Peta's opinion weakened his team in two ways in order to give one player a "deserved" start over giving the other 24 players there best chance for a world series game 3 victory and series lead.

So maybe Peta does give some weightings in his model –maybe when playoffs and world series are in the prime-time spotlight managers can be exploited by bettors for their traits–both good and bad.

Victor Niederhoffer writes: 

I agree with the excellence of Trading Bases. The author is very brilliant, and very likable. And his discussion of what went wrong at Lehman is the best as well as his college essay on the central funding department, which almost got him fired, and his well deserved hatred of the boxing head at that firm, who gave him a one sentence interview before hiring him.

He assumes you know a reasonable amount about baseball trivia and it's helpful if you read the annual issues of the baseball prospects and are familiar with the pythagorean theorem of Bill James. The author was a star trader of tech stocks at several firms before being hit by a ambulance and turning to his first love after being fired by the Japanese and carried out in his wheel chair. A great book. I second what Mr. Drees said about it. 



 It looks like Slovenia may be the next EMU member up for financial guacamole. Those indicating that the recent troubles of the financial problems in Cyprus, where a euro is worth exactly what the IMF decrees it to be worth and no more and no less, but not necessarily the same as a euro anywhere else in the EMU, were the same who said that the crisis in Greece was limited to Greece, and then that the crisis in Spain was different from Greece so there was no cause for concern. Then it became the crisis in Italy is not the same as that in Spain, which wasn't the same as that in Greece, and therefore there is no need for concern. I'll leave the upcoming problems in France alone for the moment, as it appears that Slovenia is next. (My apologies if this sounds like a financial version of Chad Gadya, but as the saying goes, "If the shoe fits…")

At some point, it's going to hit someone in the IMF/EMU/ECB Troika that it would be a lot less expensive to arrange for an orderly withdrawal of these countries from the EMU than trying to preserve the euro in its current form. I say this as someone for whom foreign exchange isn't a strong suit. It just seems self-evident to me. What am I missing here?

Victor Niederhoffer writes: 

What you are missing is that the troika joined by the present writer's country is not interested in profits. Consult the theory of public choice in the micro-economics book I gave you. The people in Brussels…. my the food is good, the women are Marilyn Monroe when they don't wear pants, and the titles of commissioner, governor, and such and the perks and the employees, and the beholden consultants and suppliers, why life is good with their trillions in the hip to maintain the boat at an even keel.



Look at this site and this article "are you a compulsive gambler" and substitute the word "speculating" every time you see the word "gambling." What do you think?

Ralph Vince writes: 

Sure! Here's how it differs:

1. We have more complicated math….
2. We use OPM a lot more….
3. We tend to dress better than those greezers at the tracks…
4. We have better, more sophisticated software…
5. Kids don't have to live in their father's station wagon in a church parking lot because he blew the house…

I can go on and on….. as you can see, this domain has NOTHING in common with that one!



To expiate for one of my greatest sins, the tendency to refrain from holding a position with a profit, I have been reading many articles on Loss Aversion, in marketing, law, and psychology. Here is a simple one [18 page pdf]  that covers many of the basics. 

How can one's decisions be less harmful and more rational? When you're given a good, you often will sell it at at least twice the price that you would buy it for. This explains so many things like bid asked spreads and free trial offers. I would like your input on how to reduce the harmful effects of loss aversion. How does it relate to risk aversion for example?

A commenter writes:

If managing money, will it work to objectively identify clients with those biases? (Larger sample size to train on.) Then one day see yourself as a client.

David Lililenfeld writes: 

Changing behavior is one of the hardest things one can do, but as most successful marketers will tell you, it can be done in almost any circumstance. There are apps for the iPhone (I can't speak for Android) which have succeeded in getting people to exercise or lose weight. Perhaps you might adapt one of them to suit your need.

a commenter writes:

Creating a graphic representation of the effects of loss aversion manifested by repeated failure to properly execute a specific trading system, especially holding onto the inevitable losers for the duration while grabbing profits on positive MTM positions before they fully develop, should drive the point home.

Viewing the terrible transformation of the equity curve should be enough to cure the speculator of the detrimental affliction.

Richard Owen adds: 

The simulations of St. Petersburg's bet are explained according to a computation of concave utility or an asymmetric loss reaction plus max payout. It seems that rational expectations man creeps into even psychological bias literature and perhaps indicates the sometimes impractical nature of academic analysis. Why is the most likely explanation not someone being offered the bet, thinking "I don't know what you're talking about, but I'll wager anyhow for fun", and thus their average wager was some median of $5, $10, $20, $50, people's intuitive level for mouth bets.

Victor Niederhoffer adds: 

Yes. If loss aversion is pervasive, then it should show up in regularities relating to price moves. The situation is complicated in futures where one person's long profit when price goes up is the short's loss. The endowment effect which is caused by loss aversion or the tendency to connect with what you own, could lead to holding something too long. The reference point effect, which is that people base their decisions on where they are, a variant of holding onto the status quo is also a factor. When there is a profit, a different type of endowment effect plays then when there is a loss. Especially when there has been a big loss and it turns into a profit, the loss aversion effect is greatest I believe. I have been trying to quantify various regularities relating to these sometimes conflicting and ever changing effects in the market, and perhaps it will not be a total loss. Thanks for the suggestions that my confession has elicited, and I apologize to all of you for my transgressions in this regard in the past. Had I not made such transgressions so often in the past I believe I would be a wealthy man. I am also open to the stages of confession of a sin from alcoholics anonymous, and perhaps I am at one of the stages by confessing my sins to a support group hopefully of ones who have conquered this terrible tendency.

Jeff Watson adds: 

When I get in a trade, I look at the size of what I have on, what the market looks like, is the market going to have the wind at my back, and then I pre-determine where I will take a profit, add more position, or at what specific price will I take a quick hit and get on with it. I do not deviate from that loss plan, ever. I might get getting nickeled, dimed and vigged to death, but the slow torture the market gives me is much preferable to trading by the seat of my pants, being consistent leaker, or blowing out spectacularly like I've seen so many do.. Taking my first loss quickly is the only rule in the book I don't break. It allows me to sleep well, and sleeping is important to me. That being said, whenever I'm in any marker, I always pay too much for it or sell it too cheaply. It's worse whenever I make a foray outside the grains, since other markets are outside my comfort zone, trading in them for me is strictly gambling, and I'm not very good at gambling.

Ralph Vince writes: 

The St Petersburg Paradox is a false argument, one that assumes that rational human beings arrive at conclusions based on mathematically "correct" asymptotic answers. But we do not operate this way, rather, in an amazing an beautiful twist, our minds operate based on a notion of horizon, a finite period in which to operate.

This is the reason you will board an airplane to get to your destination (bet case) even though you know it could crash (worst case). The mathematical expectation for such (the same formulated expectation used in assessing the St Petersburg Paradox — the sum of the outcomes times their probability) would assign an outcome so infinitely negative to the prospect of death, that even though the probability were so minute, the expectation would still be so negative that you would never board that plane.

Yet, in order for that minute expectation to manifest would require X trials, X flights, and X is a VERY large number relative to how many flights you will take in your lifetime — even for a commercial pilot.

And we innately know this! This is the very decision-making mechanism that allowed our early ancestors to descend from the high branches and onto the savanna at the outset of our long journey. Asymptotically, it was a bad bet. To innate human reasoning, it was a god bet.

So especially if we are talking about someone "betting for fun" or participating for the hell of it, we can not look at things through a lens focused on the infinite asymptote, but must focus on a finite horizon. The St Petersburg Paradox itself now solves readily.

Christopher Tucker writes: 

For my part, I find that on the frequent occasions that I kill a position to early, it is because I am paying attention to the wrong data. I am either paying too much attention to either:

- the profit or loss - focusing on the number of dollars or the percentage of capital
- the wrong time frame

The time frame is a huge one for me - I enter trades using criterion in a longer frame and then drill down to look for an opportune moment in a shorter time frame to pull the trigger. The problem for me is that I tend to remain looking at the shorter time frame and exit too soon or with a stop that is too tight. It is very much akin to missing the forest for the trees.

Much the same can be said in my main business of air traffic control. Rookies tend to pay attention strictly to proximity, which is critical, but tend to not pay attention to speeds, vertical speeds or properly anticipated speeds based on a solid knowledge of aircraft types or the current terrain. A Boeing 747-800 may fly at a reduced speed while climbing to get above an area of turbulence, but the moment he is above it or levels off, you can bet heavily that he will accelerate and very quickly at that. By the same token, high performance business jets like Gulfstreams and Learjets can be counted upon to climb rapidly (sometimes extremely so), especially if they have been in level flight for a while and are itching to get higher.

The key for me is paying attention to the right things. Profit and loss are important, time frames are important, but they may not be the best indicators of the overriding theme.

Steve Ellison writes: 

We have many times discussed path dependency. As the paper says, "[R]eceipts are naturally encoded, and responded to, as gains and losses from a reference point. So a pauper who wins $10 million in a lottery may be ecstatic with her staggering $10 million in net worth, while a dot-com tycoon whose $100 million paper fortune shrinks to only $10 million in a week may kill himself, distraught over having only a pathetic $10 million in net worth."

As an example from a different field, consider a baseball pennant race. If team B was 7 games behind team A in August, but has pulled into a tie by late September, what are the teams' psychological states? Team A's clubhouse has the atmosphere of a funeral, while team B is brimming with excitement and confidence. I have not put pencil to paper, but I grew up a fan of the Boston Red Sox, who were usually team A, and it seemed that team B nearly always prevailed in such situations. Logically, the recent past should count for nothing because the teams have exactly the same records, and only the future games will determine the winner.

Gary Rogan writes:

Why isn't this a choice between two diametrically opposed systems: either a buy and hold, where there is no special characteristics attached to the winner or the losers, or a mathematical system that has some predetermined dispositions at any time for a winner and a loser based on some quantitative criteria. When it's something in between, that ambiguous choice and regret enter the picture.

Dan Grossman writes:

Probably not many here, but there are those of us who at times own securities until they are long-term, and sometimes refrain from taking profits early because of the pressure to wait for long-term gain tax treatment.

Perhaps a retrospective study of such an investor's stock purchases that are significantly up after (say) three months, comparing annualized return of those stocks sold after one year, compared to those sold short-term.

Sushil Kedia comments:

Loss Aversion emanates from the desire to enjoy profits without having to respond to losses. It is a manifestation of an ill that returns can be generated without undergoing adverse excursions. Loss Aversion is placed within a fantasy that the majority suffers much more frequently.

Risk Aversion respects the law of diminishing marginal utility of risk. It acknowledges well that returns are feasible only upon a readiness to respond to adverse excursions.

The unwillingness to respond to adverse excursions results in all of the sins that traders can eventually end up doing, including losing more than what they are entitled to on any one adventure or set of adventures in the markets. Killing a position too soon is also a manifestation of loss aversion only, with a variant that one is averse to losing the profits away. I would surmise the opposite of this sinful loss aversion is not loss seeking behaviour, but merely loss acknowledging behaviour.

Risk aversion seeks to undertake an additional unit of risk only if a larger unit of return can be added. A relationship similar in nature to diminishing marginal utility thus makes for a maxima that is likely to be the optimal level of risk for a method, strategy, approach, history, future or portfolio. Loss aversion however is not only playing against the odds, but is rather an exponentially growing risk relationship. For an example if a 20% loss needs to be evened without being closed a 25% favourable move is required and so on and so forth [x loss needs x/(1-x) gain immediately to get even]. There is no optimal point possible in this relationship and the approach can and does take the indulgent down to zero.

For now, I would say Loss Aversion is driven by ego as to what the market should do, whereas Risk Aversion is driven by humility as to what the market may do.

a commenter writes: 

Continuing to hold a profitable position (long or short) is trend following: the expectation of movement in the same (profitable) direction.

To the extent there is aversion to losing profits (and closing out too soon), this risk should be compensated and may in part explain profitable trends.

Craig Mee writes: 

I think it's hard to naturally run trades when mean reversion is so frequent and we can't guarantee when the trend will change and the law of ever-changing cycles kicks in. So to counter that, it makes sense to trade in multiplies. Take half risk off almost straight away on the first push, bringing the chance of a scratch trade at worst, rather than a loss higher on the curve… though if the market does run, particularly in fx or higher range markets, subsequent setups can present opportunities for adding further. So a case of give and take I suppose, when from the outset nothing is guaranteed.

Phil McDonnell writes: 

We have had numerous discussions on this venue regarding stop losses. Part of the surprise from those discussions is that using a stop loss will double your odds of having a loss in the amount of the stop loss.

However the same is true for a profit target. Using a profit target will double your probability of having a gain equal to the target gain. The reason for both phenomena is that in a random walk half of all such trades will get reversed after hitting the target or the stop. The fancy name for this is the Reflection Principle.

Jeff Rollert responds to Jeff Watson: 

I have to tell you, having the wind at your back is not the fastest point of sail on a boat, nor the least risky if the waves are coming from your stern. Please google and study canoe sterns for a discussion. I bring this up only in context of its use.

I find many sailing "descriptions" along with those in climbing mountains to be misapplied. In both cases the getting into the trade is over weighted vs the exit.

As Hillary implied, he point of climbing is to live after coming down the mountain. That math would overweight the sell decisions.

I tip my hat to Lowe passing recently. Like Hillary and Norgay, he had balls and lived to tell the story. I highly recommend "Touching My Fathers Soul" in that spirit…who unlike Mallory was ill prepared and long of ego.

Gambling in climbing, is being unable to leave the mountain without summiting. Sailing has its parallels. So do the Marines.



 I recently discovered William Clark Russell and was blown away. Best read ever: Marooned: A Sea Tale

Largely forgotten today except by fans of sea stories, W. Clark Russell wrote close to 50 novels of the sea.

I had never heard of Russell until I read the Sherlock Holmes story, "The Five Orange Pips." During the intro to that story Dr. Watson is reading one of Russell's stories during a very stormy London day.



Those who choose not to read good books have no advantages over those who cannot read. (Attributed to Mark Twain.) A similar thing applies to research and data: Those who do not collect (and scrutinize) their own data, have no advantages over those who get their ideas and data from journalists or poor data suppliers. I would venture an educated guess that most of the managed investment money is handled by managers getting their information from journalists. Gentlemen, that's your competition. Go forth and prosper.

In quantitative analysis (irrespective of whether its data origins are financial statements or market prices) the guy with the best data has a definite advantage. Conversely, the best analytical mind coupled with poor quality data is at a disadvantage. Let me first deal with the problems of price data.

In equities, back-testing requires using deceased stocks to eliminate survivor bias. That means that to test the Russell 3000 over say 15 years, you need data on maybe 8,000 stocks. You cannot collect those by symbol, because symbols get recycled. So you try SEDOL or CUSIP numbers, but even those have problems. The holy of holies, CRSP has problems. And you cannot simply toss out the missing stocks without experiencing bias. Also note that the constituents of the R3k decrease monthly and are refreshed annually.

