One of the shibboleths that come down the road at end of month is that "there will be 27 billion of forced buying by pension funds as they re-balance their stock and bond portfolios at end of month". Has one tested it? I figured I would.

Moves in stocks and bonds last two days of month

based on previous moves month to date in stocks and bonds

moves last 2 days in month

Prev moves                   In Stocks                        In Bonds       

Both up                          +0                                        -0    

Both down                     +0                                       +0.3     t = 1

S&P up Bonds down      +0                                      + 0

S&P down Bonds up       8 points t =1.7                   + 0.4    t=1.6

About 30 observations each row, from 1999 to present. 



 Today marks the close of the regular baseball season. For those of us old enough to remember, one might have expected the World Series to begin on Tuesday, possibly a night game, but more likely a day one. Now with the post-season trifectas, it's amazing the October classic isn't played in November.

Pardon the curmudgeonliness, but the Os finished 85-77. The season closed on a high point, and Jim Johnson continued in his quest to rival Don "Two Packs" Stanhouse for how close one can come to blowing a save without actually doing so while garnering his 50th save. Chris Davis finished the year leading the league (AL) in RBIs and HRs–he made it over 50, only the second Oriole in history to eclipse Frank Robinson's epic 1966 Triple Crown season with 49. Despite that, and despite Adam Jones' 3rd place in the AL RBI standings, the Os generally didn't produce what they needed to in order to get to that October/November classic. Pitching was weak. Actually, weak would have been an improvement. There was one starter on the staff with any consistency, and lots of games the bullpen blew. Still, given the prediction that last year was a fluke and the Os would return to the AL East cellar, there is some satisfaction to be had in the omnipresent cry at the end of the season, "Wait 'til next year!" I'm also betting that Buck keeps his job. And after two decades of baseball folly, to have two winning seasons in a row, well, it just puts the season into perspective.

As Tim Melvin has observed, it's now time to become re-aquainted with the Kindle. Personally, I'm looking around for a copy of "Birds on the Wing"; it's pre-Kindle, but since it's a physical book, neither of my kids will have touched it, so it will be exactly where I put it a couple of years ago (pre-Buck). If you grew up in Baltimore during the 1960s/early 70s, I'm sure you know of the book. That and Freedom's Forge should get me to Halloween. Then the countdown to spring training can begin anew.

There was an interesting piece in today's NYTimes about what ails baseball. I found myself in disagreement with the analysis–at least part of it. But I want to give the matter some more thought, and I'll get back to fellow dailyspecs with some comments in the next couple of weeks. After all, there's a cold winter to be navigated yet, and 4 months of quiet before hope springs eternal again and the cry goes out, "Play ball!"

Steve Ellison writes: 

In PracSpec, the Chair and Collab postulated that baseball was a mirror of American culture. Eras when baseball emphasized fundamentals and hard work, such as the present, tended to be followed by favorable economic periods. It was the long-ball eras that heralded trouble ahead for the economy and stock market.

Stefan Jovanovich writes: 

 Yesterday was the anniversary of Willie Mays' catch and throw in Game 1 of the 1954 World Series. Since I played hookie from school every day the Giants were in town during the summers of 1952, 1953, 1954 and the spring of 1955. (The NY Public Schools in Harlem and the Bronx were so stuffed with boomed babies that no one missed me.) As a life-long Giants fan I have no more nostalgia for the Polo Grounds than for Candlestick. As Joe Torre (born in Brooklyn but smart enough to be a Giants fan) said, "I never hated the Yankees; I just wanted our Giants to be as good a franchise as they were.)

From the beginning the Yankees were smart enough to build a stadium that rewarded their left-handed dead pull hitters. (Ruth didn't build the stadium; Rupert built it for him.) With the Polo Grounds it was the exact opposite. The stadium absolutely killed the teams that I grew up with. They had a wealth of talent; but their best players were - like so many of the great Southern ball players of that era (Aaron, Matthews) - brought up in the Ty Cobb school. They were gap hitters with power. But, instead of getting County Stadium (where Mays hit his 4 home runs and Aaron and Mathews had the careers made), my Giants got the impossibly deep alleys of the Polo Grounds - the places where Monte Irvin's and Willie Mays' homers regularly went to become outs in Richie Ashburn's glove. The only genuine sluggers the Giants ever had in all the years at the Polo Grounds were the baby Ruthies - Mel Ott and Johnny Mize - dead-pull left-hand hitters who were late on the ball if it went anywhere left of right field. (Mize thought he had died and gone to heaven when he was traded to the Yankees late in his career. The right field fence in the Polo Grounds was 15 feet high; in Yankee Stadium it was 3 feet.)

As dreadful as Candlestick was, it was not that bad; Willie Mays and McCovey could reach the right center fence without having to take steroids. But, with the wind blowing in from the north (which it still does almost all the time), only Dave Kingman had the strength to regularly hit it out to left field. To his credit Peter Macgowan had the sense to remember the Polo Grounds and Candlestick and build the former and now again AT&T Park with a short right field so that his Babe Ruth (Mr. Bonds) could find the seats. It was the making of the franchise, which sold out - again - this year even though the team only tied for third in a weak division on the final day of the season - also yesterday.

P.S. Go Cleveland, Go Pirates!



 The spirit of John Law returns and the Japanese under-secretaries of everything decide that the country's debt can successfully recapitalized by creating the Bank of the Empire.

Its yen notes become the sole legal tender for the country and replace the BOJ's paper.

Government debt is exchanged for Imperials.

Freed from the overhang of the existing government debt, the Diet decides that what Japan needs are bridge-tunnels to Korea and Manchuria and sells new government bonds, denominated in Imperial yen, to be secured by the toll revenues.

Japanese Pensioners begin speculating on lots in Vladivostok. 



Doug Bollinger on trying to get back to the Australian Wallabies Rugby Union Test team: ''You hear people saying you need to do this and that but what I have realised is you need to get out there, grab the ball and just get on with it.''



 One of things that all good board players know is that they should keep looking one move ahead in their game. Don't only look at what your move is, but also look at what the likely move of your opponent is, and what you will do, and he will do. Keep pressing and looking forward. The number of moves to look at is an exponential and keeps rapidly increasing. The good checker player often looks 100 moves ahead, and many of the standard positions and variants thereof look 50 moves ahead. The good computer programs in chess look at 7 of 10 moves ahead for all possible moves involving billions of possibillities.

In Markets, one is often faced with what looks like a nice expectation for a few hours, or minutes ahead. But. But. You might not be able to get out then. Liquidity might dry up. It might be before an annnouncement or a transition in trading, or the bid and ask might widen. If you look at what the expectation might be then, and thereafter like the good board player, you might curb your enthusiasm or increase it. But looking ahead more and more time periods is always good. 



I remember some stories in American history where farmers have lost big in playing agriculture futures. It looks like the same will happen to the coal riches in China. A new chapter in wealth transfer is likely starting.



 Here is a program that allows you to calculate the area of damage from any type of nuclear weapon, and will even drill down to your home town.

It gives you every scenario in the book, (air burst, ground burst, size etc) and has advanced settings so one can refine the map. The biggest weapon allowed was the Russian 100MT weapon was a beast, but I heard that it's power was dialed down to a more manageable 69MT.

The smallest was a 20KT weapon that would take out a kilometer and that's it.



My grandfather Martin was a language genius who spoke about 30 languages. He was court interpreter at the start by faking that he knew Yiddish and Russian when he was waiting around bankruptcy court for real estate to buy without cash. He needed the 5$ he got from the gigue to pay for ice skating lessons for Artie. Artie on his 40th birthday gave himself a special present. He bought himself his first tennis lesson that he could afford. A $3 lesson with Phil Rubell. The grandfather was very acerbic and was chagrined that the court clerks got double the salary of the interpreters. So at 68 he took the court clerks test, and got the second highest mark. In any case, at a time like this, he liked to say, "in their quiet way, stocks have arabesqued down 30 big points (S&P), and I think the path of least resistance is back above the round number".

And on a day like this Birdie his wife, who he proposed to the first time she bent over and took stenography for him, "I have to know now or I'll never ask you again", (her job was silent movie pianist, and that helped her in the stenography), liked to say "Martie, I see the market is way up— you look mad. I hope you weren't, how do you say it —- 'short'". 

Jared Albert writes: 

I imagine that the readers of this site could put together quite a few wonderful comments that significant other's make about one's troubles trading.

My wife told me to not be an idiot and just double my size as I was already sitting there, when I suggested that I would split the account and teach her to daytrade.

She also likes to assure me that there is strong support at zero when she see that the market is down.



Many speculators face the quandary of having to choose among concurrent position taking signals from multiple trading strategies, while also being constrained by a prudent maximum leverage level.

Beyond a simple even-split method, one could rank strategies by historic drawdown, mean-return, Sharpe Ratio, or T-Statistic, etc., or perform a back-tested simulation of different strategy combinations and levels to determine the optimal allocation.

You could also choose a system, close-out positions when indicated, then rotate the funds into others indicated to still be open (but how have expectations changed?).

Perhaps a spec could choose a combination of strategies which would form the lowest absolute intra-portfolio sum-correlation construction and fund to maximum leverage.

I've used several of these selection methods many times, and of course there are others, but is there a method for selecting an optimal allocation among concurrent trading strategies?

Alex Castaldo says:

An approximate method which has become popular in recent years (I almost said "all too fashionable") is Risk Parity.  You would allocate capital to the strategies in inverse proportion to their standard deviation. So if one strategy has a standard deviation of 15% annualized and the other of 20% annualized you would allocate (1/0.15)/(1/0.15+1/0.2) = 57% to the first and (1/0.2)/(1/0.15+1/0.2) = 43% to the second.  There is no strong theoretical justification for this, and it implicitly assumes that the strategies are uncorrelated and have similar expected returns.  But it is a simple rule that is one step beyond equal allocations.



 One of the most fascinating bits of Ted Turner's autobiography is when he discusses his near win at either Cowes Week or Fastnet. It was the year of a huge storm and record tragic deaths.

Turner writes that, when they hit the center of the storm, he realized they had likely a one third probability of death.

He acknowledged this to himself but quickly made peace and then his primary focus remained throughout on positioning the boat for a win.

That sums him up well. 



 The earth is going to run out of natural resources starting in 2030 according to certain flexions. Hasn't that been the mantra for a many years? But the politicians are coming up with a plan (they are always coming up with a plan.) One suspects that whatever initiative they come up will involve more government control and less personal freedom. Free markets will have nothing to do with the solution.

Pete Earle writes: 

It's funny you mention that, as I'm currently reading The Bet by Paul Sabin, which chronicles the growth of the neo-Malthusian 'population apocalypse' movement in the late '60s under Paul Erhlich and the long, subsequent battle with the economist Julian Simon (who argued that innovation and markets would blunt the unrealistic projections of the doomsayers). I recommend it.



The Prisoner's Dilemma is very well analyzed in the highly recommended very technical book, Evolutionary Dynamics by Martin Nowak.

The two by two payoff matrix:

                         Remain Silent       Confess

Remain Silent          -1                      -10

Confess                     0                       -7

shows payoffs to you if you and your colleague have committed a crime. The D. A says that if you confess and your colleague doesn't, you go free. But if you don't confess and he confesses you get 10 years in jail. But if you both confess you both get 7 years in jail. But if you both are silent, you both get just 1 year in jail because they can't prove anything.

 The problem is that you do better by being disloyal to your partner. And so does he.

Rapaport has a very good solution to this problem if you play the game repeatedly. It has many applications to trading. If you are a flexion and you have inside information, perhaps from being one of the hundred people receiving economic releases in advance on a need to know basis, and your conspirator is a trend follower, or someone you are revealing the news to, as so often happens, you do better if you act but your colleague doesn't. Same for him. But if you both act, you'll move the market and the opportunity will be lost.

What other situations in markets can be modeled by the prisoners dilemma, and how do the solutions that Nowak and Wiki discuss illumine our trading, and enlighten us as to the disadvantages we face.

Tyler McClellan adds: 

Freeman Dyson published a short paper in the last year or so that supposedly showed a very unintuitive and until then unknown solution to this game.

"Iterated Prisoner's Dilemma Contains Strategies the Dominate and Evolutionary Opponent"

Stefan Jovanovich writes: 

The speculations about the Prisoner's dilemma too often omit the fact that the criminals both belong to the same tribe. The criminals' choices of rat/don't rat are bounded not only by the lesser/greater punishments by the prosecutors but also by the rewards/punishments offered by the gang/group. When the group's incentives are included in the calculations, the conspirators will, as wise guys, follow the logic of silence. That is why successful Federal prosecutions of organized crime that depend on informers have to offer the additional incentive of bribery. An offer of lesser punishment is not enough.

Pitt T. Maner III comments: 

And the game rules and risk/reward payouts in open systems would seem even more variable and subject to interpretation/enforcement depending on the players involved.

This article
has two viewpoints on some recent data: "it's suggestive" vs. "overwhelming"

"Does a burst of ETF trading in the same millisecond of the Federal Reserve's policy statement raise an eyebrow? Sure. Is it indicative of a leak or insider trading? Not necessarily. For that, you'd need something besides numbers on a chart."

