There are many trading and life lessons in this great article: "10 Reasons Surfing Improves Humanity"



 Sometimes the market in the day and fray is like certain beautiful Russian women that my friends tell me often populate the high voltage bars frequented by people like Welch and Koslovsky when they weren't captured by trophy wives or prison. Not down enough to give you a buy signal, but not up enough to give a nice profit.

Anatoly Veltman writes: 

One should never forget about the HFT profits against the "every single order that's placed by a non-HFT". It doesn't seem like much per lot, but it is an assured death by a million cuts. Not that every random HFT can afford the collocation, the wares and wires, the special relationship with the exchanges, the research and the execution, the HR, the PR, the legal costs et al. But that's where your speculative dollars are going, like a black hole - and nothing is actually produced in this glorified battle of penny-stealing…

I do get the feeling that more and more liquidity is required to keep this machinery going, and that the monetary authorities will keep providing it - the ultimate hazard of debasing notwithstanding. But because the system is irreparably compromised, and everyone knows that deep down, the teams of profit takers are standing by - just waiting out for the fiscal year roll a sliver further, into 2014, to postpone their gain tax liability…



 I received these questions from a friend the other day and thought I'd share my answers. The friend asked: 

In all your adventures have you ever….

1. been in the wild, where you couldn't walk to civilization before nightfall, and lost all or most of your gear?

2. needed to make fire with primitive methods (like bow drill)?

3. needed to find/hunt/gather food without a gun?


1. A dozen time in the mountains, desert and on the rails. No gear, and lost. There are two options: Walk all night to keep from freezing, and to make headway to civilization. Or, build a simple shelter by throwing some branches on yourself. These situations are almost always v. uncomfortable, nerve wracking, and difficult to follow textbook models. So I usually walk for a few hours until I'm exhausted, and then curl up in the dirt and fall asleep out of the pain, to wake up to the warming sun, which is also a compass, in the morning.

2. A half dozen times. The situation is usually wet, cold and lost. The threat is freezing before the night is done. If you can walk all night - done it often - then it's fine. If there's something blocking that - now I always carry on my person a lighter and compass. However, survival manuals cover comfort zone situations, which isn't often the case. You are fatigued, dizzy, hungry, lost, afraid, and have been circling for hours trying to save yourself. Your hands tremble so that matches, if you had them, can't be lit. If the hands are steady, there is no fuel, and anyway it's often raining or snowing that defines the scenario. I kept from freezing in a cubbyhole over the Rockies by lighting a little fire on the jiggling freight and, slowly, feeding cardboard into it. I learned flint-and-steel in Boy Scouts, and later in wilderness survival class under Peter Carrington, but you can't beat a lighter in a compromised situation.

3. I'm a poor food gatherer compared to the other survival skills. I've studied it extensively - foraging, fishing, trapping - but have used the emergency skill only in the desert a couple of times. In the desert I've gotten liquid from barrel cactus twice, and once cleaned and eaten prickly pear cactus.

The survival guides are good to study for starters, and to carry you out to the wilds. I've logged, what, a thousand trips alone into various wildernesses, with about 30 life threatening survival situations. I've extracted myself by ALWAYS looking ahead, to see the worst case scenarios before they happen. It's not fun to think hard when you're on vacation, but I'd be a dead man many times over without planning.

There's usually ONE grave danger per environment. In the jungle it's snakes; I carry a venom extractor and don't walk when the frogs start croaking at 6pm, the snakes prey. In the mountains it's getting lost; I always have two compasses, and these days a GPS. In the desert it's dehydration; I've walked the talk about barrel cactus. On the seashore it's hunger; except your bug net is a fish trap in estuaries for as far up the coast as you care to go. In the cold region it's freezing; as long as you can walk you'll wake up the next morning.



 The emergency gear I carry dates back to Batman. He wore a 'utility belt' with the basic essentials of crime fighting. I've borrowed the belt in the form of ankle weights. By removing the lead sack from one of the weight baffles, I inserted the items often mentioned in standard survival packs: compass, length of twine, lighter, penknife, pen & sheet of paper. It's saved me more than once.

The episode that keeps returning to mind is when I had to tie up the penis after a bee sting in a tornado, and flinging it over my shoulder like a Continental soldier until the storm abated and I returned to normal size. Bees get angry before tornadoes hit, and this one flew out and stung the base. It sounds funny but it swelled to bursting like the Nutty Professor, until I applied a compression wrap of black electrician tape from my Batman ankle weights. The twine was the finishing touch to elevate it and let gravity do the trick.



BTC, from anonymous

November 28, 2013 | Leave a Comment

 The Bitcoin market has to be one of the best markets to pyramid i.e. highest possible auto-correlation.