Obviously you have to adjust for dividends because you want to compare total returns. That introduces the dividend adjustment problem: do you use multiplicative adjustment or subtraction? Either one is problematic: destroying round numbers or creating negative numbers.

However the problems with data create tremendous opportunities to those who mine it. You know you are on to something when:

1. A major data provider has all of the dates of certain data off by 1 day. (systematic error) You call to ask why that is, and they don't have any idea what you are talking about. "How can you possibly know apriori that their data is wrong?" So you quickly reverse yourself and apologize for being mistaken. Everyone who uses that data has the error. They are counting things that are impossible.

2. You circumvent data suppliers and go directly to the exchange (or government website) because intermediaries screw it up. Hey, you cannot expect data replication to be perfect. (idiosyncratic error)

3. You disregard seasonally adjusted data in favor of raw data, and do your own seasonal adjustment. You cannot do this for every dataset, but certainly for the important ones.

4. A free provider (e.g. government or an exchange) provides detailed instructions on how to data mine their site. But the instructions are wrong. You call and the service people don't know what you are talking about. You eventually get to speak to the geeks and somehow learn the right way to get access. They confirm that no one had those problems before. WHY? Because no one else is looking at the data. He shoots; he scores!
These examples are like lifting back the bride's burqa, thinking that she might have a beard, and being surprised that she is absolutely beautiful.


a. When at all possible, go directly to the source. That may mean the exchanges or the government agency itself rather than your data supplier, and may appear unnecessary on the surface. But if you want to find the mistakes that most cannot find, you have to look in different places.

b. Look for site or download counters and check them out. Come back to them and recheck the numbers later to see the average daily hit rate. I was absolutely delighted to learn that I was one of only four downloaders of certain data.

c. Further check that data (with the counter) to see if it is available on Bloomberg or another major source.

d. Look for alternatives to the data you seek. The alternatives might not be the exact data, but they may be good surrogates. Real numbers for something close to what you want are better than bullsh*t numbers from a poorly conducted survey.

e. I cannot overemphasize the importance of checking the data, and checking that your data mining routine has collected it properly. Errors (either systematic or idiosyncratic) regularly occur. As renowned data cruncher John Tukey said, "There is no substitute for looking at the data." (Exploratory Data Analysis)

Typical problems you have to avoid:

- Look-ahead bias and survivor bias

- Lack of statistical significance - engineers typically require 30-50 observations, but market traders (such as technical analysts) frequently consider one event as significant. Don't do that!

- Testing on a sample of data that may not include the pattern. The solution to that of course is to always use the population, rather than a sample.

- Frequently you may test something on an index as a precursor to testing on thousands of individual stocks (or worse, options). But indices do not necessarily behave like individual stocks. ETFs might be a solution, but they are in themselves just smaller indices.

Those who challenge the validity of data mining (and also market timing) tend to cite as their proof that the first order daily changes in stock prices are random. We can concede that point, but there are lots more relationships to be studied than daily changes.

Data mining can be successful for any number of reasons but the juiciest fruit is to be found in the following ways:

- Analysis of data that is unknown or unseen by most people or, better yet, subject to systematic error (~finding buried treasure)

- Better analysis of existing data. (~having a better brain) Note that some of this will be serendipitous. Exploration by definition will lead you to discovering things you did not expect.

- Incredible persistence (hard work).

Should you seek to do fundamental analysis you will find different and more exasperating problems. We know many of them first hand.

The first problem is that the data is not easily accessed. It tends to cost quite a lot of money, and much of it has systematic errors. We have not found a commercial data supplier that did not have systematic errors.

The cost can be prohibitive. The major high-end quote provider places limits on the amount of data one can retrieve in a given period. We also know that provider uses a lot of humans in the process and has a lot of errors. Looking further afield, the fundamental data vendors we found are three in number. One replied quickly with a quote of $30,000 for the back data and a 1-year subscription going forward. Another came back a month later and wanted $72,000 for the same, and the third never came back to us. When I informed the higher priced service that they were above their competitors, they asked if their "pricing committee" could know what we were quoted by their competitors. That does not tend to make one comfortable, as what kind of business does not know what their competitors charge? Particularly if they make the point of having a pricing committee.

There is an alternative to buying fundamental data – getting it yourself. In theory this should be straightforward: the S.E.C. has all of the relevant files online. But if you are looking to get data on say the R3k for 15 years, you will have to collect it from approximately a half-million 10K and 10Q files.

Uniformity is generally not the rule, and you need some uniformity when doing computer mining. For example, sometimes a 10Q will be labeled "Ten Q" which has to be planned for. Unless you have access to a lot of people from the sub-continent, you want to do this automatically, which will also enable you to avoid things like transposition errors committed by humans. But some things are easier for humans than for computers. For example, most data constituting a company's total assets are listed as "Total Assets". Sometimes that is misspelled, and sometimes the number appears with a double underline, and other times without. Usually the next line starts with "Liabilities", but not always. It's laughable, but not fun.

We cut our teeth on a subset of the universe, REITs. The 172 that we found interesting had approximately 8,000 10K and 10Q files. After a lot of work we managed to get data cleanly from all but about 50. We consider that a major success, but even that low failure rate means we will have to go through about 3,000 files manually for the entire universe of a half-million files.

The good news is that having unrestricted access to such data provides a lot of opportunities. We are making a leap of faith that the data and our analysis will improve our existing results. Of course there isn't a guarantee, but that's the way to bet.

Phil McDonnell writes: 

Thanks to Bill for his excellent survey of data collection techniques and especially the pitfalls. There is little to add to his survey except one thing. That is when there are retroactive changes to data. To handle that case one needs to time stamp your data as to the time received. This caution applies to both fundamental data as well as price data which can be 'adjusted' a day or two later.

The worst example if this was Enron. The Enron data which showed the fraud was only released several years after the bankruptcy.



 My son sent this to me and I enjoyed some of the life lessons. For some reason I could imagine this coming out of Ben Green's mouth.

Take a little good advice from an old Montana farmer:

Your fences need to be horse-high, pig-tight and bull-strong.

Keep skunks and bankers at a distance.

Life is simpler when you plow around the stump.

A bumble bee is considerably faster than a John Deere tractor.

Words that soak into your ears are whispered… not yelled.

Meanness don't jes' happen overnight.

Forgive your enemies; it messes up their heads.

Do not corner something that you know is meaner than you.

It don't take a very big person to carry a grudge.

You cannot unsay a cruel word.

Every path has a few puddles.

When you wallow with pigs, expect to get dirty.

The best sermons are lived, not preached.

Most of the stuff people worry about ain't never gonna happen anyway.

Don't judge folks by their relatives.

Remember that silence is sometimes the best answer.

Live a good, honorable life… Then when you get older and think back, you'll enjoy it a second time.

Don 't interfere with somethin' that ain't bothering you none.

Timing has a lot to do with the outcome of a Rain dance.

If you find yourself in a hole, the first thing to do is stop diggin'.

Sometimes you get, and sometimes you get got.

The biggest troublemaker you'll probably ever have to deal with, watches you from the mirror every mornin'.

Always drink upstream from the herd.

Good judgment comes from experience, and a lotta that comes from bad judgment.

Lettin' the cat outta the bag is a whole lot easier than puttin' it back in.

If you get to thinkin' you're a person of some influence, try orderin' somebody else's dog around..

Live simply. Love generously. Care deeply. Speak kindly. Leave the rest to God.

Don't pick a fight with an old man. If he is too old to fight, he'll just kill you.



 Some wisdom from the great Voltaire:

History is a pack of lies we play on the dead.

I have never made but one prayer to God, a very short one: 'O Lord, make my enemies ridiculous.' And God granted it.

Indolence is sweet, and its consequences bitter.

It is dangerous to be right when the government is wrong.

Love truth, and pardon error.

Marriage is the only adventure open to the cowardly.

Men are equal; it is not birth but virtue that makes the difference.

The art of medicine consists in amusing the patient while nature cures the disease.

The multitude of books is making us ignorant.

Those who can make you believe absurdities can make you commit atrocities.



 Ayahuasca in my Blood by Peter Gorman

I first met Peter Gorman in 1999 after being stranded with Iquitos guide Carlos Grande with the Mayoruna ´Cat People´ Indians deep in the Amazon. Carlos split, and I ´rented´ at machete point a child´s hand hewn canoe and paddled like Indiana Jones to the Brazil border and was medevac´d to Iquitos for the hospital, but decided to drop into Peter Gorman´s waterfront Cold Beer Blues Bar to tip some medicine. ´They´re my friends!´ he shouted of the Mayorunias. ´Next time just tell them Peter sent you.´ I did, and would discover that Peter knows and is known throughout the Amazon as ´Ground Zero´ of Ayahuasca, the first to introduce it and other medicines from the green pharmacy to North America in the June, 1986 High Times cover story ´Mindbending drug of the Amazon´. It initiated Ayahuasca Tourism to Peru, and Peter´s friend Alan Shoemaker read the piece and followed him down to Peru and struck out alone around the globe as the Johnny Appleseed of ahahuasca.

Three years ago, I was able to repay Gorman for nursing me back to health in the Cold Beer Blues Bar by advising him to write up his ayahuasca adventures. In fact, I importuned him over the course of a year, as he had me to heal my jungle injuries, to keep churning out the colorful and educational shaman, plant medicine and jungle lore sketches and putting them into a book he finally titled Ayahuasca in my Blood: 25 Years of Medicine Dreaming. The books came off the self-publish press in 2010 two months before the annual July Iquitos International Shaman Conference where he had totted and sold the first copies to the conventioneers.

The narrative weaves wonderful, honest and horrifying anecdotes in and out an educational journey through the personal and public evolutional of ayahuasca tourism, and much more. During the last 25 years, Peter Gorman has had a torrid love affair with Peru's Amazon jungle, and has been lucky enough to score artifacts for the American Museum of Natural History in New York, medicinal plants for Shaman Pharmaceuticals, herpetological specimens for the FIDIA Research Institute of the University of Rome, and of course hundreds of tales in the book.

At Ayahuasca in My Blood ranks the highest Five Stars with an awesome endorsement of one of the rare books at Amazon to appreciate in value.



 I can't recall recommending any TV or radio program; I certainly never thought I'd recommend one broadcast by NPR. But this is one that should be heard:

Trends With Benefits


150,000 added to job market every month - 250,000 added to disability program every month - disability pay amounts to $1000 a month plus full medical coverage

disability lawyers representing refused applicants face no government adversary arguing for initial decision -win about 75% of time against unrepresented appellant

states paying welfare (expending state dollars) hire specialist firm which goes through welfare list in effort to switch recipients to disability program (using federal dollars) - gets paid $2300 a head, if a child or children in that same household can be found learning disabled or otherwise, firm receives $1400 and child gets $700 a month

Clinton's "successful" war on welfare ushered in era of disability growth

The broadcast is to be one of several that run all week — will be very interested in hearing reactions of NPR regulars to this cultural apostasy.



 Check out this picture of my deck …and the snow is still coming down!

The ground is already highly saturated. This is a heavy wet snow, and it's still coming down. They expect it will snow continuously until early Tuesday morning (3/26/2013). If our deep soil moisture and water tables are not completely filled up yet, they almost certainly will be after this snow.

And to think…..the spring rains really haven't even started yet. Any "upstream" land that drains into the Mississippi, Missouri, Illinois or Meramec Rivers is going to pass through St. Louis and other agricultural parts of the Midwest. If that land "upstream" from here get's a lot of moisture, we could be in for some real flooding.

I'm not a weatherman and I'm not making any predictions, but this sure smacks of 1993 to me.



I have a friend in Valdez who drives a snowplow on Thompson Pass. He was telling me they have heads up displays and navigation systems and radar for driving in white out blizzards at night. How long before cars have this I wonder.



 I suffer from the affliction of loss aversion. I believe this is part of Prospect theory which say that one experiences more negative utility from losses than positive utility from gains which leads to non-optimal behavior in decision making. Maybe one could combat this simply (though not easily) by ignoring entry points, paper profits or losses, past booked gains or losses and focus entirely on the evidence and conviction one has at that moment in regard to the future expectation. It would be the Zen trading equivalent of living in the Now.

As an experiment for the last 4 years I have maintained a paper trading account along with my real money account. In the paper account I am largely ambivalent to losses or gains for obvious reason and just focus on what the research is saying at this moment in time going forward. I am embarrassed to confess the paper one has outperformed though with greater variation.

Ralph Vince comments: 

Non-optimal in what sense, maximizing profits?

It actually is optimal in the sense of acquiring beans, Not optimal in acquiring mountains of beans, but optimal in being able to acquire some beans — and it has deep, evolutionary roots.

There's nothing wrong with you or any of us in acting this way.



 In old England, disputes were solved by trial by combat with the winner winning the dispute. Modern trial and interrogation techniques put the subject under stress to ferret out weaknesses in the story line. Markets put their participants under stress to determine what is the proper price at the close. A trader who has an opinion will put on a position, and if he thinks its correct will hold that even when put under stress. He holds a belief that the price will be bettered. If his belief is not strong, individually and in aggregate, the price level will not hold, as the belief in the value of the asset at the price level is not strong enough either rationally or emotionally to withstand the stress. Also, if the bet exceed the trader's ability to hold margin, the price will not hold, as the belief is not support by adequate fundamental financial ability. As the market moves, this dynamic works to determine the proper price for the day.



What inter markets are easier to drive to spoof speculators into thinking that something is about to happen in another market which is harder to manipulate…only since when the main market does follow, they can offload size and get the biggest bang for their buck.

Manipulate product to product.

Manipulate Asia time zone to set up a U.S reversal.

Flexions manipulate a figure release in order to drive the reversal, rather than being ahead of the curve?



 I found a couple of (modern and historical) examples of adaptations made by the wealthy in response to increased taxes, rules and regulations. In a confiscatory environment keeping a low or unknowable profile and building below the "water table" appears de rigueur.

1) The Window Tax was introduced under William III in 1696. At the time, windows were a luxury, and it was likely the number of windows in a property would be in proportion to the size of the property and thus to the wealth of the owner. It was this seen as a progressive tax and a prototype to income tax, introduced 146 years later by William Pitt the Younger. Nevertheless, the tax was unpopular, and avoidable if windows were bricked up, as many were (and one can still see many examples of windows that were bricked up for this reason in London today). Indeed, the term 'Daylight Robbery' is thought to have its provenance in this era. The Window Tax lasted 156 years until 1851.