And this is one of the latest papers on the subject which might be of interest:

"Penn Biologists Show that Generosity Leads to Evolutionary Success"

"Last year William Press and I proposed the 'extortion strategy' in the game of Prisoner's Dilemma, enabling one player to maintain a dominant position over the other," said Dyson, who is retired as a professor of physics at the Institute for Advanced Studies in Princeton, N.J. "One year later, Stewart and Plotkin turned our strategy upside down and showed that it enables one player to coax the other gently toward collaboration. They understood our strategy better than we did. They reached by rigorous mathematics the happy conclusion that, in a game between ruthless antagonists, generosity wins." '

Richard Owen writes:

It always seems to be that the merits of a mathematical discovery aren't enough by themselves. The closed system needs to be extrapolated to the wide world. Thus a specific proof about a mathematical game is assumed to show that "it pays to be generous in life." As if, without the mathematical imprimatur, this might be held in some doubt. That particular habit of taking results proved in a closed system and extrapolating them to the wide world is probably particularly relevant to the investment field.

Jim Sogi adds: 

I definitely like this author's approach to game theory using a spreadsheet to tally levels of factors similar to a plus minus decision list. The approach can definitely be used to quantify market information and decisions. It breaks down multi factored complex decisions into manageable quantifiable choices which are tallied to arrive at the big decision.



 "Effects of Ancient Meteor Impact Still Visible On Earth"

This is fairly recent in a geologic sense.  I listened to a great
lecture by Dr. Ed Petuch at FAU the other night and he mentioned that
part of the debris field from this event are found in Argentina.  Entire
sections of sediments were scoured from the sea floor in the blast area
and are missing in the geologic record.  The following portion of the article
describes what happened:

'More than 35 million years ago, a 15-story wall of water triggered by an asteroid strike washed over Virginia from its coast, then located at Richmond, to the foot of the inland Blue Ridge Mountains — an impact that would affect millions of people should it occur today. Yet despite its age, the effects of this ancient asteroid strike, as well as other epic space rock impact scars, can still be felt today, scientists say. 

The Virginia impact site, called the Chesapeake Bay Crater, is the largest known impact site in the United States and the sixth largest in the world, said Gerald Johnson, professor emeritus of geology at the College of William and Mary in Virginia. Despite its size, clues about the crater weren't found until 1983, when a layer of fused glass beads indicating an impact were recovered as part of a core sample. The site itself wasn't found until nearly a decade later. [When Space Attacks: The 6 Craziest Impacts]
The comet or asteroid that caused the impact, and likely measured 5 to 8 miles (8 to 13 kilometers) in diameter, hurtled through the air toward the area that is now Washington, D.C., when it fell. The impact crated a massive wave 1,500 feet (457 meters) high, researchers said.
Though the impactor left a crater about 52 miles across and 1.2 miles deep (84 km across and 1.9 km deep), the object itself vaporized, Johnson explained.'
"I'm just sad we can't have a piece of it," Johnson said in a statement.



This poem is entitled "I Missed Hearing it Ring":

Large GM bond deal, sold by investment grade desks hours before moody's upgrades;

Chrysler files for ipo;

I missed the bell to sell autos.



 Charles Dow used to counsel that no individual should ever be promoted if they hadn't made a large error at some point. Phil Fisher used to insist only in investing in those stocks that had management teams willing to make big mistakes. If they didn't make mistakes, they wouldn't also take the risks required for success. Is this the essence of success? How does a corporate management team, upon the fruition of such errors, survive being "stopped out" of their positions in today's hair twitch paradigm? Is being expropriated from your career rather than your capital not the bigger risk today? And thus can it only be stocks with founder, family or veto shareholdings that make for truly great growth stocks today? Should not Tim Cook undertake an LBO with the Qataris?

anonymous writes:

Does modern risk management preclude financial Darwinism?

Steve Ellison writes: 

Having worked in the technology industry, it has long seemed to me that many companies are never again the same when founders are replaced by "hired gun" CEOs. My best guess on why this might be is that hired managers don't fully understand non-financial aspects of the founders' visions that prove to be critical to success. As I posted in 2010, this study found that founder-led companies outperform others:

"Eleven percent of the largest public U.S. firms are headed by the CEO who founded the firm. Founder-CEO firms differ systematically from successor-CEO firms with respect to firm valuation, investment behavior, and stock market performance. Founder-CEO firms invest more in R&D, have higher capital expenditures, and make more focused mergers and acquisitions. An equal-weighted investment strategy that had invested in founder-CEO firms from 1993{2002 would have earned a benchmark- adjusted return of 8.3% annually. The excess return is robust; after controlling for a wide variety of firm characteristics, CEO characteristics, and industry affiliation, the abnormal return is still 4.4% annually. The implications of the investment behavior and stock market performance of founder-CEO led firms are discussed."



 (With apologies to Gerry Rafferty/Baker Street)

Winding your way down on Taper Street
Light in your head and dead on your feet
Well, another crazy day
You'll drink the night away
And forget about everything
These Fed announcements make you feel so cold
They've got so many people, but they've got no soul
And it's taken you so long
To find out you were wrong
When you thought you knew everything

You used to think that it was so easy
You used to say that it was so easy
But you're trying, you're trying now
Another year and then you'd be happy
Just one more year and then you'd be happy
But you're crying, you're crying now

Way down the coast they're shutting down the place
They close the door, they put a frown on your face
But they ask you where you've been
You tell them who you've seen
And you talk about anything
You've got this dream about buying some puts
But what to do while the flexion loots
How can you settle down
In some quiet little town
And forget about everything

But you know they'll always keep talking
And you know it's you they will be stalking
'Cause they're breaking, they're breaking bones
And when you wake up, it's a new morning
The sun is shining, it's a new morning
But you're not, you're not going home



 I heard an interesting economist speak recently regarding currency and in particular what is required to be a Reserve Currency. There are three important requirements. First, the currency must float freely. The world won't hold a currency that is incorrectly priced. Second, there must be an active and legitimate bond market to set rates of interest. Third, and most interesting to me, a strong navy. In global trade there is an implied guarantee that goods held in a Reserve Currency will reach their destination unharmed. That is not to say a global Reserve cannot change, it just requires some doing. British Sterling met those standards in the 19th century, when she ruled the seas. Not so now. At present the Chinese Yuan is deficient in all three, the Euro is lacking in one. 



Could it be said that flexionic involvement is high at the initial or embryonic stage of particular markets, depending on the ruling ideology of the governing country only to flatten out as a market's liquidity and usefulness as a risk tool becomes greater, and then moving again to greater insider activity as the market becomes larger than life, and a driver rather than a passenger.

Also, what are the purest exchange markets to trade?



Is there a better way to map time-series data to reflect the (presumably) non-linear perception and memory of market events?

Log transformation of the price axis seems a reasonable approximation for reaction to price. But what about transformation of timescale as well? How long do significant market events influence current judgement, how are they weighted, and at what rate does this influence fade in comparison with recent events?

Let's assume that traders are not influenced by events more than 1600 trading days ago. SP500 daily return 1960-present was log transformed:

lnRET = ln (today's close / yesterday's close)

These traders care more about recent events than past events. Partly because memory is not conserved, and partly because many processes in the biological world are more logarithmic than linear (eg visual and auditory dynamic range). "Countback days" are simply the count of days from the present to the past, from 1 to 1600. Weighting consisted of scaling each day's lnRET by it's respective ln(countback day)

Current "return perception" of SP500 is the sum of 1600 prior lnRET values, each weighted by ln(countback day):

Current return perception = sum (1-1600) {lnRET/lncountback day}

This process was repeated back in time, starting from March 2013 to Jan 1960 (attached)

current transformed perceived return = sum (lnprice/lncountback days)

The chart of current return perception shows an all-time peak in year 2000. There were large amplitude variations in the 1970's-1980's, then in the early 90's return perception took off. In terms of 1600 day perception, the 2001 bear market never fully recovered, and the 2008-09 decline appears similar to the bear market ca early 1970's.



 Cyril Burt was very competitive at the age of 85 with the Wisconsin identical twin studies. And whenever the authors came up with a larger sample than his, he liked to add one or two sets of identical twins to the sample.

It was very hard to redo all the factor analysis by hand and he might have used some of the same numbers, but it didn't change any of his conclusions (i.e. that identical twins on almost all measures were about as different as testing the same person twice).

He was very courtly and liked to hold the arm and walk all attractive females to the subway at the age of 85.

The Fed announcement is a horse from the same garage. Never to be upstaged.



 You have to admit that it's amazing to see gold go up 4 1 /2 % or $ 63 in 3 1/2 hours on a delay of the tapering by a few months. Since gold has been around for thousands of years, and is a store of value, a useful commodity, and an inflation hedge, you would think it had more of a base of operations that it seems to have.

Craig Mee writes: 

Is this Fed move a culmination of all the bailouts since '97, a pinnacle of their "success"? Can their position be deeper or more all in. Is it a total disruption of market ebbs and flow or just another ebb and flow? Along with major bank or other insider plays (has this got larger in itself over the period?), where is it going for asset prices from here? Is gold up large with equities a vote of confidence for equity traders or just the opposite…



 It is important not to get jaded in trading. Two incidents alerted me that I may be further along that path than I thought.

1. Sometimes if you go for a drink in say Mayfair or the City, in rather busy circumstances you will find someone next to you reading the paper or a book with their pie or pint. It is sometimes my suspicion that such individuals are in reality ear-wigging for sensitive information. Although there are people who enjoy a pint with the paper alone, when you look at their dress/phenotype, time of the week/day, etc. it often doesn't seem to fit.

2. Upon seeing that someone had been mugged and stabbed in Brixton for their copy of computer game GTA 5 — a copy they had somehow gotten just before the premiere store release - my first thought was that it was a PR stunt.



 Can anyone explain to me why counting matters anymore?

I asking seriously and without disrespect.

How can one "count" for what happened today? Is there some sort of "the market is up 37 out of the last 42 full moons" question/equation that would lend one to believe that the the 2 pm rocketing of the market was going to occur?

Maybe there's some other form of analysis that we can do to have an edge?

What about fundamental analysis?

What about technical analysis?

What about astrology?

Palm reading?

Maybe I should convert Scientology and see if the Thetans give me any insights?

I firmly believe that the government (and let's be not pretend that the Fed is not the government) and politics are driving 98% of what happens in the markets now.

This is a BS market.

Ralph Vince writes: 

It's a GREAT market.

At the risk of being a blasphemer, my interest in market analysis is an academic one. My implementation, devoid of my personal academic failings. That is……buy low, sell high, and at the same time, sell high something else, to buy it back lower.

You should never have a move like this go by without taking a profit on something.

Yeah, I take a lot of disparagement over my bullish stance on the markets here, as I do thinking the Miami Dolphins will be Super Bowl Champs this year. I have no skins in either game you see.

Gary Rogan writes: 

If you invest long-term in good companies you don't have to be hurt and/or left out of the steady progress of the market regardless of any of this.

If you enjoy this n-dimensional game of chess than you should be like the Palindrome: smart, totally cynical and totally connected.

Ralph Vince responds: 


But the premise of buy and stay long HAS worked only because we have been in a bull market since forever. Every high of the past couple hundred years has been exceeded — long term bull market (for whatever reason).

That is a bet on that continuing.

Gary Rogan replies: 

Ralph, but didn't Victor publish some whole-world stock data from Dimson, I believe it was, that showed steady progress? Isn't it the expectation for the previous highs to be eventually exceeded simply from the nature of the beast and not being a a "hundred year long bull market"?

There are really only three risks for a diversified stock portfolio:

-Geographical concentration risk (including where the owner lives so that he can actually access his money if it hits the fan)
-Unprecedented worldwide collapse
-The future being TOTALLY different from the past in this area

Otherwise it's steady progress all the way to infinity.

The three risks are unquantifiable, but seem better than being able to outwit the flexions day-to-day.

You pays your money and you takes your chances.

Ralph Vince adds: 

The thing is, this isn't a big move up.

When the rain comes, it washes everything away in a hurry. Weeks worth of advance vanishes in minutes.

I don't recall, in my lifetime, a setup for liquidity disasters like we have under us here, and when this goes, it will vindicate any shorts you can hang onto.

Gary Rogan writes: 

Ralph, why would all this extra liquidity resolve itself by the stock market collapsing in a spectacular fashion as opposed to say (1) Sudden high inflation perhaps followed by hyperinflation of the economy improves, and the stock market losing value in inflation adjusted, but not absolute terms (2) Or a multi-year stagflation period with the economy not doing well in some middling fashion and with the stock market slowly drifting down or simply not rising (3) Given that we will have this extra liquidity for quite some time now, evidently, based on the recent Fed personnel developments and Ben's short term and new-found caution, a liquidity withdrawal quite a few years from now, making any shorts in the meantime unfeasible, even if there is an eventual collapse?

I really have no idea what will happen if there is a bond vigilante battle royale against the Fed and it's printing press, and clearly bonds cannot be a GREAT investment at this point, but how can you be even reasonably certain that there will be a stock market collapse unless there is an overall economic collapse (which is reasonably likely, but will make profiting from the shorts a moot point)?

Mr. Kris Rock comments: 

Counting is a discipline…like belonging to the mormon church is a discipline…

Ralph Vince writes: 

I think people look for "causes" (du jour) to explain market moves. Right now, the story is QE, and it sounds plausible, but the story always sounds plausible, but it is always a very, very specious causation there.