The difference being that you can't be stopped out. No leverage, just hard cash.

Reminds one of Chair's wealth creation in the Silver market.



Happy Thanksgiving to all our readers.  Here is our 2006 article about Thanksgiving, economics and freedom.



Check out this product: Jia Canisters .

Hi. Laurel here, co-founder of Daily Speculations and now running Glassery.Com, with a gift idea. Most of the men who walk into my Glassery shop go straight to these black terracotta airtight storage jars and exclaim how wonderful they are. Men don't generally buy themselves kitchenware, but these jars seem to hold such an attraction that they could make a very welcome gift.

You won't find these in any shop in America, and you won't find them anywhere at the price I can offer here. If you bought them separately, they would go for $151. I can do a special price of $125 for the set.



 I recently had the opportunity to review the portfolio of a near centenarian who had part of her portfolio held at a large "wire house" broker, and part literally held as stock certificates held in a bank vault. GARP stocks in a vault for 30 years… well, they make you very very wealthy over a 30+ year holding period with zero friction… a thing of beauty. No "proper" broker would have ever allowed a 12K investment to bloom into multi-millions, etc with more than a few positions, plus the amazing stalwart Exxon, etc. The idea that " you have to diversify, etc" made the "wire house" account just a fraction of "the vault".

Alex Castaldo adds:

This reminds me of the famous anecdote told by Robert Kirby in his article "The Coffee Can Portfolio" (JPM, 1984). Mr. Kirby had been advising a well off female client for several decades, supplying a steady stream of buy and sell recommendations.  One day he discovered that her husband, unbeknownst to him, had copied some of his early buy recommendations in his own separate account; he had then lost interest and stopped trading that account; the dormant account had grown more than the wife's more active account and included some remarkable gains in a few now famous stocks.

Victor Niederhoffer writes: 

Very fantastic and resonant for all ages. 

David Lillienfeld writes: 

But that was during a period of economic growth starting from when the US produced ¼ of global GDP. Would the same thing have happened if she had started in 2000?

Victor Niederhoffer adds: 

England did not do very well during this period. A few world wars. Lost its seat as financial capital. Went socialist. Their returns about as good as those of the US. David, you can take the boy away from the agrarian farm, but you can't take the ( ) farm away from the farm. You would enjoy Dimon who suffers from the English disease, and despite his results is always trying to forecast 2 or 3 % a year less for the next 100 years because of his malady.

Rocky Humbert writes: 

There is a bit of chicanery going on in this thread. The tax effects are not being considered. Let me illustrate: Let's assume that a portfolio of stocks compounds at 8% and there are NO dividends. And let's assume that a portfolio of bonds compound at 8% (and the coupons are reinvested each year.) So it's a horse race between the two long duration asset classes. After 30 years, the stock portfolio will have grown from $1 to $9.31.

HOWEVER, there are capital gains taxes owed as the old lady moves into a nursing home and needs the cash. Let's arbitrarily say that the combined local, state and federal capital gains tax rate is 40%. Then the $9.31 is actually $5.58 after paying the tax bill … and the compounded rate of return is 5.9%In contrast, the investor pays taxes every year on the bond portfolio and reinvests the remaining amount after taxes. After 30 years, the bond portfolio will have grown from 1$ to $3.89 or about 4.5%. So, even though the return on both asset classes were the same, the effect of compounding on the deferred taxes in the stock portfolio is what accounts for the lion's share of the difference. I used a high capital gains tax rate. The actual results may be better. And if the old lady dies, there are no capital gains taxes. Only estate taxes (if any).

Buffett understands this phenomenon extremely well. And there are several excellent academic studies that document even better results if one harvests the tax losses each year and never sells the winners…. BOTTOM LINE: The permabears on this list are ignoring the single most important factor to achieving outstanding returns: Unrealized tax liabilities are an interest free loan from the government on which one can compound over time.

Jim Sogi writes: 

There is another very important often unanswered question: how much is enough? I know all of you want to make as much money as possible, but how much is enough. My best friend is rich, and made his money in real estate. Yet he has gained weight and is having health problems. I tell him, take time off, spend some money, have fun, exercise, spend time with your family. He doesn't need to work, still he is busy with another big project. Why? The money will not be good for his kids. I've seen the destructive power of money often. It can ruin a child's incentive and motivation easily. Is money worth losing your health?

Ed Stewart responds: 


You are making inferences that are unwarranted given the story that I told. She was an extraordinarily generous woman to friends and charity, who lived very well - very adventurous in spirit and a world traveler. She continued to oversee private companies well into old age - Companies that employed many and created value for customers in competitive industries.