That's just what the plutocrats are doing: digging down. Maggie Smith, of the London Basement company, which carries out basement renovations, dates the craze to the early to mid-1990s, when she noticed increasing numbers of people wanting to renovate their musty old basements. "It started quite small, with people doing 30 to 40 square meters, generally under the front of a standard Victorian London house," she says. "Then they began digging out under parts of gardens, then entire gardens, installing light wells and glass bridges to bring in natural light." Soon they built underground recreation centers, golf-simulation rooms, squash courts, bowling alleys, hair salons, ballrooms, and car elevators to the underground garages for their vintage Bentleys. The more adventurous installed climbing walls and indoor waterfalls.


3) The Wiki for "plutocracy" makes a comparison between the City of London and Lake Buena Vista, FL. 

Rocky Humbert adds: 

Here's another example of real estate tax arbitrage: Central Amsterdam ages back to over 700 years, but most of the buildings seen today were built in Amsterdam's "Golden age", about 250-500 years ago. The "Golden age" was the period when most of what is now known as central Amsterdam was built. Some people think it is Amsterdam's best architectural achievement. Probably the most prominent building built within this time period is the canal house. These line all the canals in the centre of Amsterdam. Every canal house was built to be unique from any other, though built with the same shape, each one was personalized with an ornamental piece, such as the gables and plaques. Another method was to put very decorative carvings on the "neck" of a house. This is called "necking".

During the time period in which these houses were built, your house taxes depended on the frontage. Meaning your taxes were determined by the width of your house. Therefore the sneaky Dutch built their houses deep and narrow to avoid severe taxing. For this same reason the staircases are very narrow and low, making it impossible to take furniture up and down them. To solve this problem hooks were put at the top of every house to winch goods up and pass them through the windows on the needed floor.



 I thought the group might enjoy reading the 1879 classic of Political Economy: "Progress and Poverty" by Henry George. 

Stefan Jovanovich writes: 

Scott and I seem to be in permanent disagreement. Henry George got all the publicity, but Terence Powderly is the important figure. He was the "mainstream" figure whose doctrine of producerism, now completely forgotten — was the essence of American political thinking in the years before WW I. Unlike George and the other neo-Socialists Powderly had equal scorn for government-protected financial capital, large, politically connected institutions and the underclass, including illegal immigrants. It is no surprise that the Ohio Republicans - Grant, Sherman, McKinley - were in complete agreement with such a "radical".

As a labor union organizer Powderly was wise enough to understand that strikes were stupid and that there had to be 1 Big Union. He knew that, as soon as labor organizing became a matter of craft guilds, the unions would spend their time fighting with each other over the already organized workers rather than trying to organize new ones. (The historiy of the AFL-CIO more than confirms this.) Powderly also opposed the doctrine of last hired first fired; he knew that such seniority rules would destroy enterprise and, therefore, destroy the unions themselves. Worst of all, from the point of view of modern enlightened opinion - both liberal and libertarian — Powderly had the common sense to know that tariffs (but not quotas) and immigration limitations were the only certain ways that workers could use politics to raise everyone's wages. 

Scott Brooks writes:

Actually, Stefan and I are not in disagreement. I was not advocating for or against the work of Henry George. I was merely sharing with the list something that I thought would interesting and spur debate. 



 Wasn't there a round of prognostications 35 years ago that America was already in major decline and within 50 years would no longer be an economic superpower–Japan would displace the US as it merrily purchased every US asset in sight and ran roughshod over the US auto industry. I recall the reports of how great Japanese steel mills were–"they keep those mills so clean you can eat off of the floor." Then we had Carter's "American malaise" speech. America was supposed to be–or shortly be–done. Then the 1980s happened. With apologies to Mark Twain, reports of the decline of the US are greatly exaggerated.

Stefan, you know this history better than I do. Thoughts?

ART CASHIN: "If America Is Anything Like History's Great Civilizations, Then This Is The Beginning Of The End"

Stefan Jovanovich replies: 

The Art Cashin piece reminded me of Macpherson. The 18th century in Anglo-American culture was, like our present time, a great age for fraud.

As David wisely notes, predictions of the Decline and Fall of the West are usually very timely indicators for putting all of one's chips on Equities. Carter made his speech in 1980; Spengler's masterwork of petulance was published in English in late 1919, with the second volume appearing in 1922.



"Computer Simulations Reveal Benefits of Random Investment Strategies Over Traditional Ones"

There is a link at the end of the article to the original research paper.

Would love to hear all dailyspec readers comments.

Alex Castaldo replies:

This article is written by some Italian physicists who like to play with stock market data. It does not tell me anything about real world investing.

The title of the original paper is "Are random trading strategies more successful than technical ones?". Somehow in the news article "technical strategies" was changed to "traditional strategies", distorting the meaning. The specific four strategies considered are 7-day momentum, RSI (relative strength index), reversal of the previous day and MACD (Moving Average Convergence Divergence).  (How many traditional investors such as mutual funds or pension funds use MACD etc. to manage their billion dollar portfolio?).

The paper measures "success" by the percentage of times the subsequent direction of the market was correctly predicted (a number between 0 and 100%). In the real world success is measured by the amount of money made, not just the success ratio and it has to be judged in view of the level of risk taken (which the paper does not consider at all).

This is an example of an impressive looking paper, with beautiful figures and charts, numerous (55) footnotes but *SIGNIFYING NOTHING* and having no value to investors or traders. It does not even tell us whether the technical rules would have worked or not with real money.



 It takes a lack of intelligence to leap to higher intelligence. I've written about this and demonstrated it mathematically. The decisions early humans made were not well-founded by criterion we examine decision-making with today, although we make dozens of decisions, innately, every day along those same lines — it's how we are wired. Our poor decision-making has been our genius — the monkey who plays roulette and wins a banana.

Had it not been for this, we would still be cowering agoraphobically in the shadows of a primeval world.

Similarly, and this is not addressed in drakes equation, higher intelligence, at least the kind required to have formed on earth, requires, initially, a poor (or, when viewed in another light, brilliant) sense of decision making which is not evident in the conventional methods we employ in modern decision making.



One notes that a little counting is always good.

Since 1996 

………………….Expectation next

………..Number…1 day…10 days

new lows  249     2.8       9

new highs 538 -1.0        1.3

No need for Mr. Zussman on this. And put Faber in a box with Spencer.

One defined a new high as any 40 day high based on closing prices and a new low based on any 40 day low based on closing prices. One notes that the Faber study quoting some colleague was on pre 2007 data. But one doubts that their results would have been different had they bothered to count rather than talk about the data base back to 1790.



 Many top level executives and successful traders and entrepreneurs have sports backgrounds and continue to be active in sports. Sports provide good training and experience for a young (and old) person by:

1. Providing a competitive but safe atmosphere;
2. Allowing the ability to absorb losses and move on;
3. Teaching sportsmanship;
4. Providing health benefits;
5. Honing the competitive instinct, or killer instinct, in a non
lethal environment;
6. Giving incentive to give 100 per cent plus;
7. Providing the opportunity to learn how to learn under the guidance
of a coach or teacher;
8. Creating the foundation for a training regimen and discipline.
9. Teaching team dynamics and working together as a team in team sports;
10. Making life long friends and connections.
11. Providing a conducive social setting outside of business during
which business and personal matters can be discussed in an informal setting.

I'm sure there are many other benefits.

David Lilienfeld writes:

There's also 12. Developing an implementing a strategy which may not
work and making the needed changes in it to attain success. It's a
variant of "You're going to be wrong.

Steve Ellison writes:

Sports are generally objective. The final score stands regardless of excuses or rationalizations.

I have noticed that many athletes become successful salesmen, which might explain why many are CEOs. I was called on by a former Kansas City Chief selling software. Before 2001, EMC had a reputation for seeking out athletes for its sales force, particularly those who had grown up non-affluent, because they were determined, persistent, and never satisfied.




 The following (copied from Mebane Faber) is so counterintuitive that it's worth considering. I don't think in these terms, and there could be outliers that explain the phenomenon. But (if they did the arithmetic correctly), it is what it is….


Should You Buy at New Lows? Or New Highs?

So we tested which strategy works better: Buying near 52-week lows… or buying at 52-week highs. We looked at nearly 100 years of weekly data on the S&P 500 Index, not counting dividends. You might be surprised at what we found… After the stock market hits a 52-week high, the compound annual gain over the next year is 9.6%.

That is a phenomenal outperformance over the long-term “buy and hold” return, which was 5.6% a year. On the flip side, buying when the stock market is at or near new lows leads to terrible performance over the next 12 months… Specifically, buying anytime stocks are within 6% of their 52-week lows leads to compound annual gain of 0%. That’s correct, no gain at all 12 months later. Using monthly data, our True Wealth Systems databases go back to 1791.

The results are similar… Buying at a 12-month high and holding for 12 months beats the return of buy-and-hold. And buying at a 12-month low and holding for a year does worse than buy-and-hold. Take a look… 1791 to 2012 All periods 4.3% New Highs 5.5% New Lows 0.9% The same holds true for a more recent time period, this time starting in 1950… 1950 to 2012 All periods 7.2% New Highs 8.5% New Lows 6.0% History’s verdict is clear… You’re much better off buying at new highs than at new lows. You might not agree with it… but it’s true.

Victor Niederhoffer writes: 

That's a shocking result. Heavily weighted one might think to the depression period and the 2008 period, and probably not taking into account durations from hitting the new lows. i.e. the 1st new low in a period or the tenth. Probably even more copacetic to the trend followers with individual stocks.this is how Rocky and I first met, but I don't think he remembered it. A loss of mine was reported in the papers and Rocky wrote to me to memorialize what a woeful idiot I am. I wrote back saying "You seem to take great pleasure in my losses et al". But as you know, you can never win a dispute with Rocky. Now we're friends again.

Scott Brooks writes: 

I have been privileged to buy the low and sell the high on multiple occasions. It's all those other darn trades in between that drag down my return.

I had a friend tell me once that there are 50 perfect days in a year….. a bluebird sky, cool temperature, perfect humidity, occasional slight breeze (you know the kind of day I'm referring too).

Most people make the mistake of living for those perfect days. The key to a great life is to make the best of the perfect days when they arrive. And the way you make the best out of those perfect days is to make the best of the other 315 less than perfect days per year.

It's about having a good positive attitude so you can make the best out of whatever you get. And they way you do that is through practice… practice and practice and practice…..until a positive attitude and making the best of things becomes habit.

So make the best out of our less than perfect trades, for they are the ones that are ultimately going to define you as a person and a professional.

Jim Sogi writes: 

Amen to what Scott says. In surfing you got to go on the crappy days so you are in good shape when the big waves come. You can't just wait, like many do, for those rare perfect days. Then they are so out of shape they can't make the drop and have no legs.

Alston Mabry writes: 

I'll assume the data for 1791-1950 is more troublesome, so let's just consider this result:

1950 to 2012

All periods 7.2%

New Highs 8.5%

New Lows 6.0%

The obvious question is: When do you sell?

Jordan Low writes: 

It seems that there is never a good time to sell. You can beat 6% by say investing in short term bonds. It has to be short enough for the turnover of the strategy, so say duration of less than 1Y.

Also, the new high strategy has not really worked since 2000 with the market risk-on/risk-off, so are we in a new "regime"? Or do I keep to the strategy and pray that I will end up ahead 60 years from now — i.e. not a repeated game, you get one dice roll!

Ed Stewart writes: 

I have noted that including historic t-bill rates or alternative short term rate benchmarks as an estimate for return while in cash dramatically alters the return of long term timing models. However, I am not sure if t-bill or similar has been a fair estimate of cash holding returns - I am sure others no much better than I do.

With regard to the article idea, It does seem to be the logic of a simple trend model - something like Long on first close in top X% of range 52 week range, Flat when close in bottom X% of 52 week range. A bunch of rule sets similar to this (some type of very long term trend indicator or look-back) seem to give similar results - and like was mentioned much of the benefit comes from missing a small number of significant market declines.

In other periods (like the 90's) the models can trigger whip-saws that would likely have frustrated many "believers" at that time into giving up on them - which of course means they would have missed the benefits that accrued since 2000.

In thinking about timing models, one real benefit is that they provide a framework for the panic instinct while including a signal to get back in. The problem with the public is that they can panic, become traumatized, then never get back in until years have passed (if ever). In other words, even if one is skeptical about the future performance of timing models, such models might be a useful tool if the realistic alternative is very poor money-weighted returns with a near certainty (rather than the theoretical return of buy and hold).

A commenter writes: 

 I take the view that when any sign is known to the market, it will start to disappear; and when it is no longer a sign, it will start to reappear.

I would think it applies to this case as well. The advantage of buying at market high is not news. When was it first exploited? Were the turtles first known to the public for doing this? In the 90'es?

But anyhow, I think a plot of the returns across the time span is more meaningful (and clearly more revealing) than the average. With that, I presume that we will see the advantage of buying at market high is diminishing in the recent decade. More meaningful I think would be how much it has diminished so that we can anticipate the future when it returns.

Russ Sears writes: 

I suspected that the results depended on the period looked at. Kim gave the 250 day period results. But what happens in other periods. I looked at the S&P index from 1950-2013, with cut-off dates determined by period's length. I defined it a "first new high" if there were X day high within X days. and looked at the next X days log normal returns.

5 day period
avg     0.14%    Stdev    2.18%
         count  avg next period      T
new low  1006   0.06%                (1.24)
New high 1004   0.29%                 2.14

25 day period
avg      0.71%   Stdev    4.77%
         count  avg next period      T
new low   208    0.99%                 0.85
New high  179    0.86%                 0.44

50 day period  
avg     1.40%   Stdev     6.75%
        count   avg next period      T
new low  100     1.16%                (0.36)
New high  96     0.87%                (0.78)

100 day period  
avg      2.78%  Stdev     9.67%
        count   avg next period      T
new low  44      3.69%               0.63
New high 35      4.51%               1.06

500 day period  
avg     13.42%  Stdev    21.96%
        count avg next period      T
new low    8      8.33%              (0.66)
New high   7      7.24%              (0.74)



I noticed that Mr. Faber is an avid surfer and that just today he is launching his pay for premium research service.

Surfers seem to be well represented amongst the successful businessmen here in Florida.

Might an increase though in customer demand for financial advice and the frequency of email promoting such have market implications?



 Margin Call is available on Netflix and has been available "On Demand" on various cable services.

I don't know how accurate the behind the scenes dramatization is of what happened, nor do I know if the sudden discovery amidst the layoffs is true, but I have to say that I found the movie fun and compelling to watch.

If you have some free time, I'd love to hear from those in the know just how accurate the movie is (or isn't).

I'm sure time frames have been collapsed as the movie takes place over ~ a 36 hour period of time, but if want to watch decent movie with pretty good acting, it's worth 107 minutes of your time to curl up with a bowl of popcorn and relax. You can rarely go wrong with a movie that includes Kevin Spacey, Jeremy Irons, Stanley Tucci, Paul Bettany, Demi Moore and few others.

For some reason, I enjoyed the performance of Simon Baker (The Mentalist). Although he had a small role, I liked his cool, cold matter of fact demeanor in the face of adversity.