We're talking about equities. Puffs of smoke that only have value because people day they do, right now, that the value is X. And that is only because they don;t have something shiny elsewhere to put their money. Equities are an easy place to park money.

But they have the same value as puffs of smoke, and when we forget that, the market has a cruel way of reminding us.

Gary Rogan adds: 

The future is fundamentally unpredictable: no amount of past experimentation or data can preclude some fundamental parameter of the system changing and invalidating all the statistical evidence. We don't seem to have a choice in having to rely on the past to the extent that we understand it and extrapolating in the future. But what if a parameter like the unprecedented rise of the national debt in peacetime or the rise of socialism or the changing demographics flips the long term growth rates in profits? Or the reduction in de facto property rights or the rise of flexionism make it impossible to realize gains? I don't think there is an answer other than overall we have evolved to take the past as a consideration for the future, so we might as well stick with it for the lack of a better alternative watching out for the changes in the parameters where we do understand the causal relationships as well as (and particularly so) for contradictions.



 Next year, on this day, will be the 150th Anniversary of the "Battle of Flat Rock" in Oklahoma. That is how the wiki biography of General Gano describes it. The State of Oklahoma, to its credit, remembers it as the Hay Camp Action.

In their raid into what later became the State of Oklahoma Gano's Fifth Texas Cavalry Brigade and Stand Watie's First Indian Brigade (together, about 2300 men) found a foraging party of 3 companies of Union soldiers. They were cutting hay for the mules and horses of a large supply wagon train. At full strength 3 Union companies would have been 300 men; but it is likely that the 3 companies had no more than a hundred fifty men among them. (By 1864 the average size of a Union Company was 23 men.) The Union soldiers surrendered and 85 of them were taken prisoner; the rest were murdered because they had black skins.

Neither the Oklahoma State Sesquicentennial site nor Wikipedia article on Gano even touches on the truth of what happened in Wagoner County 151 years ago today. The article on General Stand Watie does acknowledge what happened but (surprise, surprise) leaves all the blame to be shouldered by the Cherokee and their Indian allies.

For the Federals the Civil War was never, even at its end, about abolishing slavery. Lincoln's words that we are all taught to revere - "Four score, etc." - were an embarrassment to men like Sherman and Sheridan, who never considered African-Americans to be capable of being or becoming their equals; and those men (and women) were always the large majority of Northern opinion. Even Grant, who had no doubt about blacks and (even worse) Indians deserving the natural rights of all citizens, thought Lincoln's words were stupidly sentimental and insulting to the citizenry. (How could Lincoln say that the nation needed a "new" birth of freedom when it had been the free choice of men to serve in the Union Army that had preserved "government of the people, by the people, for the people"?)

Yet, by 1864, even Sherman and Sheridan and almost everyone else in the western Union Armies who shared their opinions about the Negro inferiority had become "hard" on the subject of full abolition — i.e. the adoption of not only the 13th but also the 14th Amendment. They had seen too many "battles" like Flat Rock to have any other possible opinion.



 Hot off the press from the journal Neuron is "In the Mind of the Market: Theory of Mind Biases Value Computation during Financial Bubbles." Despite the extremely small sample size in this research, my wife will fervently agree with the conclusion that "abilities that are normally beneficial in social settings can result in unproductive behavior in financial markets."

The article is suggestive that medication and electroconvulsive therapy may improve one's P&L…


The ability to infer intentions of other agents, called theory of mind (ToM), confers strong advantages for individuals in social situations. Here, we show that ToM can also be maladaptive when people interact with complex modern institutions like financial markets. We tested participants who were investing in an experimental bubble market, a situation in which the price of an asset is much higher than its underlying fundamental value. We describe a mechanism by which social signals computed in the dorsomedial prefrontal cortex affect value computations in ventromedial prefrontal cortex, thereby increasing an individual's propensity to 'ride' financial bubbles and lose money. These regions compute a financial metric that signals variations in order flow intensity, prompting inference about other traders' intentions. Our results suggest that incorporating inferences about the intentions of others when making value judgments in a complex financial market could lead to the formation of market bubbles.



Attached is a weekly chart of CSI300 index (representing 300 large stocks on Shanghai and Shenzhen exchange) from January 2007 to now.

Would anyone call an upcoming bull market from this?

Perhaps the chart is not too obvious yet. Fundamentally, it is true that many foresee a slowdown in GDP growth in the coming years. But what is important now is that people can anticipate some structurally healthy growth. And this is very different from the past 5 years when the growth seemed high but the market mainly saw it as unhealthy and stayed essentially hopeless. The new government seems to deliver a lot more confidence to the market with a new direction for the economy.

Any thoughts?

Bill Rafter writes: 

One suggestion I have is that you ask yourself two questions:

1. Consider the participants in that market; what time frame do they typically observe in terms of long term perspective (i.e. lookback period), and

2. How frequently do they watch the market?

The reason to care what others do is because they are your competition. The money you make, you get from them. Thus, know them!

Point #1 may also be related to taxation. Is there a period of time in China such that if a position is held that long it qualifies for a tax break? In the U.S. that means it qualifies as a "long term capital gain" with a significantly reduced amount going to the confiscatory government.

If there is no such period, then it's nice to see history going back to 2007, but it is irrelevant to what is happening now. However it is good to have history as you can easily see with a visual how a market behaves with the signal process you use. You should statistically test, of course, but a quick look is valuable. (Tukey said so, and he is a god in this area.)

Thus your window of observation for decision making (as opposed to history) should not go back perhaps more that 50 percent greater than the period identified in point #1. In our case (in the U.S. with equities), we do not look back farther than a year and a half. Frequently as little as four days.

Point #2 is the shorter end. If everyone watches the market every day, then by limiting your snapshots to weekly, you are discarding valuable information. Ask yourself, "Why would you ever want to eliminate valuable data?" You would not do that with a neural net, so why do it with real intelligence? Some would posit that weekly information (data or charts) eliminates some noise. However we would argue (and have demonstrated) that it is impossible to separate signal from noise. Specifically I would suggest that if someone gave me what they considered noise, I could find some signal within. It may not be the best example of signal, but it's in there.

Leo Jia adds: 

Thank you very much, Bill, for the precious advice.

There are a couple reasons for me to have attached the weekly chart starting from 2007.

1. I look for a possible multi-year bull market, and for that to me the trend looks clearer on the weekly chart.

2. One key reason for the past few years' laggard market, aside from those fundamental reasons I outlined, is the bull-run and crash in 2007-2008. The bull-run was solely due to the government reform initiative in the stock market which tried to ensure all shares (government shares and floating shares) to be equal. The crash then was mainly due to market suspicion that the resulting floatable government shares would subsequently flood the market. Now 5 years over, the flooding of the government shares, if that happened indeed, is likely to have settled down.

To answer your two questions:

1. There is no tax incentive in China encouraging people to hold longer. Holding period are generally much shorter. It can be as short as a few months for funds, and as short as a few days for individuals.

2. Most participants watch the market everyday.

Perhaps one thing different in China's market is that large market movements are all initiated by government policies. Market enthusiasm are only summoned when the imagination of a government direction as positive.

I am not a government analyst, but traditionally, each government in its 10 years tended to create at least one big upward move in the market. Looking at this government, its initial months already showed signs of its focus on finance (along with new direction on economy). The recent launch of bond futures is one such key move.

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 How do you solve a problem like stocks

It climbs to a high but opens down

But it's Fed day and it likes to tare up

It whistles at the star of 1700 and its been up 11 days in a row

The Dax is singing in the chapel

How do you catch a cloud and pin it down.



It is interesting to reflect that out of 37 open market meetings since the beginning of 2009, 11 have closed the day before at a 20 day high versus just 3 at a 20 day low. That might seem unusual without the knowledge that since 2009 there have been 292 separate 20 day highs and only 95 20 day lows. Thus 25% of all days have been at 20 day highs since 2009 but 30% of the open market day precedings have had that honor. A most insignificant but interesting difference and framework. 

Jeff Rollert writes: 

I had a long discussion about this with someone internally yesterday.

Writing and "doing" concurrently in a team is a very difficult organizational exercise, as ideas and implementation folks have different time frames frequently. I've seen similar dynamics with pilots and racing skippers with their navigators.

Steve Ellison adds:

I found that even talking about my trades introduced subtle motivations that I did not believe to be performance-enhancing.



This is a great TED talk on "How to Make Stress Your Friend":

Stress. It makes your heart pound, your breathing quicken and your forehead sweat. But while stress has been made into a public health enemy, new research suggests that stress may only be bad for you if you believe that to be the case. Psychologist Kelly McGonigal urges us to see stress as a positive, and introduces us to an unsung mechanism for stress reduction: reaching out to others.

To your health!



 When leasing villas it has been my experience of late that the new ones built for a song, with little attention to detail but with a swimming pool and the latest trendy look, go for greater money, even when the land is smaller which usually entails higher perimeter walls with minimal outlook and next to no seabreeze. However if you get a house with no pool, you can usually get very good value for your money, larger land, outlooks seabreezes, etc.

I would say the same may be true in different market sectors. The stars may be the attention getting companies with the largest bright lights, but greater value may be in the old school where you have to look past the latest bells and whistles and the hype.



In most of the asian hoplologic arts, footwork forms the core of basic work for the first few years. The objective is to get the novice to unconsciously transfer his weight and blend it with his forward momentum when emmitting knock-out power.

Classic case in hand is the Indonesian martial art called ‘Silat’ which uses triangular footwork to advance, sidestep, enter into the opponents space from a diagonal angle and retreat. At higher levels, the use of leverage on the opponents ankle/knee/hip come into play, thereby destroying his base even without the use of hands.



 Bo Keely writes: Shay picked up my piece about Elvis in his Chicagoist column. Here's Shay's piece, and mine is in the post below.

Elvis walloped the ball around the court like he was strumming a guitar for the fun of it. He looked like he was on stage except with the racquet , the moves in the court comparable to his gyrations onstage , and to work the audience with his physical performance. His guitar became more of a prop, and so did his racquet.

(Elvis's eminence grise Colonel Parker wouldn't let him be photographed on his beloved private court because his flab would shake, rattle and roll to his PR disadvantage.)

Elvis and his Memphis Mafia loved the sport. E's main contenders at Graceland were touring pros: Davey Bledsoe, National Champ in 1977, an old pal of mine who worked with me and his own Nikon behind the then-new glass windows I designed for the sport; Randy Stafford, the Intercollegiate Champ and also a touring pro and Tennessee State champ; Mike Zeitman, three-time National Doubles Champion with three different partners; David Fleetwood, National Collegiate Doubles Champion who never ranked out of the top 16; and Elvis's sports physician, Fred Lewerenz, who was in the Michigan Racquetball Hall of Fame and had two years on the Pro Tour.

Other members of Elvis's Racquetball Mafia: His bodyguards Red and Sonny West; actor Dave Heble;, harmony singer Charlie Hodge; and road manager Joe Esposito. Friend Linda Thompson also played. Not a bad support group for a middling player .

Elvis was introduced to racquetball in 1968 by his then-physician Dr. Frederick Nichopolos, who told Keeley that he had started playing in 1955 at the Nashville Jewish Center by sawing off the handle of a tennis racquet. The doc coached his son Dean and a few other beginners, then moved his practice to Memphis in the mid 60's and coached Dean in his partnership with young Marty Hogan (who would become the sport's Babe Ruth and all-time highest money-winner. And a good friend and co-author of mine who helped get me into the Racquetball Hall of Fame recently for my pioneering photography that helped make the sport international.) When "Dr. Nick" began treating Elvis for saddle pain from his motorcycle riding, this blossomed into a lifelong friendship during thousands of racquetball games."

I'll spare you the almost infinite loving detail of Keeley's account, which will probably become a book, except to share some of the Elvis racquetball mystique:

Elvis wore white tennis shoes , shorts and huge safety goggles. White headband and white glove. He played day and night before heading out into the dark streets of Memphis and, presumably, its fleshpots. On his motorcycle, with his bodyguards and the Mafia in sidecars, they hit movies and nightclubs. The week before going on tour Elvis wore a rubber suit with tight wrists to sweat off five pounds. Bledsoe said he thought it would help him look good for his fans.

He had a strong forehand as an extension of karate, a standard club backhand. "To be honest," Davey adds sadly, "he wasn't much of an athlete. He just wanted to move around and get some exercise." He did love the game and ended up building a $250,000 court in back of Graceland. Bledsoe sadly compares Elvis's racquetball to his own singing voice: "Horrible."

Steve Smith adds: "Elvis loved the game like he loved Gospel—he just belted it out." He never played "on the road." The fans would've mobbed the courts.




 Elvis walloped the ball around the court like he was strumming a guitar for the fun of it. He looked like he was on stage except with the racquet, the moves in the court comparable to his moves on stage, and to work the audience with his physical performance. His guitar became more of a prop, and so did his racquet.