In the weeks before her death she was contacted by a young man who is an attorney at a leading law firm in the region where she lives. He met her for dinner with his wife with gratitude in his heart. Years ago, this old woman had paid for both his private university and his law school. And her only connection to this young man was that his father was her gardener and household helper for many hears. And this was not an anomaly or a one off. She helped to open up the American dream in this way, for many, many people - never publicly or speaking credit, but content and satisfied to be a partial catalyst for the self betterment of others and the achievement of what she felt was the American dream.

So, while in a general sense I understand your sentiments, in this case they are ill applied. Happy thanksgiving folks.

a commenter writes: 

I had often wondered why someone with great wealth will continue not only to sometimes still work so hard but to risk all in ventures in the quest for even more rather than keep in safer investments that will be enough to give them a great luxurious life. I later realized that there are different objectives that are the focus of people's lives that seem innate or driven by personality types that are. One of the most common are find are the "game players." To prove to themselves that their lives matter they prefer competitive activities in which the goal is to come out on top. The money might matter to some extent for what it buys, particularly for buying power, but part of it is just a way of keeping competitive score. People are not necessarily confined to one trait; they can be more complex than that - but one may dominate. Those who favor high taxes on the rich sometimes point to good growth in the economy like in the 1950's when those marginal tax rates were outrageously high. Of course, loopholes allowed the wealthy to often pay less than those rates, but that can hardly be the entire answer. Rather, I suspect that some will be competitive irrespective of the haircuts because even with the disincentives they still want to be the ones who come out on top. Hence, the destructive effects need not be quite as great as one might expect. But if the disincentives are too great they may just start playing other competitive games, such as who will be on the political top under a communist society, and stop playing the economic game in which wealth is the measure of success.

Ed Stewart adds:


Your sentiments are a big part of what struck me after reviewing this track record.

Let me add to the story though, what perhaps I should have initially. This old woman was never a miser. In fact very wealthy all along do to her husband's success in business and investing acumen. She had no need for the stock portfolios for any reason, be it income, old folks, care, etc, be it current income or charity, etc. And she was very generous, lived comfortably, and by no means a miser. The amazing part of the investment angle of the story is the way the "vault" stocks over time surpassed her other holdings in value, investing in many of the "dull" names that today are famous for having created enormous returns over the long term.

A commenter advises: 

 How would buy and hold work for those not initially wealthy?

Though you can't afford them, buy stocks when you are young so they can compound.

Never look at them, or the market, as you will be tempted to sell.

Pay off your student loans from your after tax income.

Don't read about investment managers who beat the market because you might try your hand.

When you need money to start or buy a business, borrow but don't sell.

When the little lady wants a nice car, house, vacation, or life, just say no.

When you need money for your kids growing up, skimp but but don't sell.

Save for kid's college from your salary and make them take student loans for public schools.

Have boys so your daughter-in-law's parents pay for weddings.

Retire late to prolong compounding and delay taxes.

Now that you can finally spend, enjoy retirement with your many close friends and relatives.



I had often wondered why someone with great wealth will continue not only to sometimes still work so hard but to risk all in ventures in the quest for even more rather than keep in safer investments that will be enough to give them a great luxurious life. I later realized that there are different objectives that are the focus of people's lives that seem innate or driven by personality types that are. One of the most common I find are the "game players." To prove to themselves that their lives matter they prefer competitive activities in which the goal is to come out on top. The money might matter to some extent for what it buys, particularly for buying power, but part of it is just a way of keeping competitive score. People are not necessarily confined to one trait; they can be more complex than that - but one may dominate. Those who favor high taxes on the rich sometimes point to good growth in the economy like in the 1950's when those marginal tax rates were outrageously high. Of course, loopholes allowed the wealthy to often pay less than those rates, but that can hardly be the entire answer. Rather, I suspect that some will be competitive irrespective of the haircuts because even with the disincentives they still want to be the ones who come out on top. Hence, the destructive effects need not be quite as great as one might expect. But if the disincentives are too great they may just start playing other competitive games, such as who will be on the political top under a communist society, and stop playing the economic game in which wealth is the measure of success.



 The Knicks remind me of Brooklyn College when my father played. All the teams would pay Brooklyn a fortune to come out to Notre Dame or Michigan or Cal to kill the Jews. The fans loved it and took out all there frustrations from the depression by seeing Brooklyn get killed 90-3, or 87-0 et al. Artie had his nose broken 17 times during these games and the home fans loved it.                                      

The Knicks are losing 46 to 22 to Portland and the fans love to see the Knicks killed the way they loved to see Brooklyn killed. Portland "toying with the Knicks" like the cat the mouse. Many injuries to people like Stat or some such that the fans love. Often the 3 or 4 options people on far out puts would toy with a certain party the same way.