I also enjoyed the subtle conflict between "good and evil" protracted by Irons and Spacey as they butted heads when the realization of the collapse of mortgage market was all too clear. The fight between going down with honor or going down with dishonor (a bucket load of cash) is interesting to observe.

The scapegoating, the back stabbing, and the "omission of facts" (some would call it lying), gives this movie a tasty flavor even though the truth may be embellished by Hollywood.




Paul J. Irvine University of Georgia - Department of Banking and Finance

Andy Puckett University of Tennessee, Knoxville

Marc L. Lipson University of Virginia - Darden School of Business

September, 2004

AFA 2005 Philadelphia Meetings


This paper investigates the trading behavior of institutional investors immediately prior to the release of analysts' initial buy and strong buy recommendations. Using a proprietary database of institutional trading activity from the Plexus Group, we document abnormally high trading volume and abnormally large buying imbalances beginning five days before initial recommendations are publicly released. Furthermore, abnormal buying activity is positively related to initiation characteristics associated with greater abnormal price responses, including some that would require knowledge of the content of the report - such as the identity of the analyst and whether the recommendation is a strong buy. We confirm that institutions buying prior to the recommendation release earn positive abnormal trading profits. Taken together, our results suggest that some institutional traders receive tips regarding the contents of forthcoming analysts' reports. To the extent that brokerage firm clients who benefit from these tips are more likely to direct business to the initiating brokerage firm, tipping provides economic profits to the brokerage that can help defray the cost of analyst information gathering. Thus, while tipping benefits some traders at the expense of others, the welfare consequences of tipping are unclear.



 I´ve been hoboing cargo boats around the Amazon for three weeks, and the other morning found me on another jungle riverbank with my thumb out in a light rainstorm flagging a ride. Sunrise is the prime time to hitch rides because Peruvians, including fishermen and captains, are early risers to beat the heat of the day on everything from motorized canoes to fat old tugs and triple deck launches. This morning the rain quits after two hours, I tear off the rain jacket to greet another gorgeous sun blazed day, and a 20´ canoe swings from mid-stream on the Rio Huallaga right up to my waterproof boots.

´Ahoy!´ hails the stout captain grasping my hand in an iron fist to pull in closer.

I climb aboard with my ´house´, a 30lb backpack that I tell the captain contains a wife and dog to break the ice of seeing a white face.

He laughs, and it´s that simple… I´m bobbing downriver to destination unknown.

But this is a special ride in duration and clientele for the sole paying passenger is an architect who has contracted the captain at the expense of the Peruvian government to convey us on the Huallaga to the mouth of the Rio Nucaya, and up it to the high jungle pueblo called Progresso to put the finishing touches on a new schoolhouse. Virtually every Amazon pueblo is built on a river, as most of the early American frontier boom towns were set on railroads to transport settlers and goods.

The slim hand hewn canoe slices the water powered by a 13.5hp Mercury motor with an 8´´ blade mounted at the end of a 10´shaft on a pivot that is effortlessly lifted out the water every ten minutes above plant and log jettison of a recent storm. The river is at peak crest some ten vertical feet higher than will be seen in the coming summer months of low water.

The pecapeca putts down the Huallaga, and veers up the lesser Rio Nucaya until sunset with little river traffic except monkeys and storks on the banks, and, at dusk, alligator eyes pop out like red cigarette lights where one judges their lengths- one to six meters- by the distance between the dots. There are also unseen 250lb jaguars and 10-meter boas that won´t bother the boat at 5mph up the narrowing stream any more than a billions skeeters who can´t be bothered.

 An hour before the following sunrise the canoe rams the mud bank of upriver Progresso and we wrap in tarps on the boat bottom against mosquito clouds to nap until the village wakes up. Malaria is rampant deep in the jungle but is endured- a few weak die young- and dismissed as lightly as the American common cold. Our snores are cut short by a rooster´s crow and the rasp of brushing teeth around the canoe. A smiling native explains that only the men brush before breakfast, ´To wash the fish taste out of our mouths.´

The captain and architect climb off to visit the new primary school that is color coded blue to identify the river Nucaya to lost Peruvian Air Force pilots to land on pontoons. Each of thousands of like pueblos with their government provided schoolhouses and generators is laid out in a town square that is always a soccer field with one side on the water. Games start after school and when it gets hot a good kick into the river is the excuse to swim. Every Amazon child has fins, and some of the fish have feet. At one end in Progresso the rickety stick soccer goal is incorporated into the town outdoor church platform with a few folding chairs and pulpit carved from a tree stump.

One of the villagers invites me into his thatched home on stilts that his wife sweeps clean of chickens, piglets and children for an adult conversation, and breakfast of fish and platanos. Peru is rich in four resources: gold seen in the teeth of city dwellers, yucca in the swollen stomachs of kids, fish from the rivers, and platano bananas on virtually every high jungle farm. I have been eating fish, platano and yucca for breakfast, lunch and dinner for three weeks, and can´t complain. In thirty minutes another villager knocks, and yokes me to his adjacent hut for coffee, and later another villager until I have completed the infield. They mostly like to talk mostly about Obama, Hollywood and automobiles. The town generator provides electricity four hours nightly to a TV in every hut, and the natives know more about Mickey Mouse and US politics than Americans.

The average family has ten children, and the smallest I was invited into had a young wife of six years marriage with eight children. The sex ratio is about 3:2 girls to boys, and on asking mothers why, the stock answer is; ‘Of course!´ I am convinced these children have never smelled flatulence, heard a sneeze, or seen white skin except on TV. They seem amazed in their colorful world at my pigmentless bark and approach singly or in pairs, stop just short of my shoes, stare thoughtfully into my eyes for long moments, and run off tittering to show and tell their playmates. Bold ones practice their English, ‘What are you from?’, and one tyke eyed my bloomer shorts hung on suspenders like a barrel around a cartoon hobo´s midriff, and asked, ‘What is your name, Mr. Shorts?’ Soon a small troop followed me around the soccer field like the Piper practicing their multiplication tables.

Amazonians are among the world´s most hardy people from centuries of geographic isolation, as well as the selective breeding practices of infanticide of the sickly, raiding villages for female breeding stock, killing males of the neighbor tribes except the strongest young to adopt as their own, and malaria with other jungle ravages. The genetics of self-sufficiency have evolved solidly over the centuries. As one hobos further and further away from the major waterways and up distant tributaries, the people grow wilder looking, own their own dialects, their clothes grow rattier with hand-me-down hand-me-downs from the lower reaches, the women shed tops, the kids turn naked, and the apus or shamans look like they drink blood. I always turn around at this point rather than risk verifying reports of Peruvian soldiers roasted and eaten on the spit.

 The jungle children love school- I’ve asked hundreds-because they say they like to study. All can read, write and do math on a par with USA kids, but a Peruvian´s education stops after primary school to work the family field or business, for all but the rare parents who can afford to send their privileged kids days away to a city secondary school.

However their schooling begins at home. They are put through early rigors that rival a monastery with a years´ long rite of passage from the birth canal into the sticky, mosquito infested forest. While American children are dropped into cribs with all the bells and whistles to stimulate their attention, jungle babies take the opposite turn. For one year the Amazon babe is at mother’s breast; about year two he is placed on the hut platform lip over swirling piranha infested water and if he falls in the gene pool strengthens; the next year he watches it rain; and the fourth observes the rise and fall of the river. Next he watches the bananas grow and bunch for a year on the family farm, and finally about year six he is handed a sharp machete and learns the rhythmic swing left and right of the jungle. He is an automation with a physical mind pulsing low on the brain stem, and his rock body is impervious to mosquitoes, rain, cold and sun. Nothing ruptures his daily trance… except each evening at 6pm the shout, ‘Lights!’ raises the roofs and an old man somewhere cranks each town generator and millions of household TVs burst to life and are tuned to cartoons, news and American movies. The trances are destroyed like the earth pathogens did in the Martians in H.G. Wells’ War of the Worlds. They sleep it off, and are reborn robots the next morning. The bumper stickers on their canoes and boats would cut to the chase of three jungle philosophies: There is no meaning in life except what you invent; it´s a dog-eat-dog world; and death is nothing.

Everywhere I arrive in the Amazon the first few hours my name is ´Gringo´ as Blondie in The Good, Bad and Ugly; a few hours later the more respectful ´Senor´; then the more familiar ´Mister´; and finally by the last hut in Progresso I am called ´Hobo´. Yet it´s whispered always in Latin America behind the back, ´Gringo´, the Ugly American that must be lived with.

All around the soccer field/town square a procession is taking place. This is the harvest season! From Britain to Canada and USA, China to India, the Caribbean, Russia and wherever people plant and eat crops the harvest festivals are celebrated by assorted work and rituals. In America it is called Thanksgiving. However, nowhere in the world is the land so fecund and harvest as bountiful as in the upriver pueblos of the Amazon. The organically rich black water of Rio Nucaya has promised for one year many and large fish, animals and the cash crop food staple bananas to Progresso.

Today in Progresso from the vantage of nearly every hut on town square I have witnessed a parade of men, women and youth carrying banana bunches from the jungle edge to the river bank, and stack carefully into a 20-meter canoe that sags lower into the water. At noon, it is stuffed beam to beam and six-feet high with bananas. A middle-age man who has been keeping a ledger of dozens of contributors to the load stuffs the sheet in his pocket, dons a white baseball cap, and as two sons struggle with five gallon gasoline containers, I leap off a wooden stool, out the window and jog a few meters to ask for a ride. He hands me a funnel, we fill the pecapeca tank, and as the engine kicks and warms we scale to the top of banana mountain. High on the boat center he points down a 4´ diameter hole at my berth on the floorboards. I skinny down the well with a gallon pail and became a working hobo on a banana boat.

Deep in the well I ponder bananas. There is the banana and platano, with no biological distinction between the two, both known by the botanical name Musa. The banana has yellow skin and is sweeter, a desert, while the green skinned starchier platano, a cooking banana, was today´s chips with fish. Each Progresso family owns a 100-meter banana garden that he has hacked from the jungle, a private square hemmed from others in an agricultural checkerboard by a narrow fence of uncut trees. The farm trails double as wood gathering and hunting paths, and in the summer months (July through September) a walking hobo may adventure in Jurassic Park for weeks connecting villages and rivers and relying on the natives for food, shelter and guides.

The biography or a platano patch is that a young family heads out to the jungle and judges a fertile spot by the resident fauna. The forest is cleared for a 100-meter square, seedling platano trees planted, weekly weeding trips, and nature fertilizes and waters. Each tree after one year produces one bunch of 60-100 bananas that weighs 25- 50lbs. One tree produces annually for three years before running out of steam, and then is burned to ashes to fertilize new seedlings. Unlike other world harvests, the banana season runs all year so, like staggered certificates of deposit, the bank of trees may be harvested anytime. Earlier today the three-inch stems were cut, hundreds of bunches caught, and carried to town. Each bunch sells at a big city market for about $10, so a plot of a ten trees affords a family $100. This banana canoe is a $2000 load.

The captain shouts, ´See you in a week!´ as we pull from Progresso. My head pops out the well like Kllroy at a dozen investors cheering a safe journey, the captain waves the ledger with gravity, and as if by afterthought someone tosses a cardboard box to me that I catch and feel a scratching within. The captain yells, ´If you like it, you can buy it for $40 to pay for gas.´

A minute later as the boat stalls around the first bend, I hear, ´$20…´ and open the box. A month old animal blinks in the sunlight, and crawls up my arm to sniff the platanos. ´Hello, Uncle Sam,´ I say.

The Sacha Vaca or Amazon Cow looks like a runt deer with an anteater´s long snout and the keen mind of Arnold the pig of Green Acres. It is a proper tapir and frequent household pet eating when young like the dickens, and growing to 250lbs. This baby at 15lbs. is the size of a small cat with tawny fur and yellow lightning bolts down the sides of the neck. Fantastic swimmers, Sam loves splashing in the water well and looks up quizzically when I bail it dry. Today the Amazon tapir is considered endangered.

The bottom board seams leak water around my feet at the rate of five gallons every thirty minutes, and if I fall asleep for an hour the captain knows by the sway at the keel that I’m slack and screams, ´Heave to, gringo!´

It rains, the sun shines, I urinate on my feet to keep them from freezing, and dive deep into the well to escape the equator elements. We pause once to cut giant 5´x2´ tree leaves to umbrella the roasting bananas. To kill time between bails I rub Sam´s chin and he nudges back, and as he nibbles them I estimated the number of banana bunches aboard at 200 for a total three ton cargo.

The captain receives no commission except a week´s paid vacation from his own platano farm, and is chosen because as a youth he visited and remembers the Iquitos marketplace, plus the $500 new motor is his. He will guide the load, sell at the market, and return in a week to disperse the community bank. The business is being repeated now a thousand times over with crop varieties such as yucca, corn, agave and mangos, that makes an American hobo´s life sweet in the Amazon.

The motor is another 13.5hp pecapeca mounted at the end of a 12´ shaft which on a pivot is easily lifted to swing 360-degrees to propel and steer the craft. The pilot´s view of the river is blocked by bunches, but two young sons are his eyes, one perched on the stack directly in front of him to relay hand signals from the other sitting on the bow looking out for floating vines and logs that might choke the motor. They are learning the ropes and, one day will step into Captain Bananas´ boots as the trusted town bankers.

They live in a water world. The spare five-gallon gas containers are sufficient at two downriver hours per gallon for the fifteen hour voyage, and my gallon pail enough except when it rains buckets. To this moment when the captain cursed, ´Gringo!´ I believe the motor runs out of gas rather than myself as the engine sputters out and the 5mph current carries us crashing a hundred meters into the flooded plain tugging vines and knocking over saplings until perhaps by sheer weight of a carpet of insects the bow comes to rest on in the crotch of a four-story tree. The sheepish captain stains bugs out of the gas and fills the tank, swivels the rotor into reverse, and we pull vines and push trees back onto the main stream.

The water world has special physics, and you first hear the whistle of wind at the top of the well, and like a thousand drums the patter of raindrops sweeps from behind and catches the canoe. Someone yells ´Here she blows!´ but by now everyone has stripped to his underwear to weather the storm. While the well offers protection from all but the vertical drops, Sam does an ankle deep jig and I bail around him like crazy as the rate of leak climbs to 10 gallons every thirty minutes. Three lags in this strange world occur. Behind the boat, miles away, a tsunami slowly builds as the feeders of the Nucaya hurry and raise the water five feet in an hour. If you walk in the jungle the raindrops don´t touch you for thirty minutes until the canopy begins to drip. Finally, in fifteen minutes the bananas that have caught the brunt of the rain begin to drip and the boat is in danger of capsizing with the water near the inner lip of the canoe as well as reflecting waves off the bank battering the outer rim.