Elvis Presley and his Memphis Racquetball Mafia loved the sport. E's main contenders at Graceland were touring pros Davey Bledsoe (National Champion 1977), Randy Stafford (Intercollegiate Champion and touring pro), Steve Smith (Intercollegiate and Tennessee State Champion 1975), Mike Zeitman (Three-times National Doubles Champion with three different partners), David Fleetwood (National Collegiate Doubles Champion and never ranked out of the top 16), and Dr. Fred Lewerenz (Elvis' sport physician and Michigan Racquetball Hall of Fame with two years on the pro Tour). Other members of the racquetball group were the bodyguards Red and Sonny West, actor Dave Hebler, harmony singer Charlie Hodge, and road manager Joe Esposito. Linda Thompson also played.

Elvis was introduced to racquetball in 1968 by his physician, Dr. Frederick Nichopolos, who told me, 'I started playing racquetball in 1955 at the Nashville JCC by sawing off the handle of a tennis racquet. That is just five years after Joe Sobek is credited with inventing racquetball in Connecticut. I showed Paddle Rackets, as we called it, to young players with ambition and talent, and then in the mid-60s moved the game with my medical practice to Memphis, and was still looking for young talent to coach.' Dr. Nick also taught his son Dean to play, who soon teamed with a young Marty Hogan in a Junior National Doubles. Dr. Nick began treating Presley in 1967 for 'saddle pain', and a year later prescribed racquetball. That blossomed into a lifelong friendship lasting thousands of racquetball games.

Elvis wore white tennis shoes, shorts, and his safety goggles which were huge because Dr. Nick didn't want anything to happen to his eyes. His headband was white and he always wore a glove. He played daily, or nightly before heading out into the darkened Memphis streets on motorcycles with the bodyguards and the Racquetball Mafia in sidecars to movies and nightclubs. 'The week before going on music tour, E wore a tight rubber suit with tight wrists to sweat off five pounds per racquetball session to look good to the fans on tour,' describes Bledsoe. 'He thought a quick weight loss would make him look better.'

He had a strong forehand as an extension of karate, a standard club backhand, and hit the gamut of serves. The sport was a workout and a release from the pressures of being the King of Rock and Roll. 'To be honest, Elvis wasn't much of an athlete,' Bledsoe recalls. 'He was very rigid. He just wanted to move around, get him some exercise. He'd get in the court and bang the ball around. I'd try to teach him the rules or orchestrate a formal match, but he wasn't much interested in that. He did like the game though, and wound up building a $250,000 racquetball court in back of Graceland.'

David Fleetwood compares Elvis' game to his own singing voice. 'It was horrible! He was a pro singer and I was a pro player. But E loved the sport and that's what muttered.' 'He got a couple points most of the time,' hints Bledsoe, 'And once he got eight on me to 21.' Fleetwood says, 'I tried to give E the Donut (zero points), and sometimes did, but against Linda Thompson, who cares?' Steve Smith chimes, Elvis loved the game like he loved gospel, just belted it out.'

Dr. Fred Lewerenz of Michigan concurs. 'Elvis loved to play the sport. He was a club player, a C with a higher level of pleasure. We played a lot on the Graceland court. Elvis loved the game but not for the same reasons as others. He just liked to hit the ball. He was competitive and emotional. His forehand was good, and his backhand was sufficient to just hit the ball around and have a good time in a workout.' Lewerenz had become Elvis's sport physician by a quirk. 'There was a racquetball tournament in Memphis that Dr. Nick played in before we got to know each other. During a match he injured his back and the back of his leg, and the call went out, 'Is there a doctor in the courthouse?' It was the kind of injury that was difficult to self-treat. I worked on Dr. Nick's back and leg in the training room for forty-five minutes, and he seemed pleased. Two weeks later, I got a call asking if I wanted to be Elvis's sport physician.' Dr. Lewerenz won 140 tournaments overall, and played on the IPRO tour as did the rest of the pro Racquetball Mafia I from 1975 to 1976 Elvis didn't attend any tournaments outside Graceland. 'It would have been mayhem with the fans, tells Smith. 'We didn't throw any tournaments at Graceland either, just fierce competition among the entourage and visiting pros. The best player at Graceland after the pros went home was bodyguard Red West who fell just short of Open play. Dr. Lewerenz describes Red as a 'great athlete who brought those talents to the court.' Yet, if they wanted to, the pros could hold any Graceland bodyguard or musician to under five points, but didn't because the purposes were exercise, coaching and fun. 'I once challenged seven of E's bodyguards to one game to 21 for $100 per man,' relates Bledsoe. 'It was against Red, Sonny, Dave Hebler, and others. I played with an antifreeze bottle and they used their racquets. I went home that morning with $700.'

 Racquetball boomed across the nation from 1975-6 as Bledsoe and the others 'ran' with Elvis at Graceland, and riding the night streets of Memphis on motorcycles with sidecars. Memphis was the second racquetball capital (after San Diego) of America. Dr. Nick knew Jerry Lee Lewis and got his DC-3 14-seat plane to fly the Racquetball Mafia to the Atlanta Southern Regional. The group included Nick and his son Dean, Stafford, Bledsoe, Zeitman, Smith, Steve's brother Stuart, Jack Fulton, Gary Stephans, Larry Lyles, IRA President Bill Tanner, and pros Sarah Green and Steve Strandemo. 'Elvis didn't go because he was mobbed wherever he went outside Graceland, and besides, the tough old geezer Colonel Parker wouldn't let him out to play in tournaments,' amends Fleetwood. Randy Stafford remembers, 'Our plane was an old DC-3 with twin engines, and the interior had captain's chairs and couches around. It sat about 14. Under the center table used for drinks was an 8-track tape player that was huge, and next to it a file of 8-track tapes. All of them were Jerry Lee Lewis tapes, and we partied to his songs all the way to Atlanta.' Zeitman agrees that it was a unique way to travel to a Regional, and that the old DC-3 could have been the same Jerry Lee Lewis 14-seat DC-3 that, in 1985, Ricky Nelson's pilot radioed again, 'Smoke in the cockpit!' Then the plane disappeared from radar. The DC-3, previously owned by notorious widow-maker, Jerry Lee Lewis, crashed, killing Nelson and the entire band.

The 'star' pro with the most access to Elvis Presley was his wardrobe manager and Tennessee State racquetball champion Steve Smith. Steve had grown up best friends and playing racquetball with Dr. Nick's son Dean. Steve had seen me pull up to a Tanner IPro Memphis stop in 1975. 'You were in an old van with a beat up bicycle strapped to the back that you rode to the tournament instead of driving like everyone else'. I recall Steve as slight and as quick as a deer, always a threat to upset me by his pure athleticism. Brumfield too had played the smooth Southern mover 'without a backhand.' Following one of their matches, Brum quickly corrected the backhand, if not by Christian charity then by rubbing salt in the wound. 'After the match,' continues Smith, 'Outside the court we made up and were surprised to find that each of us professed to be a golfer. 'I don't believe it,' we said at nearly the same time. Then Brumfield told me, 'Steve, all your backhand needs is to swing like it's a golf club. Keep your elbow close to your body, and you'll get control. When the elbow is tight to the body the forearm and wrist don't waver, and your control increases substantially.' It worked, and later in the year he took #3 Steve Serot down the wire before losing by four in a 21-point tiebreaker.

 Charlie Brumfield in 1975, on the dual pro circuits, picked up multiple national titles including the NRC Pro Singles, IRA/IPRO Singles, IRA Doubles with Craig McCoy, National Outdoor Racquetball Singles, and Outdoor Doubles with Steve Serot. He toured with a dedicated contingent of shouting, drinking Brum's Bums, even as Elvis maintained the equally rowdy Memphis Mafia of bodyguards, musicians, girlfriends, and pros. The associates were there for camaraderie and also filled practical roles. Brumfield had a designer of signs and monogrammed shirts, plus a wine fetcher, and E had his bodyguards, road and stage managers, and 'floaters' like Steve Smith who produced whatever was needed on the spot. In each case, after the tournaments and music gigs ended there were enough people to party deep into the night. Brumfield, the King of Racquetball, and Elvis, the King of Rock, surrounded themselves by these supporters who truly cared for them, and the Kings cared back.

I was Brumfield's popular nemesis and complimented him that his Bums looked like the stinking winos I saw on skid rows. Colonel Parker said the members of the Memphis Mafia (excluding the pros) looked 'like a bunch of old men.' The Colonel wouldn't let the pros take pictures of Elvis, and tried to pen him up in six-star Graceland whenever there wasn't a music tour. 'Colonel Parker was sharp, shrewd, and merciless'' accuses Smith. 'No, he didn't play racquetball. If it didn't pay, he didn't play. Yet, Elvis owned Parker, not the opposite.' In one deal reported by Bledsoe, 'Dr. Nick, Elvis, his guitarist Joe Esposito and I were breaking ground on Presley Center Courts with plans to build an American chain of clubs starting in the Southeast. There were already a few clubs in Nashville and Memphis when Colonel Parker made us take E's name off of it. He had all rights to Elvis' name. Parker was a greedy old bastard!'

'Yes,' agrees Steve Smith. 'The Colonel was selfish and took half of everything Elvis had. Ultimately, I hold him responsible for E's death. My roots with Elvis run pretty deep. I grew up best friends with Dean Nichopolos who was Dr. Nick' son. Dean and I were like brothers. Dr. Nick taught all of us to play racquetball: Dean, Elvis, me, the bodyguards, and he coached many of the Memphis to-be pros. Dr. Nick became E's personal physician in 1968, and two years later Dean and I moved to Graceland and lived there full time with a group of about six others that were the core of what the press smiled when they called us the Memphis Mafia. I was a 'floater' at Graceland, helping Elvis with whatever he needed, and playing racquetball with him and the group of bodyguards, musicians and actors. I was with Elvis from 1970 until three months before his death in 1977.'

Memphis and San Diego were the two warring racquetball capitals during the Golden Decade, clear across a country of crazed Elvis, Disco, and racquetball fanatics. Racquetball was the fastest growing sport in the world. Before the Graceland court opened in 1975, the Memphis Racquetball Mafia worked out at Memphis State, the Memphis Athletic Club, and a single court facility that may have been the model, as well as the impetus, for the eventual construction of Elvis' private court at Graceland. For there was another man about town who was as moneyed as Elvis, with nearly as much clout, and adored the sport of racquetball just as much. Bill Tanner in 1975 was called 'the most prestigious man in Tennessee' by the press that he controlled. He was one of Memphis' most prominent businessmen and racquetball promoters who had a court on top of his 7th story office building on Union Avenue Extended. Elvis and his group played there often because it was private, and Tanner would open up at night. I was up there once on the outside running (18-laps to a mile) track around the outer perimeter of the top floor where the sliding glass doors of Tanner's office opened to a panoramic view of Memphis, as joggers swept by. We had climbed, each by habit, the couple hundred stairs to the top track, and then Tanner swept his hand down across the city offering, 'The key to the city is yours, Keeley, if you play ball with the Tanner team.'

 William B.Tanner was the President of the International Racquetball Association (IRA), and had just started a competing IPro Tour that was taking the whack out of the National Racquetball Club (NRC) monopoly. Tanner brought me up here to play a game, and of racquetball, and then to make the proposition. I jumped out of the way of a jogger, returned to face Bill, and told him point blank that I was die-hard Leach, the opposing tour's sponsor. 'Come move to Memphis,' he cajoled. 'Play with Randy Stafford, Bledsoe, Zeitman, Fleetwood, and see the girls. There is nothing San Diego has that Memphis does not except an ocean, but San Diego doesn't have Elvis Presley.' That wasn't true; Marty Hogan was my present roommate in San Diego, and on seeing that I was squared away, Tanner went for Hogan. 'Well, tell your boy Hogan that the same offer is open to him.' So, I missed a chance to play Elvis, but between 1974-77 I visited Memphis five times to compete against members of the Memphis Racquetball Mafia in the Tanner ProAm, and to visit the Memphis media mogul Bill Tanner.

You will never, as far as I know, see another story about Elvis in racquetball, or about the Memphis Racquetball Mafia. This is because, although it was the time of glitz racquetball, when other Hollywood, rock, and political stars made the monthly covers of the only publication, National Racquetball, in the chess game for political control of the burgeoning players, the Chicago based NRC (and close tie with San Diego Leach) put an embargo on Elvis. NRC Executive Director Chuck Leve explains, 'Elvis was Memphis and Memphis was Tanner and IRA, and well, you know the story…So we chose to pretty much ignore Elvis, although I thought whoever did the 'damage control' when he died on the court was brilliant. Elvis never was covered in the NRC magazine because the time when racquetball 'went Hollywood' Elvis would have been prime material for our magazine, however the National Racquetball Club owner Bob Kendler sensed Elvis was in the Tanner Memphis camp which was opposing our NRC pro tour with a tour of their own, so while Batman, Lana Wood, and Governor Thompson of Illinois got coverage, Elvis in racquetball remains a secret.'

Tanner, as IRA President, was every bit as tough and ruthless as boss Kendler in Chicago and Charlie Drake in San Diego. 'Tanner can't be compared to either of them,' clarifies Randy Stafford. 'He was one of a kind.' Mike Zeitman worked for Tanner from 1975 to 1978 as a media placement buyer, racquetball instructor, interim executive director of the IRA, editor of the magazine, and director of the IRA's IPRO Tour. All the dozen of top players in the city came to play on the Tanner rooftop court including Elvis and his group. Under Dr. Nick's and the pros' tutelage Tanner became what was known as a strong player without a backhand that was forgivable among open players at the time, but he was no match for Intercollegiate Doubles Champion David Fleetwood. David informs, 'I played him once and it was no fun. I was fresh out of college and had no concept at that time of how huge he was. Thus I didn't really understand the significance that everybody deferred to this guy who couldn't play. His forehand was very good, and he loved to go down the line. Considering his backhand grip, his backhand was passable. He made up for it by doing whatever it took to win. He as much as any player knew how to legally cheat. I made up for it after the match by going out to the track and shooting water balloons and racquetballs with surgical tubing made into a giant slingshot at cars below. He was sort of an A player, better than Elvis but not as good as Nick. He won when racquetball was at its pinnacle when winning was war. He would win at all costs, as an expression of his business acumen. He was a master bridge player, which is the highest category in cards, and he was out for the trump regardless of the activity… That was his DNA.'

Tanner never went half-way on a project. He owned a chain of Holiday Inns and the world's largest radio and television time-buying and placement services. In 1974 he bought the newly named Tanner Building to house the broadcasting company, and it just happened to have a racquetball court on the top floor. So, Tanner determined to learn the game and to be the best he could. Full steam ahead, he hired Bledsoe, and later Zeitman, as staff members of his company to give racquetball instruction. The fruit of it would come to bear long after Fleetwood,s display of water balloons across Memphis when, in 1980, Tanner would win that year the Tennessee state racquetball titles in masters singles, the Tennessee State Doubles Championship, the Masters Singles Championship and Seniors Singles Championship in the USRA Regional Tournament, the Veterans Masters Racquetball Championship, the Masters singles title at the Fulton Open in Memphis, and was inducted into the Tennessee Sports Hall of Fame.

Kicking back late one night after the matches at the Tanner Penthouse Suite, Elvis and the Racquetball Mafia sank into a circle of cushion chairs like tennis shoed capitalists in the large boardroom, and the King put his feet up on the boardroom table. Steve Smith who was there describes, 'Elvis put his legs and tennis shoes up on the ornate table, and someone in the group mentioned that Tanner would not like that, and he'd better put them down. Elvis didn't like rules, so he cursed a streak, and word got back to Tanner about this.' E hadn't been kicked out yet. 'But then,' rejoins Bledsoe, 'Elvis had this three-foot flashlight that he used to flash at everybody…which actually blinded you where you stood. A few nights after the boardroom incident, Tanner was in his private shower when E walked in and started shining his 3' light into everyone's face. When he shined it into Tanner's face, that was it. The irrepressible force of Elvis Presley met the irresistible object of William Tanner, and they glowered at each other. Bill's face turned purple, and he kicked Elvis the hell out.' Presley was banned from the building, and the Mafia loyally stayed away with him.'

Short one court, Nick persuaded Elvis to build one behind his house. Now, in 1975, when a cry went up in the middle of the night, 'Everybody up! Let's play racquetball!' everyone just walked out the back door and to the Graceland court. Dr. Fred Lewerenz describes, 'The racquetball building was posh. There was a viewing lounge behind the back wall glass, weightlifting gym on the same ground floor, and a dressing room and Jacuzzi upstairs. Elvis liked gold, and while the players' dressing room had standard stainless steel showerheads, the one in the King's private stall was with solid gold 360-degree swivel showerhead.' The only one he would allow in his private dressing area was Linda Thompson. 

The pros admired that the facility cost $250,000 to build, and for the times, it was a premier court. Mike Zeitman describes, 'Behind the glass wall was a sunken area with a monster curved leather couch at the wall where you could sit back and watch the games. Also in the viewing area was the biggest, most expensive stereo outfit money could buy. 

I'd never seen anything so cool.' The action inside the four-walls was like any other club, with a lounge with a bar outside where people sat and drank, watched and kibitzed, until their turn to play came up. It was simply a small club where people sat and drank, watched and kibitzed, until their turn to play came up. Some would drink beers, but the focus was on raquetball.

'When E went out in the daytime, he was touched by a thousand people,' relates Dave Fleetwood. Dr. Lewerenz started with Presley for two years at Memphis State before moving to Graceland. 'He played at Memphis State for a few years before building the court at Graceland. Most of his games were after midnight to 3am at Memphis state to avoid the mad rush of people. No one was there at night except him and whatever part of the Memphis Mafia and racquetball group that he brought. Finally, he and Dr. Nick thought it would be better to build a court on Graceland. After it was constructed he played there daily. I visited Dr. Nick often on my medical or racquetball swings through Memphis, and when the game moved to Graceland so did I on the visits. The most astounding thing about the place to me was when you walked in the front door there was an aquarium in the living room half the size of a racquetball court. It was 12' high and could have been emptied and used for squash. When we played at Graceland it still often was at night because he had become nocturnal for privacy.'

Dr. Fred Lewerenz describes, 'The racquetball building was posh. There was a viewing lounge behind the back wall glass, weightlifting gym on the same ground floor, and a dressing room and Jacuzzi upstairs. Elvis liked gold, and while the players' dressing room had standard stainless steel showerheads, the one in the King's private stall was with solid gold 360-degree swivel showerhead.' The only one he would allow in his private dressing area was Linda Thompson. The pros admired that the facility cost $250,000 to build, and for the times it was a premier court facility.

'A typical afternoon at Graceland went like this,' takes up Steve Smith. 'Everyone would be sitting around the house, and one of the group would want to motivate the rest to action, to get off our asses. Elvis or I would jump up and shout, 'Everybody out here! We're playing racquetball.' We'd play and play. We'd play for two, three hours. Elvis would laugh while he played and have a good time just blasting the ball. Then we'd shower up, and someone would yell, 'Hey, let's go to the movies. We'd get on the motorcycles and six or eight of us would ride downtown to the Memphian or two other theaters that Elvis liked. It was crazy, night after night. One evening I sat between Eric Clapton and the King who he'd come to pay his respects to. That's when the movies were still reel-to-reel.'

'The next day it was the same, but always a bit different. There would be a new rock star visiting the House. Different doubles teams. Elvis played racquetball when it struck him, which was usually a daily dose when we weren't on tour. The road trips were two weeks on, and two weeks back at Graceland. On the road, Dr. Nick sometimes found a private court for us and the bodyguards to play on, but not Elvis. Each concert was like a championship performance. Elvis the same energy into performing that he did racquetball. It was all out, and he'd come off exhausted. On tour he loved his fans and never wanted to disappoint them. You are guaranteed the last drop of sweat from Elvis Presley will be on the stage by the end of the concert, and the same when he jammed on the racquetball court. After the concert he'd go back to the hotel suite and just sit down in a cushion chair and pass out, he'd worked so hard. At Graceland, after a racquetball session it was the same thing. We'd leave the court and go to the lounge in the racquetball building, and relax. Relaxing there means that half of the group was 'old school' that didn't understand the 'new school', but we all sat together for an hour and a half, two hours… then someone would leap up and call out like a coyote to energize everyone, 'Let's go!' Usually it was dark by then, and we'd go out.

'How he played! He had a mind of his own. He had a big forehand and moved around the ball to hit with it. He liked the intensity of being in four walls for sport. He let go, and could have a blast,' observes Smith. In the early 70s, Elvis used the Ektelon Muehleisen racquet because it was the best at the time, and the connection was that Dr. Muehleisen had given Dean Nichopolos racquetball lessons. Elvis could hit with the Muehleisen model. It wasn't until about 1974 that Charlie Drake at Leach sent him a green Leach Serot and a pair of sweats with Elvis' name embroidered across the back, and from then on, he used the Serot model. He was in good shape, but got on the court in the Leach sweats or a rubber suit to sweat off about five pounds a workout for his fans on tour. Davey Bledsoe was the player rep for Leach at the time, and Drake had told him, 'Anything Elvis wants, he gets.' Elvis was playing his best racquetball from 1974-6 when the pros were stopping by, and he was enjoying the game nearly daily when we didn't leave for two week music tours.'

By 1976, physician and friend Dr. Nicholoupos had been living part-time at Graceland for over a year since the court construction. Out of the blue, Elvis suggested, 'It's time to build your 'dream house'. Construction got underway immediately at another location by Steve Smith's father who owned a construction company, and, of course, the building plan included a racquetball court in the back yard. Dave Fleetwood evokes, 'Elvis and the Memphis Mafia would drive up on motorcycles to the site while the house was being framed to make sure all the nails were straight. Once we were playing a flag or touch football game in the front yard when the King and a dozen others drove up on big Harleys. They took off the helmets, all their hair flew out, and suddenly they became recognizable as the Memphis Mafia. Steve Smith adds proudly, 'You know who played quarterback? – Elvis. You know who he threw to? – Me.' Dr. Lewerenz reminisces, Elvis helped Nick financially to build the dream house. One day Presley arrived during the laying of the racquetball court foundation with fists full of gold coins. I was there. They put a few dozens of gold coins into the foundation of the court!'

The pros, like Presley, pour out accolades for Dr. Nick as a player, doctor and friend. I personally knew when we met at a Tanner IPRO stop in Memphis that he was the Johnny Racquetball Seed of the South, and he knew my reputation from The Complete Book of Racquetball as the game's unofficial laureate. He was an A player of the time, an even better coach, and a hands-on promoter of the spot. The group called their patron the Silver Fox, due to the silver- not gray- hair, and because he hit shots like a fox. 'The Silver Fox was shifty, and you never knew where his shots would go until after they were hit,' guesses Stafford. Dave Fleetwood comes from a family of medical practitioners, and testifies, 'I thought it was cooler knowing Nick than even E. He was a great doctor for me. Everywhere he went he got attention. He signed menus, paper napkins, patient charts, everything, and even in hospitals. You ask any resident that did a six- week tour at a hospital with Dr. Nick, and every single one would stand up in court and tell you how good of a physician he was…every one.'

Nick saw subtle changes in Elvis in late 1976, and so did E's sports physician Dr. Lewerenz, but neither was particularly alarmed at the weight gain. Still E toured, hit racquetballs, played his mamma's gospel on the lounge piano, and did favors for his friends. Bledsoe describes, 'A week before a music tour was to begin E put on his rubber suit each day on the court to sweat off five pounds of water weight because he thought it made him look good for the fans.' Fleetwood chimes,' By 1976, E was still the King and I called him that but he was morbidly fat, and jiggled when he ran around the court. Hell, the Beatles recorded an album here, and from what I heard they could not wait to get an audience with the King just to meet and hang. The Led Zeppelin wanted to know what went on past the Graceland gate, and the band respectively submitted permission to enter. I was young, a wet behind the ears college pup and only saw fetching the ball. I had no freaking idea he was a superstars' superstar. All I knew he was Elvis, with the enormous hind end that was difficult to get around to shots.'

On April 24, 1976 I saw Elvis in concert at the San Diego sports arena while sitting next to Charlie Drake of Leach industries and his wife Patty. Before the final number, Charlie urged her to the stage, saying, 'Maybe Elvis will blow you a kiss!' She pshawed but Charlie prevailed, and his wife waded through the fans and, surprisingly, a way cleared for her to rest her elbows on the music platform. Elvis began to sing, 'Can't Help Falling in Love, and during a protracted instrumental, he walked over to her, removed a royal purple scarf from his shoulders, and it wafted in the hot arena air into her outstretched hands. Six months later, on October 31st, 1976, Elvis made his last recording with a vocal overdub on 'He'll have to Go' done in the Jungle Room at his home in Graceland.

 On June 11, Davey Bledsoe shocked the racquetball world and especially Marty Hogan by defeating him in the final of the Leach/Seamco National Championship in San Diego by scores of 21-20, and 21-19. The day before he had edged by me in the quarters, and afterwards in the locker room, came over to console me, putting his thumb on my temple and uttering, 'My Daddy did this when I was a young man, and he spoke, 'One day you're going to be a champion.' The Bledsoe victory is recognized as one of the most unexpected results in racquetball history. Two weeks later, on June 26, 1977, Elvis gave his last concert at Market Square in Indianapolis, IN for a crowd of 18,000. Back on the Graceland racquetball court, Elvis appeared pale, weak and overweight, but there was nothing to suggest impending death. Indeed, there was nothing unusual in his verve once he took to the stage or court. 'He looked gray in 1976,' is all,' portrays Dave Fleetwood.

In May that year the three bodyguards Bledsoe had beaten with an anti-freeze bottle –Red and Sonny West, together with Dave Hebler- released Elvis: What Happened in UK serials that was later published in August, 1977. The three had been fired by Presley's father, Vernon, from their jobs as bodyguards for the singer. Bledsoe says 'Elvis was pissed!' This was the first book that focused on Elvis's addiction to prescription drugs, but E loved those boys, according to the pros, and whatever was said in the book, Elvis forgave and wanted them back. 'The book devastated Elvis,' insists Bledsoe,' but Smith is a greater authority in a parallel experience in the same month that the book was released in UK serials. Smith accused Parker of being an accomplice in making life so miserable for Elvis that it hurt his health. However, 'The public misconception is that in his last few months Elvis was off, and lethargic, not like his earlier wild self. That's the toilet paper account and it's not true. Up to the end E had good days and bad days, and on any given day we could get him excited to like play racquetball, go to the theater, or head for the open road. He still had life in him, and for many years.'