The downpour lasts an hour, sunlight follows for a few hours, before a new check of cumulonimbus covers us and the pattern repeats. By some meteorological quirk it doesn’t rain much at night. The tapir being mainly nocturnal has buried its head in the palm of my hand during sunshine, and at night wades around my feet and cocks its young ears at the calls of friends and enemies of the jungle- the howl of the cougar, love croak of a dozen species of frogs, and chorus of millions of insects as deafening as Times Square at midnight. The bow mate swings a AA flashlight back and forth signaling the banana beleaguered captain of snags ahead, while the second mate sleeps. A full moon helps with glimpses of the Southern Cross through the shore canopy.

 The occasional yellow kerosene lights in windows of riverbank huts vanish at once signaling a curious transition of river elevation. The entire Amazon is divided into high jungle that is dry except for storms, and low jungle that is flooded all year from winter rains and spring Andes snowmelt (except three short summer months). In traveling up a river to the Andes foothills, at a certain point the land wins over the water and finally offers a purchase for life. However, on the lower reaches of the same river there is no ground to build houses, plant gardens and hike trails to hunt because for about nine months of the year a nearly 30’ vertical river rise overruns the banks into a floodplain that extends a few hundred meters to a mile of inland swamps and lakes. Already the stream beneath our banana boat is widening to a hundred meters and the current diminishes to 3mph in approaching the river mouth.

High and low land expounds the human history of the jungle. The earliest settlers paddled up rivers until they found land to walk, build and plant on. It was fertile and attracted more pioneers for resource and company. The town grew to a point of mutual diminishing return at about twenty huts, and the more enterprising families struck out inland or upriver to start new lives at fresh sites. As the towns spread and grew across the Amazon, a communal field on the waterline became the blueprint around which the huts were constructed in a U with the river completing the fourth side of the square. Goals were thrown up when soccer arrived, but the fields still double as the market and gathering place. If, by a long shot, the pueblo grew into a city then the town square became a plaza around which lovers court and the elderly sit and think whatever Peruvians ponder.

At the mouth, the pueblo called simply Mouth, Peru has experienced growing pains because it lies in a nearly constant state of flood. A half-dozen ramshackle huts on ten feet stilts where the Nucaya slams into the Marinon glance a half-mile across the mouth at each other. If there is a soccer field it is an underwater game. We land at dawn over the flooded front yard at the front steps of the town store. I climb out the well with Sam snuggly in a pocket, and we walk into the doorless shop hailing, ´ Buenas Dias!´ The wood walled, thatched hut on a ten-meter bamboo slat platform is sectioned by palm dividers into a tiny bedroom for the owner, a wire mesh cubicle off the living room stacked with evaporated milk, biscuits, soap, funnels, pails, mosquito and fish nets, string, and a few bottles of soda, and a kitchen with a 5´-square 2´ deep sandbox with at the center a firepit, and already water a-boil for coffee. A narrow plank surrounds the island hut with a bucket on a rope that is cast five feet down to backyard water. Laundry and bathroom are performed from the same roost making the backyard coffee ´strong´.

´Buenas Dias!´ announces an ancient senora swaying out the kitchen. She pours coffee all around and exits to the perimeter plank to pull up a 4´ wide, 30´ long fishnet that is used for volleyball at land´s end. A dozen fish in various stages of dying are caught by the gills and fins in the net, and she nimbly detaches and dispatches them with a conk on the hut side, except an Amazon delicacy, the Carahama, which she releases live into a bucket of water, and removes two with the jab of a fork for the breakfast skillet. The 1´-2´ Carahama looks like a cross between a Catfish and Tyrannosaurus Rex with an exoskeleton armor and sucker mouth making it a vegetarian. It has gills but also breathes atmospheric oxygen and can walk days between water holes. When served nearly boneless, as it has three meals running a day for three weeks, it tastes and has the texture of good American beef.

It is determined during breakfast that our canoe is too small to negotiate the brimming Marinon, so I am freed to hobo another boat. I stand on the front steps under the rising sun trying to flag distant crafts. In an hour, I sit with my feet dangling in the water with the ducks and read the final chapter of Leonard Moseley´s marvelous Disney´s World. On the last page I look up over the floodplain and feel as if I know and so thank Walt for introducing me as a nine-year old to JungleLand in Anaheim, California. Who would have thought…

A senora my age paddles up for sugar and asks my country, job and marital status. Satisfied, she presents her teen daughter, asking, ‘Would you like a wife?’ The pretty bewildered girl blushes at the prospect, and a younger man could do worse in this world than marry, settle and raise a baker’s dozen Peruvians teaching them the word of the book and edge of a machete.

In a while, a 10-meter balsa raft with a full family and load of yucca and corn for the Iquitos market drifts by. It is constructed of thirty balsas laid side-by-side with a half dozen cross logs to secure them, and a bamboo slat platform with a tarp lean-to, cooking fire, family of six, barking dog and jumping monkey. At 1mph and steered by 3´-wide paddles on either side, it will reach Iquitos in about a week, but the family will return in style from the sales up the Rio Nucaya in a used pecapeca canoe which will secure their future.

Soon, a ten year old build like Lou Ferrigno who smells like chlorophyll paddles to the store for salt and asks if I am lost. I require him to name the nearest species of trees, birds and insects, and he looks around in one breath and names about twenty. So I hire him for a dollar an hour on a guided tour into the floodplain. Colored saucer butterflies flit for an hour through mangrove roots to a cocha, or lake, where a pink dolphin jumps and he avows it is safe to swim because the 6-meter crocodiles are sleeping in subsurface burrows through the heat of the day.

Back at the store, Sam is crawling beneath the bug nets and licking the toes of the giggling banana crew. Pleased at my smile, they say, ´Your ship has arrived!´ In the Peruvian mind there is now, not then or the future. Word is out via the water grapevine that a downriver launch will arrive quickly, and a celebration feast is planned with the senora already banging pots and pans.

I return to a post back on the front steps awaiting dinner or the boat, whichever comes first. The strategy of hoboing river craft is the same as the American hobo on the freights except in the Amazon you try to be seen rather than duck out of sight. The pulsing motion and flow of scenery is similar, with adventures and escape around each bend, where on rock ballast or muddy shore the only downside is waiting between rides. On shore, the standard signal is to bellow, which is heard up to a quarter-mile over a small engine. Splashing water such as jumping jacks is seen from a half-mile. The universal flapping white shirt, or in my case the light side of a reversible windbreaker, draws a boat from the far bank of a three-quarter mile river such as the Marinon, or a mile if standing in front of a dark backdrop such as a copse of bushes or dark wooden hut. As the craft closes in you may switch to wave a dollar bill. At night you waggle a flashlight.

I consider Sam, and the kittens in pockets and dogs on leashes I have known as an American hobo along the steel roads. For $20 I could have a road chum, and ride him to boats like Flipper when he gets older. But ´Supper!´ is the call. It is rare and savory, honest to god rice and a chunk of meat on a shared plate. The Banana Captain delicately puts a piece of meat on my rice, as the two lads toast, ´A rich piece of meat for the Gringo.´ The skull bone is so thin it crunches like a chip and the fat oozes between my teeth and down the chin.

I think to offer some to my pal. ´Where is Sam.´ I ask.

The captain blanches, ´He died.´

´How?´ The captain rubs his thin belly.

I gag, and rush from the table out the door to the steps, and stand for hours splitting and flagging until the fat old tug Vargas laden with yucca and mangos chugs up and bottoms out on the front yard. A gangplank nearly catches my temple. I stroll aboard taking a piece of Sam with me, grinning, and breaking wind on the bow of another riverboat wondering where I’ll land.



 Tops happen on good news and when there are not many more fools left to buy. Likewise, bottoms happen on bad news and when there are not many fools left to sell. Old saying.

With a slew of goody goody numbers in the US also not pushing the "S&P 500 momentum" higher, if one tiny-in-comparison bit of bad news from Cyprus whose GDP is a fraction of the total global market capitalization causes concern, then I am inclined to tilt my hat to search for evidence that not many more fools are left to buy.

Short Interest in the US is at multiple year lows. Idiosyncratic demand would be low on declines. Is there a larger mess brewing pricewise?



Robert Shiller, the oft-quoted Yale professor with a valuation approach that is bullish for a few hours once every decade (or so), appeared on my Bloomberg terminal late yesterday:




One ponders the definition of an "OK" investment from this celebrated professor? As to a "turning point":

turning point 1. a moment when the course of events is changed the turning point of his career

2. a point at which there is a change in direction or motion

3. (Mathematics) Maths a stationary point at which the first derivative of a function changes sign, so that typically its graph does not cross a horizontal tangent

4. (Mathematics & Measurements / Surveying) Surveying a point to which a foresight and a backsight are taken in levelling; change point

Victor Niederhoffer writes: 

One has had the displeasure of going one on one with the Professor while he rode his stationery bike. I got him to admit that his topsy turvy 10 year correlations were absurd as they show negative correlation with future price changes for previous years, but positive correlations for current years. I also pointed out the retrospective nature and part whole nature of his data from past years on which the basis of his work was done. He held up the possibility for a while that certain pareto processes or stochastic integrals had this tendency and then indicated that his work on p/e was not very significant and had not been updated. He did not consider me an important personage at that time, (I believe Lowenstein was there to add insult to injury), and at lunch which I paid for, he showed his contempt for me (probably justified) by directing all his attention and talk to the profs at the table. Subsequently I believe he realized that he had devoted quite a few pages of one of his bearish book showing that values were crazy because the dividend model would not have been as volatile as actual prices to some of my work on world events. To add further insult to injury Prof Lo had a similar experience with him when Lo was not as respected as today.



One is reading The Six Sources of Collapse by Charles Hadlock. It's a mixture of very sophisticated teaching for the common man of statistics like the extreme value distribution with naïve examples relating to markets. It's everything that the experts work is not. A man trying to teach and learn rather than hold up his own greatness and everyone else's weaknesses. A nice discussion of herd behavior and the usual stuff about the game of life and complexity from New Mexico. 



(NYT) "Clippers 93, Knicks 80: Clippers Overpower Knicks as Their Skid Reaches 4 Games"

It's pathetic and funny to hear Smith as the go to man and spokesman for the Knicks as he is the cause of all their misery being the world's worst and not equal to any opposing counterpart. By relying on him, they're guaranteed to lose. On that vein, before game, Kidd was receiving some lessons in shooting threes from the Clippers shooting coach. The Clippers were so confident of winning, they showed sympathy and gave lessons to their adversaries. Okay. What's the relevance. It's like a technician explaining why he missed a call, and why his range forecast which just missed by 1 or two points before it went the other way by 30 points was off by a little. When one played doubles, it was always wonderful to have an opponent taking 80% of the court when he couldn't compete with us. That's the way the other teams must feel when they play the Knicks and Smith is their go to man.



 Today, I stopped by the local Apple Store to buy an Apple TV–it allows my wife (who is hearing impaired) to see captions on streamed movies. When I walked into the store, it was difficult to notice how empty it was. This was on a Saturday afternoon, no rain, moderate temperature, and over half the store was empty (the last time I was there–a few months ago–you could barely get into the store). Over half of the sales folks in their blue shirts were standing around talking with one another. It wasn't as though there was anyone waiting to speak with them, or even anyone being asked if someone could help them–there were those sales folks going around the store, as well, and they were looking for things to do too–no one had questions for them or needed help. I was stunned. In the three years we have been using this Apple Store and this was the first time I've had this experience. I don't know that what I observed today isn't just an aberration. That said, are others on this site observing the same at their local stores?

Ralph Vince comments: 


I think it's more than just Apple. I live by a popular vacation beach in FL. Access to the beach (free) is jammed, mobbed. Go out to a restaurant, they are empty. However, go to one that is running some kind of promotion and they are jammed. The roads are jammed, but people seem extremely price sensitive.

On the one hand, things have the feel of a boom, and on the other, of a bust. Very peculiar. I think Apple, however, from the looks of their stock, and evidently their stores, is certainly feeling the bust side disproportionately.

Thomas Miller writes: 

The Woodfield Mall in Schaumburg Illinois outside Chicago was extremely crowded today well into the evening. Temperature was mid 30's a little cold for this date. All the restaurants were very crowded particularly big chains like Cheesecake factory with huge waits.The Apple store in the mall was fairly crowded but less so than at other times I've been there particularly with the amount of people that were in the mall. I didn't see a lot of people buying anything while I was there. I also observed that very few people in the mall had shopping bags and the ones that did were fairly small. Also, I can't remember a time when I've heard so many different languages being spoken and seen so many kids there. The kids play area was absolutely packed and must've been teeming with bacteria and viruses. I started getting flashbacks of the mouse's house in Orlando. Felt like I was at some kind of United Nations mall. Maybe all the Aryans were out starting their St. Paddy's day libations early. Not very scientific, just unusual.

Ralph Vince adds: 

I notice a huge regional differences — though this has persisted throughout this protracted period, only now, become even more polarizing.

I think it's vulnerable, the only drivers of wealth here are those tied to very specific fields and/or government (and some workers in those sectors have been cut back severely, military in particular) and the stock market. Here's where the implications arise for us.

NO ONE has cashed out. Everyone crying about their investments and their pensions in 09, has their moment to find redemption now. Have they? Every major pension fund has a large allocation to equities now. Everyone feels safe. Teh fed will keep pumping — but they have such short memories, it was the very sound and fury of the igniting pump in Oct 87 that turned it around. If (when) this goes — when everyone tries to get out within the same span of two or three hours, who will save it and how?



For the Floridians or visitors to Florida. I highly recommend The Florida Museum of Natural History (FMNH) in Gainesville, located on the west side of the University of Florida campus (UF not FSU!). It is very educational for kids and adults alike. It's somewhat centrally located for those living in Florida.

They are now featuring the giant snake Titanoboa from 60 million year old coal deposits in Colombia. A nice thing about the museum is that there is an art museum next door too.  And to top it off a large theatre is a stone's throw away also. There is usually adequate parking and the location is easy to access coming off I-95.

Full disclosure!: Many years ago as a geology student I helped the FMNH with the task putting numbers on and cataloging some of the Norman Weisbord collection of fossils from Cabo Blanco and Playa Blanca, Venezuela–a very unusual assemblage of large marine shells and other marine fauna (representative of how big species can get under the right conditions). Dr. Weisbord was an important paleontologist and petroleum geologist who helped with oil exploration efforts in Venezuela. Weisbord was quite a collector.

The FMNH director was my paleontology professor at UF.



 I played guitar for many years, but recently I've been taking to practicing scales which in my younger days I rejected as too boring. Now, far from tedious, I find it relaxing, challenging, helpful to develop dexterity skills and better timing. Musical theorists will know that every major scale has a relative minor scale (I just learned this, so never too late). The notes are exactly the same, the scale simply starts from a different root note. But that root note makes all the difference since the tonality of the scales are like day and night. The concept of a relative minor should have a place in the markets, the darker side of the optimistic (major) equity markets with the same notes, just played in a different order.



 What do you think of the new way of serving a la Kane where they serve from the right, leaning all the way to the right side wall, and then move the left foot to the middle like a dance step and get the torque from the lateral motion as well as the hips?

Bo Keely replies: 

Of course a righty does it from the left side, but the purpose I think is two: lateral movement confuses the receiver because the eyes are moving side to side and suddenly the ball comes at a straight on. And, from the server´s standpoint, when he starts the move he begins the second law that an object in motion tends to stay in motion, and moving across the service box allows a longer travel before the hit compared to stepping toward the front service line. An analogy is the high jump technique of trotting parallel to the bar for a few steps and suddenly springing 90-degrees at it to leap. These laws of motion work all the time. I just came from bodyguarding a mug victim at the waterfront. We needed backup a few minutes ago, so I called a friend. He showed up with a syringe and vial of dessicated diamondback rattlesnake venom that was "enough to kill everyone in iquitos". What´s this for, I asked. In a move quicker than my eye could follow, his hand raised vertically 6¨ and whipped around horizontally to strike my left jugular, but fortunately he didn't load the syringe. I told him, that would kill the guy– instead load it with frog sappo to paralyze him, and he´ll lay in the gutter as an example where he robbed the victim with a sign on his chest, that I just printed out from the computer, ´Do not molest the tourists!´- the lone ranger´. 



In fx of late, particularly of dollar yen, it's like taking Mrs. Watanabe over the coals. One week of ok trading, with risk contained, ending in one weekend of 5x allocated risk blown out. Ouch. It's funny how most retail fx platforms open long after interbank market, with even fx futures on CME not opening until 10am Sydney, (and shut every morning for an hour from 9-10 am). What fun can be had by the men in grey to screw down the retail just a wee bit more.



 I found this article someone sent me ("The Forgotten Tyrant: Franklin D. Roosevelt") terribly sad. There are many, many things to criticize Roosevelt for, both as Commander-in-Chief and as leader of the one-party state that was the United States during the 1930s. But, the internment of Japanese-Americans is not one of them. The California delegation, led by its Attorney-General Earl Warren (a Republican!!!!), lobbied Roosevelt to intern the Japanese-Americans; Roosevelt gave in to their demands in the name of bi-partisanship. Warren was appropriately contrite after the fact; but that is typical "great man" B.S. He — and the majority of Californian Republicans — thought it was a grand idea. It is the reason, even now, that people of Japanese ancestry will never vote for Republican candidates in California, unless they are themselves Japanese-American.



 1. Genetic gift without which no one gets to a competitive #1.

2. Inclination and time to practice long hours.

3. An organized, analytical chess playing mind.

4. A strong coach or role model is helpful but not necessary.

5. The patience to walk away from drugs, alcohol, romance and secondary influences.

6. A weak peer competition helps but isn't always available.

7. The secret to being #1 in a strong filed is an edge, a tiny advantage repeated over and over to make everyone else below #1.

I was born with superior but not great genes. However, three things happened to this entity thrown into the world that formed a colossal step outside the bell curve, in whatever direction. By a quirk of sleeping in the right place, with the sun on the correct side, noise in one ear, memory of school location on the other side, and mind's eye on my baby brother, with parents above the basement bed, at about age eight the body became bismyetrical and ambidextrous. Then, at age eight, I began modeling body parts and movements after animals instead of humans, taking as an example the hand of a cat, kick of a mule, and neck of a giraffe, following only the human eyes. I became a Mr. Potato boy with various parts. Finally, at age ten at a high jump sand pit that I dug in the back yard with a rising bamboo bar, I developed a technique of using the smallest muscle groups and nearest their attachments and insertions, for kinesthetics. 



 I got a rook who sits behind me. And occasionally in the heat of the moment when getting oneself out of a trade I mistakenly close the whole position out and his gets closed out also. And if it goes in his favor after I hear him sighing and shaking his head and frowning and holding up his hands in Yiddish disgust, and rocking back in his old squeaky chair. I am reminded of when I played squash doubles with Vic Elmaleh who was 40 years my senior. Whenever I missed a shot, he acted exactly the same. Would hold up his hands in disgust and mutter imprecations under his breath. "It was yours. Why weren't you there". (One reason was that I was covering 75% of the court.) We won the national doubles 43 years ago (losing more points than we won in the process. Every match a 5 gamer). I still hear him complaining.



Despite what I have read I am not convinced the HFT in aggregate are profitable. Buying High, Selling low, and making it up on volume just does not seem like a good business model to me. The research on HFT seems unadjusted for survival bias. They study the biggest and most profitable firms to see how big and profitable they are. I personally know an HFT firm that made money 3 years in a row, then after 4 months of bad performance they realized their edge was gone and they closed shop. I am sure they were never included in HFT research. I use limit order so I suppose HFT is taking the other side and the jury is still out.

Jim Lackey writes: 

Of course, Dunc, it should be like all things sports MX. Top 10 sleep in the Hilton and ride in the Factory rig and the next 10 best in the world sleep in their trailer in the pits 20-99 are part timers and lose money racing. 



 Written in honour of all splitters, rookies and lookbackers:

A common pursuit in decision making is to compare data of many kinds and find the best way of separating the observations into different classes.

For example you mite be considering what are the factors that contribute to long life. Weight, height, mid range of parents age , % of meat consumed , exercise mite be the variables. You mite find that when parents mid range was above 140, and meat eaten less than 2 times week, and exercise more than 5 hours a day, the longevity is 10 years higher than the average.

Trees are usually used to separate the groups. An example picture of such a tree is here: [pic ] Lots of good pictures of such trees and a discussion of a typical tree sort is in An Introduction to Classification and Regression Tree (cart) by Roger Lewis. And programs like CART and AID and many modern variants are widely used in medicine and markets. In fact all market people systematically or implicitly consider such problems. When does the market go up? When gold is down more than 10, when bonds are up more than 100, and the previous 5 day sp move is between -1% and 0 %? The problem is that there are many variables to consider, and many levels at which one would reasonably split the data.

A good starting point in considering such problems is to note that when there are two mutually exclusive groups X and Y the variance of the difference between means is the sum of the variances of the means. The variance of a mean is the variance of an individual observation divided by the number of observations. For example, consider the average move in sp during a day has a sd of 10 and variance of 100. If you take two independent samples of 10 from such a distribution , the variance of one mean will be 100/10= 10 and the variance of the difference between means is 20. The standard dev of the difference is 4.4 What does this mean in practice? One will round. A 50% confidence interval in which 50% of the observation range is 0.65 x 4.4 = 3 points on either side of the difference between means which we'll assume to be 0. That means that by chance half of all the observations will show a difference in means ranging from -3 to +3. To find a region where 95% of the observations lie, ie. A 95% confidence interval we'd multiply 2 x 4.4 =8.8. In other words to find a difference that has less than a 5% chance of occurring thru randomness we would have to find a difference between means of 8.8 on any binary split.

But of course that's not all. Normally we look at 2, or 3 or 4 different splits to find the one that gives the greatest difference. It turns out that if we look at the highest of two differences, the average difference is 1.5 times as high as for one difference. In other words by randomness , the standard deviation for the highest of 2 difference between means is 1.5 x 4.4 = 6 a 50% confidence interval assuming randomness for the highest of 2 differences is 0.65 x 6 or from -4 to + 4. A 95% confidence interval would be between 2×6 and -2 x 6 i.e. between -12 and +12.

Now there were several assumptions made in this analysis. We assumed normality. And we didn't take account that there is sampling without replacement for one. And there are two cases: you look at the algebraic difference (2 tailed test, as above) or you try to maximize the *magnitude* of the difference (the 1 tailed approach). To get a good handle on it, Doc and I simulated what would happen if we divided up 20 random observations from a distribution that had a mean of 0 and a standard deviation of 10. This corresponds to the most frequent and typical thing one does when dividing up stock market changes in points (S&P rises or falls by about 10 full points a day). We then took two random subsamples of 10 each and calculated the mean of each of the two groups of 10. We then looked at the absolute value of the average difference between means when we repeated the process 1000 times. It turns out that the average absolute difference between means is 3.5 for a single split (this 3.5 absolute difference is in line with the std dev of 4.4 previously estimated)), 5 for the highest of two splits, and about 6 for the highest of 3 splits. This leads to incredibly high differences that you must be aware of when you split data to have anything more than a 50% chance that the difference occurred thru luck alone. To be 95% sure that you have something departing from luck for the highest of 3 splits you'd need a difference between the groups of 10. As the numbers in the group get less than 10 ,i.e. for a second or third split, the numbers would get increasingly large. This is a warning to all who search for regularities in data using methods that are implicitly or explicitly like tree sorts. By vic and doc.

Here is a more extensive table of simulation results

Table 1
Col A: number of observations being split
Col B: number of splits considered, best one is chosen
Col C: mean absolute difference generated by best split (in S&P points)
Col D: standard deviation of absolute difference
Col E: lower 5% confidence interval
Col F: upper 95% confidence interval

20 1 | 3.56 2.66 0.27 8.65
20 2 | 4.97 2.67 1.24 9.81
20 3 | 5.84 2.64 2.07 10.55
20 4 | 6.45 2.55 2.84 11.05
48 1 | 2.26 1.72 0.18 5.63
48 2 | 3.25 1.71 0.90 6.40
48 3 | 3.75 1.66 1.36 6.78
48 4 | 4.20 1.68 1.79 7.24

Table 2 same as above but
Col C: average (algebraic) difference between means (in S&P points)
Col D: standard deviation of difference between means

20 1 | -0.06 4.61
20 2 | -0.13 5.62
20 3 | 0.01 6.42
20 4 | -0.07 6.88

Let's try to apply this to a typical example.

The 30 year bonds each day have a move of about 80 points.i.e a move from 142 exactly to 142 and 26 /31. Call that the stand dev . Let's say you have 100 observations of bonds in your sample. And you split it into two equal halves based on whether gold is up the previous day or down. The variance of any mean difference would be 6400 x2 /50 =256 . That gives a stand dev of 16.

Turn to the prob that a standard normal deviate will be between -z and + z. the prob is 50% that a normal deviate will be etween -0.65 and + 0.65, the prob is 90% that a stand norm dev will be betweeen -1.6 andd +1.6. Thus if you find a difference that's less than 0.6 x 16 = 10 its 50% chance, and its 90% chance to be 1.6 x 16



 There's a rather direct and rather readily understandable paper that's the standard for non-statisticians trying to asses the difference between such things as test-retest correlations, difference between means of binary splits, and agreement of two successive measurement of individuals. Completely related and very similar to the binary split cart essay of Doc and me. But no consideration of sampling without replacement, small number of observations requiring a t distribution, simulation of actual distributions of differences, or adjustments for highest of n differences. Bland statistical methods for assessing agreement. Lancet 1986.

Fabrice Rouah writes:

Another great resource in this area is the textbook by Joseph Fleiss, Statistical Methods for Rates and Proportions, now in its 3rd edition.



"Super duped" about an old professor who thought he was going to find romance with a beautiful model who he met on the Internet. Instead he carried her suitcase of a white drug. Apparently he confided to her, and what must have been the beautiful reporter that interviewed him, that because of his co-authorship with many who won the Nobel prize, it was a 50% chance that he would win the Nobel also. Anyway, he's in prison now in Buenos Aires. And the prison guards always greet him with "hey Professor, have you won the Nobel yet?

Couldn't realize the resonance of that until I remembered from edspec… the letter my grandfather sent to the football coach. "When you have an all American like Artie Niederhoffer on the team, how could you give the ball to anyone else or let anyone else make the tackle". The coach read the letter in the locker room. And from that time on, my dad had a new nickname. " All American". We met one of the team at Lundi's 20 years later. "Hey, All American, how's it going. Caught any more touchdown passes lately?".



 I believe the Prime Minister backed off his statement about restarting Japan's nuclear plants. In all likelihood, some of their nuclear units may return to service, but now seems too soon.

Japan's commercial nuclear power plants can produce bulk power for approximately $12 per megawatt-hour. Importing Liquefied Natural Gas (LNG) to fuel gas turbines produces power at approximately $144 per megawatt-hour (assuming ~ $18/MMBtu for delivered natural gas and an average heat rate of ~ 8,000 Btu/kWh).

With 48,000 megawatts of undamaged nuclear capacity in Japan's fleet, the difference between $12 and $144 is significant. Assuming a 85 percent capacity factor, the simple difference adds up to approximately $50 billion per year.

In fact, the cost difference is greater than $50 billion. First, utilities must continue paying operations, maintenance, capital and fuel management costs even if their nuclear plants are idled. Idled plants produce no revenue to offset costs.

Second, the power market is punishing. The $144 would be a base bid in any power auction. Market-clearing prices would start at $144 and shoot up to higher heat rates, depending on hourly demand. (Higher heat rates suggests higher production costs)

The economic pain associated with high energy costs should cause Japan's policymakers to think hard about practical options. In all likelihood, Japan will restart some of their newer units, but not right away. Any restart will likely be slow, deliberate and sequential.

In the meantime, Japan will invest heavily in renewable energy. Production costs for wind, solar and demand-response are near $0 per megawatt-hour. More importantly, power from renewable power displaces the market's costliest fossil-fueled plants watt for watt.

The world seems to be betting Japan will continue to shun nuclear power production. Australia, Qatar, Indonesia and the US are eyening Japan as their prime customer for new LNG production. It appears their collective bet may not fully consider Japan's options of renewable energy and nuclear restarts. But that is another topic for another thread.

As an aside, Japan's power grid has an unusual design. Half of the nation is 60 Hz (because it was designed by Americans). The other half is 50 Hz (because it was developed by Europeans). Japan cannot easily move bulk power between 50 Hz and 60 Hz systems. The fact the grid is not homogeneous means the energy flowing within the grid is not fungible. It also means Japan's power markets are not efficient.

Carter Dimitroff writes: 

From a market perspective, the near zero production costs of wind and solar are reached without government subsidies. Government subsidies drive production costs into negative numbers or they reduce capital costs. Some nations use feed-in tariffs, which subsidies capital expenditures, production costs and margins.

Many in the utility industry are befuddled by production costs. For decades, utilities in the US have been regulated. Regulated assets need not respond to market forces, because there appears to be no market in regulated regions.

The fact is that where there are no formal markets, utilities create virtual markets. Responsible utilities dispatch regulated power assets using market principles. First, they dispatch low production cost assets, then they dispatch progressively expensive assets. The virtual market becomes distorted when there is limited liquidity. Small utility regions with few assets will often dispatch "must run" assets even if they are uneconomic.

Production costs are not levelized costs, nor are they operating costs. They are market-based costs. From an energy production perspective, production costs are the incremental costs incurred when a facility changes its state from offline to production. Those incremental costs are mostly made up of fuel and fuel handling costs. They also include additional costs for manpower, operating based maintenance and, in the case of US nuclear, waste disposal costs. But for the most part, fuel is the big driver in production costs (after all, a power plant is just an energy conversion device that wastes two thirds of its fuel in the conversion process).