The same May as the UK book release, and three months before Elvis's untimely death on August 16, 1977, a few hours after leaving the racquetball court, Steve Smith hung up the phone and went to his boss in tears. 'Sir, I've worked for you loyally for seven years, but now my daddy is sick and there's no one to take over the construction. I don't want to leave…' 'Boy,' boomed Elvis. There's one thing you must never forget. That's the bottom line. And the bottom line is your daddy.' He hugged me by the neck. Then he said, 'Hey, why don't we bring your father out here and he'll get better.' But he was too ill for that. We hugged again, and I cried all the way to the gate. The next thing I heard, 'Elvis is dead!' But I know where my boss is, and so does anyone else who knew him. E is in heaven singin' gospel.'

This concludes the untold story of the death of Elvis Presley… and of the Racquetball Mafia. Graceland was shut down very quickly. The court wasn't used again after the Mafia left, and it was converted to a trophy room. Hundreds of thousands of tourists per year travel to stand in the last place Elvis Presley stood in the Graceland court that is now the trophy room, with the walls of the court covered with platinum and gold records, and with the Steve Serot racquet on display under glass next to an old blue ball. Elvis died in the racquetball building, not the mansion upstairs bathroom. You probably know that Elvis loved gospel music, peanut butter and banana sandwiches and karate, but did you know The King loved racquetball to death!



 There have long been debates on whether people are rational or biased and irrational. Works by Tversky, Kahneman and et al seem to have directed our view toward the latter. But which view is really correct? Are we admirably rational in our choices, as the classical economists assume, or are we hopelessly irrational, as the behavioral economists claim? The author of this article "Sex, Murder and the Meaning of Life: the evolved wisdom behind our seemingly stupid decisions" is contending an alternative view that "our decisions are in fact biased, but in ways that reflect an evolutionary Deep Rationality".

As this would fundamentally affect our way of trading, I really would love to hear Dailyspecs' comments.

In addition, does the trading community today mainly believe that people are rational or biased and irrational? To your understanding, is there any view that dominates the trading community at the moment?



The following paper may be of interest to you. It explores allocation limits for single and (symmetrical) multi-asset cases (in the context of blackjack, as a precursor to a further, pending paper on this focused on capital markets implementations).

In short, the paper goes into maximizing risk-adjusted returns (as opposed to simply seeking to maximize risk, all else be damned), so as to construct money management strategies that are mathematically optimal in a risk-return context (e.g. MAR ratios, etc.)

The techniques are things that are not only germane for any portfolio of assets (save buy and hold) but even more so for those where portfolio insurance (or some other measure of tapering commitment is involved, such as leveraged ETFs or inverse ETFs) where we find there is an (risk-adjusted returns optimal) upper bound in terms of percentage commitment, and it is not only < 100%, it is < the growth-optimal point (Often referred to as the Kelly Criterion — herein we specify two other points on the growth function that are optimal in terms of risk-adjusted returns).



 An article in honor of Jeff : Amarillo Slim plays Bobby Riggs in Ping Pong with Coke Bottles.

"Amarillo Slim Hustles the Hustlers"

Jeff Watson writes: 

Some take aways from that most excellent article.

"Once again I proved that you can make a living beating a champion just by using your head instead of your ass. The easiest person in the world to hustle is a hustler."

" So I practiced and practiced until I could hit the ball over the net every time, and right then I knew that Coke bottle was going to make me a boatload of money. "

Sometimes, you need a stall. This one was perfect………………. "Let's get it on!" Lefty said. "No," I said, savoring the moment. "Let's post our money and play thirty days from now. I need to practice a little, now that I see you got yourself a real-life Ping-Pong champion."

" I am not interested in speculating, nor am I interested in making a small score. You see, friend, when I make a wager, the bet has already been won. And if I'm gonna win, I sure as hell want to break somebody doing it."

" I like to bet on anything—as long as the odds are in my favor."

"….I also learned that there are people who love action and others who love money. The first group is called suckers, and the second is called professional gamblers, and it was a cinch which one I wanted to be."

" If there is one fatal flaw, the Achilles' hell of every gamble, it is hubris. No gambler ever wants to lose face, and I have used that psychological edge to my advantage. All I have to do is play to a wealthy man's ego, and not only can I get him to gamble, but I can get him to gamble with me for life."

I can't even count how many market lessons are contained within that story. But then again how much money did my own hubris cost me over the years?



 Voyager 1, launched back in 1977, has become the first man-made object to pass into the unknown vastness of interstellar space. News Report.

I have a serious challenge for you. Name a single man-made device that has worked continuously for 40+ years without any human physical intervention. The winner will receive Rocky's usual prize: A unique gift of dubious monetary value.

Chris Cooper has a go at it: 

There must be any number of vintage self-winding watches that still work. If it must be wound, does that still match the spirit of your inquiry? Of course, there are many watches and clocks which must be wound by hand that are still operating. You can find some self-winding watches for sale on eBay.

Kim Zussman replies:

I am man-made and have worked continuously for well over 40 years (though currently half time for the government).

Bill Rafter adds:

Without doing any looking, there are lots of low-tech human creations that have survived the test of time. Many dams have performed their functions for decades and even centuries. I'm not speaking of hydroelectric dams, but simple river control devices. The Marib dam in Yemen is still there (after two millennia) and would be working if there was enough rainfall. Many artificial harbors also have exceptional longevity. Some Roman harbor constructions are still operational; the Romans having been expert in concrete manufacture. And don't forget Roman roads.

In more recent times, I am certain there is some electrical cable that is still functioning from half a century ago, if only to ground lightning rods.



 I went to a lecture on the hidden waterfront of New York, where containers, boats, and docks handle the biggest port in world. There was a good example of productivity started by Mclean, a trucker waiting for delivery of goods on a boat. He figured it might be good to provide a standardized flat size container that could be loaded on and off by cranes. The results. In 1965 there were 15,000 long shoreman handling, let's say, 50 million tons of freight. Now there are 1,200 comparable long shoreman handling 750 million tons of freight. (the ratios are right, but I have to check the base). As an aside, the waterfront is a very highly paid profession with about 500,000 workers there now making an average of 150,000 a year. A long shoreman makes 150,000 and a pilot 300,000. A great job for a nautically minded kid. 

Stefan Jovanovich comments: 

McLean put the idea of cargo containers and container ships into practice when he got out of the trucking business and bought the Pan Atlantic Steamship Company which became Sea-Land. For whatever reason Willie McCovey and Henry Aaron's birthplace has been for the 20th century what Boston was for the 19th - the place where American maritime innovation flourished. By the time McLean sold Sea-Land to R. J. Reynolds in 1969 it was the largest container carrier in the world.

Why RJR? Because McLean trucking had gotten its start hauling empty tobacco barrels. The McLean Brothers were from Maxton, NC; and they were, like almost everyone in the Depression, broke but they were not "poor" and certainly not without connections. Angus Wilton McLean had been Governor from 1925 to 1929 and an Assistant Secretary of the Treasury during the last year of the Wilson administration.

McLean was an inveterate innovator. McLean Trucking were among the first companies to switch their rigs from gasoline to diesel. Later on [in the mid 1970s] when McLean decided to get back into the container ship business by buying U.S. Lines, he decided that shipping's status quo needed to be challenged just as Brunel had done 120 years earlier. Like Brunel McLean bet that the demand for cargo would rise fast enough to justify really large vessels. When it was launched in 1858, the Great Eastern had a capacity of 19,000 tons, easily more than twice the size of current ships (it would be another 40 years for that size vessel to be regularly constructed). When McLean ordered his 4300 TEU ships from Daewoo in 1878, the largest existing container ships had only 3,000 TEU capacity.

Both ventures were failures — but not because of the increased size. What killed Brunel's great ship and McLean's Econships was that they were both designed to run more efficiently at slow speeds. The market demanded faster transit times than their vessels could economically deliver.

When he died in 2001, McLean was developing another innovation - roll on roll off large capacity van transport. That company - Trailer Bridge - is still at it.

Alex Castaldo adds:

Just to put these numbers in perspective, the biggest container-carrying ship today is 18,000 TEU.




Just ran across the new book by Mr. Spitznagel tonight  (The Dao of Capital: Austrian Investing in a Distorted World) and saw your recommendation on Amazon. Spitznagel uses some of the forest fire ecosystem ideas that the Dailyspec has discussed.

Patience and discipline appear to be points emphasized by the author.

I thought this was a good quote of the day: 

Yet, in both poker games and financial markets distorted by the manipulation of antes and interest rates, respectively, this makes sense. Current valuations indicate that Mr. Bernanke's continuing monetary policy is fooling investors into taking enormous risk for no expected return, or close to it.

Perhaps investors should heed the poker player in similar circumstances, who would instead choose a guaranteed zero return, saving his chips for another day, for another chance to play the holy game — but with fairer rules where the value of the hand truly justifies the risk and reward."



 This is an interesting article for the layman about the changing gravitational constant. One part that intrigues me is their hypothesis that maybe the nature of gravity (the form) is changing and that some other force might be changing it. Or maybe gravity is subject to oscillations? Any change could have interesting consequences.

Gyve Bones writes:

A rather weighty and grave subject for this site, eh? I reckon it falls under the category of ever-changing cycles, and perhaps, BBQ.

Gary Rogan writes: 

It's almost funny to see these scientists very concerned about the possibility that G is changing without much concern about what, in our universe (other than some supposed new field), really determines why it has any specific value vs. any other value or why it's at least somewhat constant through the Universe. Why shouldn't it change, if you have no idea how the value comes about in the first place?

Jeff Watson adds: 

But then again, if gravity can change form, can time and space be far behind? And I'm not talking Discovery Channel stuff.

Gary Rogan replies: 

ANYTHING where you don't understand the root cause (and even then if your understanding is wrong or incomplete) can change. All the fundamental physical laws are basically just observations that haven't been contradicted YET, and all the social science/market "laws" are just observations that at some point seemed correct to enough people. 

Jeff Watson writes: 

I suspect that F=MA would stand the rigors of any test in the macro realm. PV=nRT would probably stand up also, as well as V=1/2 AT^2. The fundamental Newtonian physical laws are pretty intact and have been proven in a variety of ways. Had the physical laws been incorrect, man would have not been on the moon, we wouldn't have landed a rover on Mars etc, Ohm's law(among other things) would not have be proven and I would not be able to communicate with you in this venue. And " the social science/market "laws" you make note of are more of an art than a science. I apply science to markets every day, but along with the science, I also use the art taught to me by my mentor to achieve a small degree of success….sometimes.



There are several things that bonds don't take account of I think. The threat is worse than the execution. If the Fed tapers, it's already in the market and the amount of their reduction will be offset by reduced sales because of increased revenues. The stock of bonds is about 20 trillion As Tyler Cowen said, the stock of bonds, what existing holders will accept, is more important than the flow of 25 billion. The rate of inflation determines the yield. The rate past and expected is close to 1.5% and the premium that bond yields pay to the holders based on the Fed model is at an all time high. The ratio of stock market levels to bond levels is at a 3 year high and this is not bullish for stocks and bullish for bonds. The 10 year yield has pierced the barrier of 3% and frustration has been relieved. The levels of yields at 3% for the 10 and 4% for the 30 year are competitive with stocks and would cause a decline in the economy if they increased. I don't have a position in bonds but trade them fairly actively within the week. 

Rocky Humbert writes: 

FWIW, I agree 100% with everything that the chair wrote here — with a couple of additions:

1. The primary challenge that the market faces here is assessing the equilibrium yield in the absence of fed interventions. There will always be fed interventions at the front end, but the back end interventions are a recent (3 year) phenomenon and many purchasers (and now sellers) were engaged in front-running of the fed type activities. This is a flow-oriented phenomenon, not a value-oriented phenomenon. My general rule (and the Chair would surely agree) is in the short-term, flow trumps fundamentals for longer than the average leveraged speculator can tolerate. So, the primary question, I believe, is whether the front-runners have exited the market. My guess is that on the announcement of the taper, that process will be complete.

2. On a longer-term basis, the question of what real yield is "right" remains in front of us. The other Tyler has written eloquently (but I disagree) that TIPS should command a near zero real yield. I believe that TIPS should command a real yield that approximates the real growth rate of the economy plus some sovereign risk premium plus some liquidity risk premium plus some tax rate premium plus some risk premium associated with gaming the CPI which the government is motivated to do.

I have a speculative long (trading not investment) position in bonds (especially muni's and tips) right now, but that could change quickly and I don't recommend that anyone follows me into this, as we are suffering from a hindsight/anchoring bias where things look inexpensive because they were expensive before NOT things look inexpensive because they are really inexpensive. I think the odds substantially favor a rally versus an immediate further decline , but I base this on unqualifiable drivel which is not worthy of this list. In contrast, my Apple call was based on an extremely rare confluence that was in fact quantifiable and yesterday's decline in Apple (which I didn't participate in) was likewise statistically probable.

Jeff Rollert adds: 

I agree with both Chair and Rocky.

As long as the Fed can use open mouth policy and have traders do the heavy lifting, they will IMHO. Rolloff re-fills their quiver that way over time.

As I've mentioned on the list for a few years, an analytical shift has begun. As we never step into the same river twice, the next cycle begins with the consideration of what is the risk free rate when sovereign bonds are manipulated.