Wind and solar facilities are largely passive machines. They need no costly fuel as feedstock and no incremental manpower to operate. They just sit passively and wait for sun or wind to manufacture energy.

Carder Dimitroff adds: 

First, the US has no feed-in tariffs for solar or for wind. There are negotiated power purchase agreements scattered about, but no formal feed-in tariffs exist like we see in Europe.

Second, no grid has an over abundance of solar power needed to spark the imagination suggested. At best, solar acts as a peaker. It is difficult to imagine a case where solar could supplant base loaded production. It is also difficult to magically arrive at a point where there is no cash flow. Investors would have throttled back before reaching this point.

Third, the case you cite for solar is extreme and hypothetical. But it has happened for wind. The locational marginal price has blown past zero on several occasions. But that was a signal there was a problem with transportation, not production. It was also a signal that higher cost producers refused to respond to market signals and as such, they refused to exit.

What does "h" mean?

Anonymous comments: 

Japan's fossil-fueled generation remains high because of continuing nuclear plant outages. Because Japan's thermal energy is imported, solar is beginning to look cheap.

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Speaking with a friend who is a broker for one of the big banks, he says his clients who exited stocks three years ago are calling wanting to get back in leaving instructions to buy on the first pull back. This is completely descriptive with no predictive value, but the H. H. Harper passage come to mind which I retrieved from google and I can certainly relate:

"Whereupon my friend, who occupied the uncomfortable position of a "sold out bull", became wretchedly aware that he had dropped out of the race long before the course was completed, and by doing so he had thrown away a grand opportunity.It may here be explained that the mental attitude of a "sold out bull" toward a rising market is much the same as that of a bulldog chained in his kennel while a dog fight is going on outside. A speculator may stand buy and view with unruffled complacency the most enormous profits of others in securities that he never owned, but if one of this own pet stocks continues to advance after he has sold out, it not only reflects the error of his judgment, but the remorse he suffers in contemplating the additional sum he might have made dampens all the pleasure of reflecting upon the profit he actually did make "

H.H.Harper circa 1924

Vince Fulco writes: 

A great practical example is CRR (carbo ceramics): I own a token amount in my IRA after being longer at lower prices. Not many pullbacks the last few weeks and every modest one, the stock then surges for a time. Frustrated buyers like I have never seen. This is not a "long & loud" tout; only mentioning because the action is so pure and outside the norm from other holdings. There is something about peeling off some on the way up which makes it easier to wait for the grand finale

Jim Lackey writes:

It's the opposite of the end of year "countdown to fiscal cliff". Now it is "count down to SNP Cash close highs". I'll make a prediction… it is the usual (+-)=2 points on PNL after one is involved with such mumbo back and forth whip saws.



 Been traveling a bit in Asia so seeing more billboards in an hour than we have in all of the Virgin Islands. What I noticed is 95% of the ads for upscale clothes, jewelry and such have large photos of models scowling, casting a dour look or an air of haughtiness.

Why is that?

If I was selling clothes I would want my customers to think they might be happy after forking out $300 for a pair of jeans.

Jeff Watson writes: 

Talk about dourness, I lived through the grain markets in the 80s, which had a southward gravitational pull for years and years/nobody wanted grains, there was no money in it except for cent and a half trades and the two dollar brokers. Things were so bad that there was no public participation and was a game between only knowledgeable players…..

Just like the state of horse racing today. In the past, the general public (paying too much, selling to cheap and always collecting short, less than true odds even on longshots), would grease the wheels with all that extra cash mostly ending up in the insider's pockets, as always. Back in the old days, 15-20,000 amateurs would regularly take a day off to spend a the races (now you're lucky if 800-1200 show up, all insiders). The insiders would eat the low hanging fruit the public was offering. That low hanging fruit is largely gone, and the game is reduced to just the insiders, the scholarly, and well informed picking each others pockets…… nickel and diming it and devouring each other instead of the schools of bait fish which are largely absent. It's simple ecology 101. As goes for the track, it goes for the markets. I suspect that the Chair could probably expound on this idea 10X better than me (and probably poke enough holes in it to sink the Titanic). 



It was kind of the fixed income boys to give a little rise today (3/13/13)  in their markets, after 6 days of unremitting decline cover 3 big points (144 to 140 1/2 in the bonds rather than making those poor longs wait for the 10 year and 30 year auctions Wed and Thurs. Why were they so kind? Could it be that they wished to preclude them from participating in these upcoming tests of the strong? 



 One was reading today again, Frederick Forsyth's The Day of the Jackal, and as you recall, the search of the French and the English to find the potential assassin from the Dominican Republic which involved such things as examining all passports issued in a 1 year period, all stolen passports, all hotel reservations, all dead letter passports issued, all gun makers, all disguise artists, surveillance on the Italian consulate, torture by electric shock, use of escorts and truth serum to unravel the extent of the plot and many more things that I am too unfamiliar with intelligence to understand,—-okay, the type of effort that was mustered here is far beyond what we undertake to find the regularities in the markets and the profits thereof. The same would go for the efforts to test and hold constant the various hypotheses in scorecasting. We should be very humble in connection with our limited efforts in our fields compared to others, and redouble our efforts to get on some kind of level playing field. Recall that the favored bailed out institutions are hiring space and manning their redoubts with the best and brightest they can find, who one competes against. Perhaps they do not work the long hours of those in The Day of the Jackal or examine millions of pitches like the scorecasters, but they have the advantage of unlimited capital to back their positions, the abstinence from fear of margin calls, apparently the ability to hide their losses in many cases from their superiors, and asymmetric bonuses if they make compared to the very mild raised eyebrow if they don't feather the nest. 



 I spoke with a dear friend in the SF Bay area. He's a real estate agent on the peninsula south of San Francisco. He indicated that the housing market there is so hot, it's hotter than it was in 2006-7, and rivals that of 1998-9, when houses on the peninsula and in Silicon Valley were sold within hours of listing. This seems to me to be unsustainable, except he said there's lots of demand from Chinese immigrants paying in cash, as well as other Asian immigrants putting down 60-70 percent of the purchase price and financing the rest. I don't think this will have a pleasant ending.

Leo Jia writes: 

It looks the Chinese buying will continue for sometime. They are crazy about housing. The decades or centuries of housing shortage must have altered their genes. And now when some have some money, they will chase at any price what they feel missing mentally. America (particularly the west coast, traditionally with more Chinese) clearly is a top choice for many.



 This book, The Six Sources of Collapse by Charles Hadlock, looks like a very interesting book that is related to recent discussions by specs.

Beginning with one of the most remarkable ecological collapses of recent time, that of the passenger pigeon, Hadlock goes on to survey collapse processes across the entire spectrum of the natural and man-made world. He takes us through extreme weather events, technological disasters, evolutionary processes, crashing markets and companies, the chaotic nature of Earth's orbit, revolutionary political change, the spread and elimination of disease, and many other fascinating cases.

His key thesis is that one or more of six fundamental dynamics consistently show up across this wide range. These "six sources of collapse" can all be best described and investigated using fundamental mathematical concepts. They include low probability events, group dynamics, evolutionary games, instability, nonlinearity, and network effects, all of which are explained in readily understandable terms.

Almost the entirety of the book can be understood by readers with a minimal mathematical background, but even professional mathematicians are likely to get rich insights from the range of examples. The author tells his story with a warmly personal tone and weaves in many of his own experiences, whether from his consulting career of racing around the world trying to head off industrial disasters to his story of watching collapse after collapse in the evolution of an ecosystem on his New Hampshire farm."

You can find several pages from Dr. Hadlock's book on googlebooks here.



After one made a bad move in checkers, putting oneself in a hole and finding oneself in a most untenable position, Tom Wiswell, would look at one, somewhat sadly, nodding his head with a frown, "Now you're thinking". (why didn't you think a few moves ago). Okay. The bonds have gone down 6 days in a row and the stocks up 7 days in a row. A nice six percentage point divergence to another new high in the bond stock ratio. Today, I sought to sell bonds after they went up a little. I can hear Tom saying "Now, you're selling". I bought a little stocks overnight. And I hear Tom saying with reluctant disapproval "now you're buying".



"Behold the VIX splattergram"

Moving to single digits? The market moves slowly but in long runs to the upside. It squeezes shorts like frogs boiled in water getting warmer and warmer and it attracts new buyers. On progressively lower volumes.



One of the most valuable things I learned from the Chair is how not to do a study.

Let us summarize how to do a study. First define a pattern or event of some type. Then calculate the expected return subsequent to that event when the event happened. Then compare that return to the returns for all other non-event time periods. Do a t-test to establish significance at the 95% level.

That said the real problem is how can we insure ourselves against the possibility of biasing our study or otherwise completely messing up. the first thing that comes to mind is to never include data in your decision process that was not known at the time. For example Enron went bankrupt and then several years later after an audit the financial results were released showing that the original releases had been fraudulent. You cannot use the adjusted data based on the argument that it is the best data. Only the original data was known at the time so you must use that.

The same thing goes for price data. You have to use the prices that were known at the close if you are doing a buy at the close study. You cannot use retrospectively adjusted prices when the data is adjusted later than the supposed decision was made.

Always use tradeables. For example the S&P 500 index does not trade as an index. The S&P futures do and SPY does as well so one would use either of them as data for your study. The reason is that individual stocks can have stale quotes. Some of the smaller stocks in an index do not trade nearly as often as the larger caps. Thus the index can be behind the true position of the market. The tradeables trade and thus are subject to arbitrage that tends to keep them in line with the real market level.

This is a short list of things not to do. However it is representative of the fact that it is harder to learn what not to do than what to do. Other contributions would be welcome.

Victor Niederhoffer adds:

Always simulate what the chances were that your observed results were due to pure luck and take into account the path that your results would take and what that would have required of money management.

Consider the impact of retrospection on your results. The human mind is capable of ascertaining many regularities that occurred in the past, and is good at uncovering them in a study after the events occurred, but not very good at uncovering predictions based on new data that they are not already privy too. Never use range forecasts as they don't tell you whether you would have made or lost. Be aware of the difference between description and prediction, and statistical significance versus predictive distributions.

Never be overconfident. Do take account of the drift in your data, and the shape of the distributions you are drawing from. Mr. T, is not very good if only 2 or 3 observations removed from your sample would change the results.

To what extent are the regularities you believe you have uncovered been extant in the literature or the knowledge of shrewd fast moving traders. That changes things. What is the extent of regression bias in your results? 

Alston Mabry comments:

Something else, basically another riff on the Chair's comments: I find that statistics like means and correlations are, of course, useful, but they almost always hide important, idiosyncratic structure in the underlying data. In a sense, summary statistics are "intended" to do that, but I find it useful to unpack them and examine the structure in the data series, how the summary stats change over time, etc.

Anton Johnson writes: 

A couple of important things to consider.

Large changes in outcome resulting from small adjustments of a parameter is a sign of over-fitting and usually bodes badly for real-time results. Sometimes eliminating or finding a suitable replacement for the sensitive parameter will result in a more robust and usable model.

As a general rule, the number of parameters used in a study should be FAR fewer than the number of resulting trade signals.

Ken Drees adds:

Coach Bob Knight's new book The Power of Negative Thinking mentions "NO" being safer than yes. You can always more easily change a "no" into a "yes" versus the opposite–deciding to change your mind from positive to negative.

The gist of the book is to tamp down the uber positive thinking crowd–no, you can't do anything you want, no, you can't magically power your way to a fine end. PONT, Power of Negative Thinking is how Knight coached. He explains it that you must limit faults, limit mistakes–if we don't do these things then we have a chance to win. He keys on dealing with negatives to achieve a positive. He must have come across a lot of less disciplined approaches to coaching in order to come up with an against the grain type philosophy (PONT).

A lot of his points are probably already in the quiver of the sharpened spec. His hyper worried routines, careful study of the opponent, downplaying of good fortune and constant moving of yesterday's win into the rearview mirror broadens out into that persona you conjure when you think of him–that brooding face, those searching eyes–never smiling. The idea of "can't do it" was probably the most different from what we hear today–most are afraid to say "can't–that it means "I won't". Knight loves the honesty of a player saying I can't understand that assignment, or I can't push myself any farther. I would not recommend the book to cross over into speculation, but it's a quick read and there are more than some items to enjoy.

During it, I thought about player health in relation to speculating. I am my own coach. It's a luxury to have someone call your number and sit you down for a breather, to know you may need rest over more drill. How do I know that I am playing/ trading fatigued—only after a poor result? Knight seems to have the keen memory still in gear. There are some interesting stories about his games and Big 10 accomplishments.

Coach Knight will definitely tell you "No".  

Leo Jia writes: 

Very interesting, Ken. Thank you for sharing.

There seems to be some rationale in being positive. As I understand it, when one says "yes, I can do it" and envisions the actual doing, he actually plants a seed in his subconscious brain. The subconscious brain can be more powerful in many ways than the conscious. So planting a seed there is to use the additional powers of the brain, which are not accessible by the conscious mind normally, and thus increase one's chance of achieving a goal.



As the S&P approaches its all time high, slowly but steadily, one ponders the implications as it appears to be pre-ordained with the slow but consistent rise occurring.

It is well known that the markets' volatility are auto-correlated when the jump in prices occur quickly. But if the large change in price is slow but steady such as we've seen last few weeks, does volatility increase? Does this signal reverse trends are more likely than normal? Of course this needs to be defined better, yet, I wonder if someone knows the answer(s) from previous studies?

Rocky Humbert writes: 

Russ: There are multiple answers to your question.

1. Firstly, you have to differentiate between the VIX (which is based on a "market" estimate of future volatility using live options prices) versus the actual realized volatility. It is theoretically possible — in fact, quite likely — that the VIX can diverge from actual market volatility for long periods of time. Right now, the VIX is about 11.5% and the November 2013 VIX future is 18.90. So right there, you see the market has priced in a higher VIX. Assuming that this market is efficiently arbitraged, it means that 8 month options are much more expensive than 1 month options. There is some path dependency here, but in a nut shell, it means the answer to your question is no, eh yes. (That is, Mr. Market believes the answer to your question is yes in the longer term, but no in the shorter term.)

2. Secondly, the definition of volatility is simply the standard deviation of returns. As a silly example, imagine if the S&P went up by 5% EVERY SINGLE DAY. In this absurd example, the VIX is extremely low (even though the market is going bonkers), since it's a monotonically increasing value and the change in returns every day is 0. (That is, so long as the velocity of the market is constant, there is NO volatility.) In this silly example, I would expect the spot vix to collapse (due to arbitrage) but the long term vix futures would explode. (It's important to not forget how the VIX is calculated.) Similarly, if the S&P were declining by 5% EVERY SINGLE DAY, the VIX would also collapse. Again, a stupid example. But the math doesn't lie. Of course, the historical behavior of markets is that things don't move in a straight line. But for any given period of time, markets can and do move in a straight line.