I have some unfinished ideas on this, but the core is a replacement of T-Bills. An alternative path is the question of can there be a risk free rate.

As modern monetary systems appear to share the characteristics of religious belief systems, I believe this is a material change.



As long as I land a few miles up or down the coast from the target, I'm ok. Trying to hit the target exactly feels like when you have $9500 sitting on the blackjack table, and you won't quit until you have the winnings up to an even $10K. Made more than a couple of variations of that mistake over the years. If I'm making a transatlantic sailing voyage, and forced to rely on a sextant and chronometer and depart from Southhampton and I'm aiming for NY harbor, If I end up in Newport, I'm cool because I still got close.



Boas, from Bo Keely

September 11, 2013 | Leave a Comment

 A month ago here in the Peruvian Amazon, I walked into a village on a lake where a one meter baby boa constrictor was being tormented by a ring of children and adults. They claimed it deserved the smacks in the head with sticks because its long neighbors at their swimming hole ate their chickens, and, if allowed to attain full length in a few years, it would eat their children. I pulled an elderly man aside to ask just how big boas, which are actually anacondas, get.

He launched into a colorful description of the species, naming the amiable yellow and aggressive black as the largest, the rosy and green as the rarest, plus a handful of others in the boxes of water around Iquitos that made me believe he knows boas.

The small snake in the ring was nearly dead and writhing now, and the children complained that if they let it grow to four meters, and about 8'' in diameter, it would start taking their puppies. And, the mothers protested, if they let such grow to seven meters they would start stealing the children when they bathed. I asked the old man how big the largest anaconda he ever saw was. He circled his hands in exasperation, looked about, and then pointed to a one-meter girth tree trunk and claimed, ´That thick! I saw it.´

Inspired by this encounter, I´ve been enquiring about boas on dozens of ensuing hikes in the environs of Iquitos, and the information matches down the line. Thirty minutes away on the outskirts of Iquitos Island, yesterday a small girl at a pond said that she has seen all colors and lengths of boas up to four meters, ´And they all have teeth!´ I asked her father if it was safe to bathe in the swampy pond, and he joked, ´For gringos!´

 The largest boa he has ever seen once swam out this 300 meter swamp into the Amazon River. Like the other, his arms wouldn't make a large enough circle, so he looked around and pointed to a 40´´ thick tree trunk for the girth. Another eye-witness verified that this Loch Ness creature swam out the lake before the low water trapped it, and into the great Amazon, where it raised its head out of the water at a passenger ferry nearly its 25-meter length, and then dove underwater.

Nearby, and a five minute walk from my Belen hotel, a 12´ long boa swam the Itaya River as I crossed the other day to get to the other side. Down the road, a few years ago, I walked past a thatched house on stilts and a young man climbed the makeshift ladder down to tug my elbow, asking, ´Do you want to buy a pet snake?´ I inquired where, and he led me a few steps behind the raised hut to an outhouse. I opened the door gingerly, with a creak, and peered in.

Five feet from my nose, the 14´´-wide head of a juvenile yellow boa raised blinking its tongue at the intruding sunlight. It was so beautiful and strong with the grace of youth that I wanted to reach out and pet its head, but rather stepped back and admired its full 12´ length. ´It´s yours out the outhouse for $20,´ offered the teen, and I was tempted. The snake was young enough to train to jump hoops and fetch the newspaper, and and perhaps later in full growth could employ about the villages as a money maker to eat smaller chicken and puppy eating anacondas. However, how was I to get it back to Iquitos? I had walked a day and a half on the old Nauta trail, and the serpent was too small yet to ride. So, I left the boa to outgrow its cage.



 David S. Landes, a distinguished Harvard scholar of economic history who recently passed away, saw tidal movements in the rise of seemingly small things. He suggested that the development of eyeglasses made precision tools possible. Maybe, he said, using chopsticks helped Asian workers gain the manual dexterity needed to make microprocessors.

In more than a half-dozen books and scores of articles, Professor Landes's writing was often as light as his subjects were heavy. Reviewing his 2006 book, Dynasties: Fortunes and Misfortunes of the World's Great Family Businesses, for The Times of London, Christopher Silvester described the writing as pithy, thoughtful and sprightly. The book offers 13 sketches of tycoons, including Henry Ford, John D. Rockefeller and Armand Peugeot.

I love this quote:

"…..In one scene Nathan Rothschild, of the legendary financial family, is hard at work at his desk in London. A peer of the realm is brought in. Rothschild, intent on his ledgers, invites him to take a seat. Offended, the visitor blusters about his high standing. "Take two seats," Rothschild says….."



 As I work on brushing up writing skills for a potential book on my journey as a caregiver to my wife for 30+ months, I happened across a collection of advice for writers Hemingway sprinkled through his correspondence with colleagues over the years. Wisdom for the ages?

Life lesson:

"Listen now. When people talk listen completely. Don't be thinking what you are going to say. Most people never listen. Nor do they observe. You should be able to go in to a room and when you come out know everything that you saw there and not only that. If that room gave you any feeling you should know exactly what it was that gave you that feeling. Try that for practice. When you're in town stand outside the theatre and see how the people differ in the way they get out of taxis or motor cars. There are a thousand ways to practice. And always think of other people."

And for traders as well as writers:

"Dostoevsky was made by being sent to Siberia. Writers are forged in injustice as a sword is forged."

It makes me think of all the injustices bestowed upon newer traders; complexity, bad prices, one's own emotional state, the non-obvious inner circle game– the list is endless.



If you take away uncertainty, you take away motivation. Wanting to exceed your grasp is the nature of the human condition. There's no magic to getting where we already know we can get. -source

There is a fantastic National Geographic piece on famous failures. Pair it with "Fail Safe", Debbie Millman's necessary meditation on courage and creative life.

Uncertainty is also integral to creativity, is the key to good science and good art, and may even be the key to happiness.



 The google trend for "Nouriel Roubini" peaked just as the economy and markets bottomed. I don't think this was a coincidence.

In the short-term, Mr. Market is a voting machine. And google searches reflect those votes. It provides a coincident snapshot of the first and second derivatives of votes. Whether it leads or lags, market prices are an exercise left to the reader.

In the long-term, Mr. Market is a weighing machine. And all of this stuff is noise. And in the really long term, we are all dead.



 One has been watching youtube videos on tennis footwork with a view to improving Aubrey's squash game. Many videos talk about moving in to the ball rather than waiting. Apparently this is the secret of Federer's footwork with his walking step which just means, as far as I can see, hitting every shot as if it were an approach shot. Paul Gold has a series of 4 steps that he recommends. Using the eyes to watch the ball, and getting into an athletic position, taking a split step on every shot to take a proper first step, and getting to the ball with big steps pushing off the opposite foot to where the ball is going.

I wonder if these steps have a value for market people. Get prepared before the day with the proper equipment and study deciding whether you wish to buy or sell and which ones adjusting your trade level and size with the proper current volatilities and market movements and announcement. Trading and then preparing for the next shot…

Alston Mabry writes: 

The trading analogy for me is that I find myself in two basic modes: (1) reactive, waiting to see what's going to happen next, or (2) predictive, identifying what I think are the highest-probability paths over the next X time period, defining what I will do in each case and preparing for that action.

On the morale side, it's easy for lack or preparation or a losing trade to push me into mode (1); whereas getting back into mode (2) takes preparation, focus and discipline.

Anonymous writes: 

Related to the preparation stage of the game, it is interesting to pontificate about how many moves ahead board game players and sportspeople think and how the speculative game can be improved by adding this type of thinking.

I played basketball up to a fairly high level ( I played center for my state) and in that sport one only tried to anticipate one move ahead (to try and steal the ball or make the rebound).

My limited experience in tennis and squash leads me to think that the best in these games have time to think perhaps two moves ahead (Chair may have a view on that given that he has been known to hit the occasional hard squash ball just above the tin).

I read that chess and checkers players may think many moves ahead — perhaps all the way to a game's conclusion given an opponents error (or good move). Distinguished personages on this list might add meat to this point?

So, how many reactions ahead in the markets…? My various quantitative approaches likely have a substantially shorter holding period than most on the list so the following needs to be filtered by this fact:

* In terms of prediction, I have not been able to produce consistent alpha from any method that looks more than two steps ahead or behind (Market A's move effects Market A's future as well as Market B's future and Market A&B's move effects the future of Markets A,B & C)

* I guess one can also look at this in terms of degrees of freedom- more than 3 or 4 is probably too many. (Or to quote Arnold Zellner "…KISS….Keep it Sophisticatedly Simple)

* It might be a reasonable generality that the more steps ahead (or back) you look the longer needs to be your time frame.

Back more directly to Tennis & basketball. As a center in basketball I had two things to do in preparation. These were to be fully stretched out to jump high and to be completely focused on getting the ball to my pre- chosen team mate. When rebounding you have to commit before the shooter fully raises his arms. In tennis, the unbeatable ground strokes are often those hit on the rise — as it were. In both cases you have to anticipate to hit the perfect stroke or 'deny' the shooter.

The same in markets I think.

This comes back to being ready — obviously.

Pitt T. Maner III writes: 

I would wonder if there are specific training or virtual simulators (software) for traders that would be useful to identify and improve weak areas in preparation, execution, timing, psychological tendencies, etc.

For athletes and racquet players the analogy might be some type of virtual practice such as Virtual Tennis Academy where there would be actual analysis of footwork and stroke production in slow motion using attached sensors. With eventually perhaps some type of instant feedback (ie. sound, vibration) to cue the practicing player on what he or she is doing right.

Film analysis is becoming important in tennis as well.

A recent article, for instance, suggests that improvement in cognitive abilities in older persons is possible through the use of computer games:

"Commercial companies have claimed for years that computer games can make the user smarter, but have been criticized for failing to show that improved skills in the game translate into better performance in daily life1. Now a study published this week in Nature2 — the one in which Linsey participated — convincingly shows that if a game is tailored to a precise cognitive deficit, in this case multitasking in older people, it can indeed be effective."

The world of quantified self programs appears to be ever expanding. Why not financial and sports feedback too?

Charles Pennington writes: 

I tentatively have a theory that players stand way too far back to receive serve. One of the most awkward serve receives is a high backhand. But if you stand up close to the service line, perhaps halfway between the service line and the baseline, then you know that the ball is going to be bouncing nearby, and you can try to catch it low before it gets above your shoulders. If things go as planned, you'll punch the ball back and make the server have to scramble for the ball with little time to spare. However, I haven't really had a chance to try this out against a big server.

Anton Johnson writes: 

It is a joy to watch the masterful footwork of an accomplished base thief.

The speedster, with orders received, his eyes fixed on the pitcher, quickly side-steps, while never crossing his feet, feeling his way to tease the 12' danger zone. When sensing the pitcher suddenly whirl, with his weight biased to the left, he must cross right foot over left, to initiate the saving dive, and avert the embarrassment of a catastrophic pick-off.

However, when the enemy is committed, and with armed help at the plate, with explosive power he crosses left foot over right to continue the fight, knees powering forward, to slide just under the tag, to win the battle to own second base. 



 My Mother was an identical twin. Twins often one right and one left handed, and have other differences in thinking. But also one also gets more nutrients in the womb and one is more healthy than the other. I could always identify my Mom in her childhood pictures as the frailer looking one. She died of kidney cancer at 57 and my Aunt is very healthy at 73.

On a lighter note, while Billy may be right that : "Only the good die young". The contrapositive to this, I remind those that dismiss exercise, is: "Only those that died old lived badly". It is not all about the age.

Aerobic exercise is the one proven way to grow brain cells. The new cells can strengthen the neuroplasticity of the brain. This helps the "old" keep learning new ways to think, keeps the brain forever 21.

Carder Dimitroff writes: 

I just returned from my nth trip to visit and help my dad. He is living in a gold-plated senior community with lots of amenities and support staff. Previously, my mother-in-law lived in a similar community.

My stays with my dad are usually 3 or 4 days. He does not want to rush and he has a long list of "must-do's." Altogether, I've spent about 30 or 40 days living on the campus.

I know other list members have had similar experiences. Without personally witnessing the daily life of a senior, nobody could possibly understand the hopes, fears, challenges and life of the nation's elderly.

Let me share some observations. Others may want to comment, so feel free to offer your thoughts.

1. Diet: Most, like my dad are thin. Few are overweight. I saw no one critically obese. While plenty of great food is offered, I suspect many are skipping meals.

2. Exercise: The facility offers a fully staffed and modern gym. They also have outdoor facilities. They are rarely used. Most seniors need core and upper body strength to transfer. They don't see new exercise regimens as an opportunity to restore or maintain their health. Nobody runs.

3. Sunshine: Spend a few hours a week outside and one or two pills can be eliminated.

4. Medicare: Leave it alone. Yes, these are all wealthy people. Most are self-made. Nevertheless, they all believe Medicare is something they earned.

5. Medical care: Left to their own devices, they are not big consumers of medical care. Their attitude is: "If it ain't broke don't fix it, if it is broke, don't tell anyone." Their biggest fear is the facility's medical center (a separate skilled nursing facility). Most will hide medical issues fearing they will be forced into the [gold-plated] medical center.