So to answer your question precisely, "if a large change in price is slow but steady does volatility increase?" one must note how the calculation is made– and one must further appreciate that monotonically increasing or decreasing markets are the very definition of low volatility. The short answer therefore is "NO".

All of this begs for (and rationalizes) why as someone who sees very little value in the S&P, I am still making some nice returns by owning short dated call options (and I periodically roll up my strike prices.) This strategy will work until it doesn't. But it's already worked long enough to justify the simplistic assumptions underlying it — which is that I neither want to be the greater fool nor the lesser fool. Just a profitable old fool who plays the hand that I'm dealt. Not the hand which I wish I was dealt. Nor the hand that will be dealt tomorrow.This period will undoubtedly end with fireworks and tears. But when and from where? That NO ONE knows. Keep things stupid and simple….



As usual the reports of employment with all the adjustments to the economic numbers, coming from the government employees at the department chaired by the leader who likes her kids to sing the iron anthem, are designed to increase the importance of the department of the interior and redistribution and vote buying as Nock and Tollison and the public choice people said. First, the revised number from last month (which are 100,000 or so lower than previously reported) + the current number are very poor. And the total is about in line with the past dismal figures. (when will all these revisions be taken into account so that there is not such a big opportunity for the public to do the wrong thing).

The decrease in the unemployment rate comes from all the people who are not looking for jobs because they are on disability or given up hope. Third, the numbers are designed to show that when the rate goes up, they can attribute it to the fact that the survey was taken before sequestration (the economics chair has said this and important pro spending leaders of all sexes have it in her or his talking points already), so that when they report worse numbers in the future they can say it was because of the dreaded effect of reducing gov expenditures over 10 years by 800 billion rather than the fact that the numbers themselves are random.

Kim Zussman writes: 

"What is then the connection between these numbers and the market?"

1. If unemployment and GDP numbers continue to improve, Oval Occupier takes credit and proving that higher taxes are pro-growth
2. If it worsens, it can only be due to House Republicans protecting the rich
3. If unemployment and GDP numbers continue to improve in a world without investment alternatives, stocks go up
4. If it worsens, time for more QE - which is now well known to be extremely bullish for stocks

Paving Wall St for Hillary (sorry Ross).

Richard Owen adds: 

Always get long a fraud short you think is going to print above consensus. Men with gold filings and lucky silver dollars like their trading sardines.

Also, the disenfranchised pipe welder is the new fifties housewife. Instead of the little woman adding her own egg to the betty crocker brownie mix, the oxy acetelene operator adds his own self pity to a bottle of Jack Daniels. Growth in the fifties was still pretty good.

When Kruschev met Nixon and fulminated that Russia would outpace the US inside of seven years, it is easy to look back and laugh. At the time, much harder to be sure Russia wouldn't win out.



 Scorecasting: The Hidden Influences Behind How Sports Are Played and Games Are Won by Tobias Moskowitz and Jon Wertheim is one of the best books for market professionals to read. The authors categorize all kinds of situations in sports and show how they effect the outcome. There are main themes on the endowment effect, value of blocked shots, rounding errors, bias by class and race, home advantages, officials giving the home team the advantage, importance of superstars, value in draft picks, importance of overtime advantage, influence of drugs by race, pressure and length of time away as a determinant of accuracy, the hot hand myth, and others. Each chapter starts with an anecdote about a game, and then shows how to quantify how factors covered in the anecdote can systematically be quantified.

It's a model of how market people should consider the markets. All factors that might influence the results are counted and controlled for. It suggests a million hypotheses about what affects the market. The path that leads up to the outcome is highly relevant in all sports, as it is in markets. It's not just where you are relative to the start but how you got there, coming from behind or being ahead. The home court advantage is consistent in all sports over all time periods, in all geographic areas. Suprisingly it has little to do with travel weariness, or the enthusiasm of the fans, or the idiosyncrasies of the park. I can hear all the sports fans saying, "but, but, but". However, the authors test all likely hypotheses to see what is really happening.

They attribute it to officiating bias. The officials don't wish to be berated, and wish to give the home team the edge on disputed calls.

The statistics on baseball are particularly interesting since they have the exact trajectory and outcome of each pitch, and can see when the umpires made bad calls, and the batters and pitchers made accurate pitches or swings.

It leads directly to such tests as whether back to back wins are more common over weekends or during the week, or during holidays. That's the kind of thing the authors routinely study. They have a nice page or two on how these factors affect markets.

In particular they talk about undervalued and overvalued stocks the same way, the general manager thinks about overvalued and undervalued players. Their discussions of market factors are regrettably shallow, as they talk about earnings misses and earnings surpasses and exact hits without testing the effect or its changes. As always, the people in one field present very interesting hypotheses that should be extended and quantified in our field without the expertise to apply them accurately in other fields. But their ideas are very suggestive and opens up a wide canvass for all who have the desire and persistence to apply the tests accurately, taking into account the principle of ever changing cycles.

The chapters on going for it, particularly the endowment bias of hating to lose what you've gained much more than loving to win are particularly telling and poignant and should be read over and over by market people with a view to eliminating this pervasive bias from their activities. Overall the authors have done a great job, and I would add this book along with Horse Trading, and The Principles of Professional Turf Betting, and Monte Walsh and Atlas Shrugged as 4 of the 10 best books for market people to read.



It's an ill wind that blows no good. The enclosed article on the size and growth of government by Thomas Garrett and Russell Rhine contains an excellent discussion of why government grows by 350% per capita per 50 years or so. see figure 1. It shows that the sources come from the recipients of lump sum payouts, and the monopoly status of governments.

One wonders what a comparable discussion of why the Fed's balance sheet and powers would grow. Part of it comes from those that directly receive the aid, the banks, failed companies, and flexions who receive the most valuable thing of all, the heads up and information on what they're going to. The other part comes from the constant accretion of power, money, and perks that goes with increasing one's activity. But how could this best be memorialized and related?



A recent talk by Brink Lindsay at the Junto was a perfect example of what should not happen at a talk. It consisted of a sophistic proof that Krugman's thesis that some post war years were much more golden than some more recent years because of more government regulation and greater equality is mispecified.

There were so many things wrong with the talk. The audience was totally inappropriate for the talk. It was a spread sheet, power point presentation where none of the audience could see it, understand the data points, or check the veracity. Even if the premises had been worth discussing, it would have been totally wasteful. No wonder so many people fell asleep, left the talk, vowed never to come back to the Junto, and were completely silent.

However, worse yet, the premises themselves of the talk were completely off base. The basic idea rested on two premises. That some 25 year period after World War II had higher growth, and that it was caused by more intrusive government. How in the world someone could say that gov. was more intrusive in that period than now is ridiculous. There are hundreds of measures of government intervention that could be used, and almost all of them would show that gov. is more intrusive today. Take government as a share of the economy, or the extent of the federal register, or the tax revenues taken as a share of income, or the extent of entitlements and unfunded debt, or the share of cronyism.

Second, the talk was filled with selection bias and data bias. Of course you can take a measure like productivity or pre tax income and find 4 points, a starting point, an ending point x year later, another starting point a few years after that and another ending point, where based on some opaque measure of income, there was a small differential in the growth rates. It has to be true with random numbers.

Hopefully, I will never subject the valuable time and efforts of the Junto attendees to anther talk like this, and that Brink who is a reasonable scholar and has written many good books will not waste the time of audiences in the future with sophistic and inappropriate talks like this in the future.

Here's a good discussion of government intervention which it would have been useful to use as a foundation and base, and would have given the audience something useful to take home with them. I see tables on federal spending per cpta, cabinet departments, human resources, a breakdown of federal expenditures by sector showing that physical resources shares has increased, state and local government expenditures, vote trading, bundling, and government size, and many other valuable topics. It's a model of what a talk to a general audience should have covered. 

Brink Lindsey responds: 

Dear Vic,

Thanks for writing — I appreciate the opportunity for follow-up discussion. And thanks for sending along the article from the St. Louis Fed — it is very interesting and I had not seen it before.

I do not believe, though, that the article in question supports your objections to my analysis. Yes, real government spending, both overall and per capita, has been on a steadily upward trend. But if we are looking at the effect of government spending on growth — and it was the effect of government policy on growth that I was addressing in my talk — then the proper measure is government spending as a percentage of GDP. The only relevant figure in the article is Figure 3, which shows only federal spending as a percentage of GDP, and it shows that federal spending fluctuated fairly stably between 15 and 20 percent of GDP through both the Golden Age and the Long Boom. No increase at all till the Great Recession. The composition of spending changed signficantly — from heavy on defense to heavy on entitlement spending — but the implications of that composition shift for growth are unclear.

For total government spending as a percentage of GDP, see this useful website.

Total government spending was somewhat higher in the Long Boom than in the Golden Age — around 35 percent of GDP on average as compared to around 30 percent. That rise is mostly due to a big increase in state and local spending on education.

But surely this isn't the answer to the puzzle. However you want to measure overall economic performance — the growth rate of GDP per capita, labor productivity (GDP per worker hour), or total factor productivity (GDP per unit of labor and capital) — the Golden Age beat the Long Boom hands down. The slides I presented didn't satisfy you on this front, but I challenge you to find any measure of overall economic performance that shows the Long Boom outperformed the Golden Age. Here, for example, is a chart on labor productivity.

Not even in the period of fastest productivity growth during the Long Boom (2000-2007) did growth equal the average productivity growth rate during the Golden Age. And I can't even imagine an argument which ascribes all or most of the fall in performance to rising state and local government spending.

Government spending on its own can negatively impact growth by supplanting private activity in an area — e.g., crowding out private schools with government schools. But in general, providing free stuff to people doesn't darken their economic prospects; the real problem lies in having to pay for all that stuff with taxes. However, if we compare the tax regimes of the Golden Age and the Long Boom, I think Golden Age tax policy, with its confiscatory high marginal rates, was more distortive and anti-growth than tax policy since the 1981 Reagan tax cuts. I don't even know what the argument would be for the other side.

So if you are correct and overall government policy in the Long Boom really was much more anti-growth than in the Golden Age, the main culprits must be found on in regulatory policy, not spending levels. I'm afraid that all attempts to quantify the burden of regulation are more or less problematic, and all rest ultimately on qualitative judgments about the effects of this or that regulatory policy. What we can say for sure is that there was a significant shift in the composition of regulation since the 1970s — a dramatic reduction in old-style "economic" regulation of prices and entry, counteracted by a big increase in "social" regulation of health, safety, and the environment. Old-style regulation directly restricted or prohibited entrepreneurial entry and blocked the transmission of market price signals; by contrast, social regulation merely burdens competition with extra costs. Add the fact that health, safety, and environmental regulation's main brunt is borne by economic sectors that are shrinking in importance for other reasons (specifically, manufacturing), and I believe the balance of evidence clearly favors the conclusion that the overall regulatory environment of the Long Boom was less hostile to growth than was the overall regulatory environment of the Golden Age.

So, as I read the evidence, the puzzle still remains. Thus my search for non-policy reasons why the Golden Age outperformed the Long Boom. Perhaps you still find all of this utterly unconvincing, but at least I hope you understand a little better where I'm coming from.

Thanks again for inviting me to speak at the New York City Junto.

All the best,


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Here is another inspiring article for musicians, artists, and everyone else including traders.

"When You Win, Don't Atop: Tips for classical Musicians" by Cesar Aviles



Probably you all know it, but I think it's worth to share: I'm using since last year a nice software, Evernote, to help me handle all the scattered notes I once had in written notebooks.

It's free (I have the free version — didn't see yet the need to purchase the full version) and I'm really delighted.

One thing I always do is to read "old" pages of the Spec List (all the previous years) and save the ones I want in the favorites. Now I can clip them to Evernote and read them offline, while adding notes, etc.

I'm using it also to collect research notes, register thoughts, and so on. It's like having a secretary to do just that.

Here's the link or download.

It's worth a closer look. (And the mac interface is gorgeous).



An amazing day (3/6/2013). Volume of 150 billion in futures. And a close exactly equal to open and 1 o'clock. Total range 8 points on day. Just 1/ 2% from low to high. Like a great athlete who wins but never moves or a tree that always araranges each branch so that the leaves get the maximum of sunlight. A day that the mistress can collect from everyone without having to in any way discommode herself. A magnificent courtesan. 



One of the dangers of having a rookie on your team is that the rookies like to find regularities based on looking at every interval, every magnitude, every market, every combination thereof of x variables, and every time period. It's truly a search of implicitly hundreds of thousands of possibilities to come up with a regularity, fifteen on say 40 observations that has about a 5% chance of consistency with randomness assuming it was the only 1 selected. The problem is that they seem so good in isolation before you realize it was the fruit of a tremendous number of look backs, complexities, and multiple comparisons. I strive to tell them "Simplicity." Read Zellner. Another good thing to do is see all the biases from using cart or regressions trees of automatic interaction detector, and all the safeguards built into those methods, —- and of course they overfit, and multiple classify and are only recommended as preliminary by the authors. But …. but…. how destructive it is to receive one of these regularities during the middle of the day… especially when you have a position on the opposite side from the rookies. Proffer. What lessons can we derive from coaches that treat the rookies with grave skepticism like Woodson who calls Shumpert "Rook" and all the players that haze the rooks endlessly to prevent them from interfering with the natural order of things.

Jeff Watson adds: 

I have a rookie close to me and he tends to over-think things and makes grandiose predictions. I keep sending him back to the drawing board because he's not scientific and usually wrong. I love when he says if A is happening then B must happen down the road…..but then again it's not his capital at risk. Rookies, if they are lucky, are taught rational thinking, but sadly aren't taught that the world and the markets are very irrational. I think in the future that every assistant I hire in the future will list "Phone Clerk for a bookie" on his resume.

Richard Owen writes:

I found this article very applicable. 

PLOS Medicine: Why Most Published Research Findings Are False 



These are still "nothing" days. Breakouts, new highs….nothing days. These are not outlier days. These kinds of days give shorts a chance to cover, longs a chance to add (or reverse) etc. They are not make-or-break days.

It's the kind of days that erase X days of action that are the make or break days. The higher X, the more the day makes or breaks. (The larger X days have historically been to the downside, those there are plenty of large upside days erasing X days of {downward} activity).

Interestingly, if you plot these days, you find that the probability of an X days retracement in a single day is Poisson-distributed (named after the statistician founder, Simeon Denis Poisson). In one of those great moments of serendipity in human discovery, the probability of catching a fish (un poisson!) is — you guessed it!

If you're short, the consolation is that a day which reverses X days of activity IS coming — the "when" part of that is distributed such. If you're long, you need to realize the same thing.

keep looking »


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