6. The end: While good health is a requirement for admissions, many realize this is it. They know this is their last stop. It is a sobering thought (even for me). They also know they are no longer significant contributors to society, particularly these residents who are largely hidden from public view.

This is our fifth family member to take this trip. I've concluded the best option is to eat nutritious foods, exercise and get out. Like James Fixx, I want to live well until the end.

Sam Marx writes: 

I am up there in age and would easily fit into one of these seniors communities. I trade stocks and especially options. Financially I'm very succesful. I feel that trading, especially options, has kept me mentally alert and healthy. 

I pay a lot in taxes, it seems more every year, so I guess I would be judged still as contributing to society, whatever that means. 

I live in a gated community in Florida, and the younger residents are always asking me for financial and trading advice. 

A colleague who taught at college with me never trading and seems to be mentally regressing. The "youngsters" don't care for his opinions or to discuss anything with him.

For those of you that trade, don't fear old age. Active trading contributes to mental health and alertness.



Here's a study on the effect of solar cycles on grain production that caught my attention. There are nteresting implications if indeed we are now going into a quiet (cooling) solar period, and it's useful for energy commodities as well. The science cited in the article suggests the cooling trend has begun.



 I have read few less toxic examples in recent memory that demonstrate perfectly the idea that has the world in its grip, as the Chair would say, than this piece.

"The Wealthy's Compassion Defecit" By David Wolpe:

September 8, 2013

"We know that wealth does not always make people happy, but does it make them kinder? Studies suggest exactly the opposite. Instead of being more magnanimous, the rich are more likely to lie, cheat, steal and in general display less compassion than the poor. And this finding remains consistent even after controlling for gender, ethnicity and spiritual beliefs.

…As a rabbi, I see a spiritual explanation as well. We all know, deep
down, that most of what we have is a product of good fortune. No matter
how hard we work, we did not earn our functioning brains or the families
into which we were born. We didn't choose being born into an era, or a
nation, that allowed our talents to develop. We ride in cars and live in
homes we did not build, are warmed by heating and cooled by air
conditioning we did not invent, live in cities others created for us
organized by a government and protected by a military shaped by our
predecessors. Yet we still point to our accomplishments and proudly
proclaim, "I did this!"

No one likes to feel that what they have
achieved stems more from luck than merit. So the well-off salve their
consciences by assuring themselves that it is hard work and merit that
brought them success, which also leads them to conclude that it is a
lack of merit that keeps others from succeeding.

And so on.

This in particular sounds like the Rabbi is channeling Barry's "You didn't earn this" rant. I wonder if he is a supporter.



Despite Wehl's theories of symmetry in nature, the markets are asymmetric. The ups are different than the downs, volatility is different up and down, information flows are not equal. The list could go on.

Even nature is asymmetric. There is "spin" which is implies a direction. Contrary to Ahe Big Bang, the universe seems to be expanding. Time is one direction. Human's are not even handed. Energy has a tendency.



 On a 2000 mile (round trip) road trip with the family late last spring, I had ample opportunity to sample the various fast food outlets.

I made a point of trying McDonald's newer, "innovative" fare, while my wife stuck with the classics.

My impression–atrocious! Dismal food quality, taste, and presentation.

When I got home I was so disgusted with the experience I sold my McDonald's stock (MCD).




There is an issue about the employment numbers that may not be getting proper attention - Section 530 and its interaction with state unemployment benefits. Section 530 of the Revenue Act of 1978 was the Carter Administration's gift to the farm belt. Under Section 530 an individual will not be classified as an employee if the alleged employer has a reasonable basis for treating that person as an independent contractor. "Reasonable basis" can be proved by:

(1) "Judicial precedent, published rulings, or technical advice with respect to the taxpayer, or a letter ruling to the taxpayer; (2) "A past IRS audit of the taxpayer in which there was no assessment attributable to the treatment (for employment tax purposes) of the individuals holding positions substantially similar to the position held by this individual"; or (3) "Long-standing recognized practice of a significant segment of the industry in which the individual was engaged."

The IRS has a "whistle-blower" form that individuals can file to challenge their classification - the SS-8. But - and here is the kicker - on the form itself the IRS warns the taxpayer that "A Form SS-8 should not be filed for supplemental wage issues." What this means, in real terms, is that people who get "fired" from their independent contractor jobs cannot use the IRS to bully state unemployment agencies into paying them benefits.

Since the states all have incentives to cut down on the cash drain from unemployment benefits, even the deep blue ones like California do not make much effort to reclassify contractors as employees once the issue gets to unemployment benefits. the result is that "the workforce" has more and more people in it who are not now and never will be classified as "employees". "Employment" itself becomes less and less of an indicator of actual incomes because the payroll numbers cannot reflect the contractors' fortunes (both good and bad).

Bill Rafter writes: 

For the "percent unemployed" number, reclassification as to who is or is not an employee may have an impact.  However this is the beauty of simply looking at the payroll tax data, as all persons (traditional employees and individual contractors) are required to pay.

Victor Niederhoffer writes: 

But with all the seasonal adjustments and other things that enter the employment numbers, how can payroll numbers not using the census seasonal adjustments be meaningfully compared. 

Bill Rafter elaborates:

It is the seasonal adjustments by the officials that we distrust. We think the adjustments are a fudge factor to be used by an administration eager to paint a picture. I don't know who is responsible (BLS or Census), but their adjustments historically have made little sense. BTW, the Fed also could use someone better at seasonal adjustment, although their number jockeys are better than whoever plays with the payroll data.

A problem is (a) do you want the truth, or (b) do you want to make money? If you are decent at it, doing your own work will get you the truth. However if the world follows the official releases as gospel, you could be right and broke. I have been in that predicament a few times.



 The market itself adapts to the trader's inputs, in particular, his systems. The larger the size used in various systems the bigger the splash, and smaller movers will adapt and counter the edge used in size.

This is what causes cycles. Once the system loses its edge, it is withdrawn, or counter movers cease front running it as its effectiveness has waned, and flipping the system, the counter system to the failed system, doesn't work either.

Then it comes back.

It reminds me of the Sicilian's speech in The Princess Bride.



Judge Andrew Napolitano will be speaking at the Junto on Thursday on the rule of law.

Usual place: 20 West 44th St, NY NY. First floor reading room. Start 7:30pm. All are welcome. 



 Employment is not what it used to be. Technology already does a large percent of the real productive work. In the future this will even more true. I no longer believe that a large or growing work force is needed to, "pay for the old folks" and similar. Taxation has a claim on resources because of productivity. It does not matter if this productivity is produced by workers, or by increasing technology — including cyborg-like devices.

There is no need for the government to print money, pay increasingly superfluous workers, then supposedly fund things by taking a portion of the funds back again. Just print the money and be done with it. So long as productivity and real wealth continue to grow, it will not matter. The era of needing population growth to "grow" is past, but the system has not caught up to this reality.



Russell is doing the Wyckoffian shuffle around the 1000 yard line.

Craig Mee writes:

100 in Dollar Yen on approach… it doesn't get much bigger or fat cat than that. You can almost feel the price, like a train track, buckling and stressing under the midday sun as it approaches. It may take NFP to decide that one.



In August 1998, I ran foreign brokerage for Refco out of Moscow, and most of my local clients kept averaging down in Russian Ruble futures, as the currency accelerated in its worst bear ever. Personally, I was a lucky Short from around 9.0000 of months ago and I patiently hung on through daily slides, as they were now breaching 7.0000.

This futures contract was now listed at the CME, but participation was still spotty. So that Friday the contract gapped down slightly below 7.0000 at the open, but it began slowly rising through its six-hour session, creating a possibility of a key reversal bar near the close around 7.0300. However, I noticed that with 60 seconds left on the clock, there were no bids showing in the book higher than the stale 6.9811 bid unabled un the morning. So with second remaining, I call the floor and ask the broker to post 6.9812 offer for a single lot. He barely managed to post it to the board, as the bell rang. Well, I sold nothing — but the day's settlement price has now shifted back below the 7.0000 for the first time in history, and it was the week's close no less!

So lo'n'behold, some heavy currency hedging activity kicks in as the Russian exchange opens next Monday. It was even rumored to have Palindrome fund connection to Vimpelcom purchase, where he ended up losing hundreds of millions during the ensuing government default. The official Russian default/devaluation declaration followed that week, gapping the devalued Ruble all the way to 4.0000 handle!



Evidently the "red line" was the one crossed from below by the market in the last minutes Friday.



 In our shop we monitor various forms of taxation because (a) the reports are the only daily macroeconomic data other than price, and (b) the data is raw and as such unintelligible to the journalists, who consequently ignore it. Regarding the latter point, most people wind up getting their information from journalists, which as a competitor I think is great.

What we know:

First, the Non-Farm Payroll report is due out this coming Friday. It's going to be weaker than currently imagined. Big time. Note that there was an effective 2 percent increase in payroll taxes starting in January. In a perfect world a non-thinking bureaucrat (excuse the redundancy) would expect a 2 percent revenue increase. But people (and employers) vote with their feet so to speak, and the bureaucrats get less. So much less in fact that the YOY payroll tax growth is now negligible. For those of you familiar with the work of Art Laffer, this exemplifies his famous curve. Some of the decline in payroll taxes may be a result of the sequester. But it does not matter; the point is that when one considers the tax increase, there is a decline in the growth of hours_worked * wages. There is no way to paint a smile on that information.

Second, tax filings by corporations show negative YOY growth that just started recently and has not happened for some time. That is perfectly logical as businesses are curtailing expansion because of Obamacare, and for lots of reasons are flush with cash. What they should be doing is investing, but that's not happening now. Given the amount of cash around, one would also expect more M&A activity. Not significant there.

Third, tax payments by individuals other than payroll deductions have negative YOY growth, pretty much in parallel with the corporate filings.

Fourth, growth rates of import duties and excise taxes, good surrogates for discretionary retail spending, are negative YOY. Big time.

I have put up charts of the above (1, 2, & 3) recently, but if anyone has a specific request, I will accommodate.


Can someone be at the pinnacle of power and be grossly incompetent? Of course. It's hard to think of a Presidency that has not done something egregiously stupid. However at some point you have got to say to yourself, "they simply cannot be that stupid; there has got to be another reason." That's where I am at now.

I think Syria is a Wag the Dog scenario. The questions are why, and what are they covering up? From my foregoing information I think it's the economy. By the way, I am not implying any illegal actions on the part of anyone. Some doctors do not tell their patients the full truth, so why should we expect something different from our political leaders.



Is an asset up or down? How do you decide?

For a somewhat offbeat reason we need an unwavering determination as to whether or not a particular asset was up or down. We do not care how much. Obviously if something is up or down by say 2 percent, there is no argument. The problem is if the data is not definitive. After all, you occasionally have days when the Dow or S&P are one way and the Nasdaq is the other. So which one is right?

The standard is, of course, the close. That would be right in many ways. Most volume occurs at or near the close, and margin calls are determined by the close. But many [technicians] use midrange, or an average of the High, Low and Close. Institutions have been known to care about the volume-weighted average price or VWAP. A priori we thought VWAP would be best for our purposes. But we were wrong.

Ours was a very limited study. We only cared about 4 assets (all ETFs): SPY, IEF, GLD, IYR. And our definition of right vs. wrong is the amount of flip-flopping during a trend. That is, how often is it wrong? We realize this is all very subjective, but we are not writing a thesis here - we just want the quick and dirty facts. The period we considered: 2005 through the present.

It turns out that VWAP is not best. It gives a lot of false signals. This was good news for us as we will not have to acquire VWAP data.

That's all we really cared about. However the fact that institutions take care in getting VWAP price executions and the fact that VWAP (at least in the limited study) gives false information, suggests that someone (a flexion, perhaps) has something at stake to effect the false information.



 We mentioned rice on the site a few weeks back. I just ran across a few items of possible interest.

Evidently one white rice (Oryza) index shown below is hitting a 2-year low.

Behind China, India and Indonesia appear to be the 2 biggest producers and 2 biggest consumers.

Here is an article and video on the Thai Rice Mortgage "Scheme" :

"In the latest in our series on Thailand's populist, big-spending programmes - known as Thaksinomics - we look at the price guarantee for the country's rice farmers. It was a promise made by the governing Pheua Thai party during the election campaign two years ago. The policy involved buying the entire rice crop at a fixed price - and as a result the government has accumulated a vast stockpile of the food, which if sold at today's prices would incur a loss. The BBC's South East Asia correspondent Jonathan Head reports on one of Thaksinomics' most controversial policies."



Ron Howard was on the Andrew Marr show commenting on Hollywood financing. He stated that every decision that a Hollywood executive makes now places his career on the line. And thus there is a significantly reduced level of risk taking and a focus on ever greater budgets to absorb the available capital (thus raising the stakes for any error made; a vicious circle). Hollywood has coalesced around star studded blockbusters. But this is a pool with diminishing returns available to the capital employed. This is a "big problem" he feels. Does this seem similar to any other industries and their method of capital allocation?



The dreaded September effect reminded me of "Sell in August and Go Away?" but certainly bears rechecking.

Ralph Vince writes: 

I think Dr Z's study focuses on 2000-2013.

Curious and needing to do some counting, however simple, I looked at SPY monthly moves 1993-present, and got these stats.


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