Anatoly Veltman writes: 

On toying: imagine if the flash-crash of May 6, 2010 were happening in the midst of a bona-fide US bear market. And this will surely play out one day, once the U.S. is in fact in a bear market. If the market briefly disappeared first time around, what will prevent it from disappearing for longer next time? Government's orchestrated pledges — telegraphed to a few first. So who will be truly saved by that?



 One of the best things to win in sports is a nice lead over the opponent. Then the opponent is forced into non-percentage shots. People like Smith are put into the game, and of course he shoots from further and further out, and his percentage is even less than the normal 30% on these shots. Threes from 50 feet out are taken by Anthony and now even Martin. Reminds one of how when the market is on a tear at noon, people on the other side blindly throw contacts against the major move, desperately hoping to get even, and each contract has a worse and worse expectation.



 One thing I notice in unsophisticated investor-traders such as myself is that the positions one takes are usually supported by an unspoken prediction: "I will know when it is a good time to sell this and I will be able to do so."

Gary Rogan writes: 

The beauty of really long-term investing is that you don't have to have this unspoken prediction.

Victor Niederhoffer writes: 

And to add to Mr. Rogan's "beauty", you take full advantage of the most marvelous aspect of arithmetic, the power of compounding. And furthermore, you reduce to a minimum the vig from flexionic and top feeder activity.

Anatoly Veltman writes: 

Can't dispute all of the beauty. The problem is that only a narrow group is willing to commit: those who set aside slow money. Most suffer from the "hot money" bug: how to make money work its hardest. Willing for the money to die trying.

Gary Rogan writes: 

Very poetically put. It also illustrates the following point: in any kind of investing or trading the problems and solutions come in two flavors, namely those of competence and those of psychology. Even in long-term investing you still have to decide what to buy and when to buy it, so it's not immune from either category.

S. Humbert writes: 

Buy and Hold (for the medium term) is not, in my view, enough to earn a living from. Please let me explain before you fry my IP address.

In the past 30 odd years alone, even the unleveraged long only holder of US stocks has had many barren years (and multi year) periods when he lost or didn't make.

In my usual, inelegant fashion, what I am saying is that if you trade for a living — for yourself (i.e. at the sharp end of the game) then buy and hold alone doesn't cut it. (Unless you start in 1982 or 2009 or some other retrospectively chosen low). This does not dilute the effectiveness of the strategy, I'm just saying an individual's perspective and starting point dictate what weight one should give to the passive, low vigorish strategies.

Frankly, a low single digit return with a very poor Sharpe Ratio over the lady two decades LESS retail friction, well… I certainly couldn't have lived off that taking into account my extremely modest circumstances when I started my speculative business in 1990. Anyway — it's at all time highs now right!

Ralph Vince writes: 

Worse–you're still going to touch that money. You're going to take a morsel, or add a morsel, you can't sit there and forget about it.

Now you're on the curve.

Now, if you are 100% invested, you are completely doomed, and it isn't a matter of if.



 This is a nice article on cantilever principle in design inspired by a reading of Wright's New Principles of Architecture with many market applications, e.g. a big rise in a period followed by a small change.





Recent articles seem to indicate that the stocks with the greatest short interest perform significantly worse than random. The meme used to be the opposite. An example of changing cycles? Or all consistent with capital asset pricing model with volatility in a up versus down market?

Charles Pennington writes: 

Most of those studies don't include the cost of borrow. Ruger (ticker RGR) currently costs about 74% annualized to borrow. If you sell it short, it might go down, but it better go down in a hurry if you want to make any money. If you're long, you should haggle with your broker and get him to pay you some of that 74%.



Some preliminary thoughts on the running median 2, 3, 4, 1, 7, 8, 9, 3.

A moving median of the first 5 is 3, of the next 5 is 4, of the next 5 is 7, of the next 5 is 8– it's a good indicator of trend. First recommended to me 53 years ago by Fred Mosteller, Chairman of Harvard's first statistics dept.

It is more stable than the moving average as outliers are removed from sample. It is easy to compute fast with computers for small running numbers like 5 or 100 by repeated sorts. For higher numbers, you can form two groups, those below the median and those above. As a new number comes up you place it in one of the two groups if higher or lower and take away the oldest number. Then adjust to make the two groups equal again. It is not used as much as the moving average so it shouldn't be hurt by front running or spikes when cross over occur. It has a defined distribution when the underlying distribution has inordinate extreme values as frequently occurs with Cauchy or similar distributions with infinite variance.

It's probably a good thing to use when using nearest neighbors as predictors, i.e using the median and running median to compute your predictors. It deserves testing in real life markets for real life applications.

Ralph Vince writes:

It is the indicator of "expectation," as evidenced by human behavior itself, and not the probability-weighted mean.

Bill Rafter adds: 

Moving medians have some distinct advantages.

They represent real values that occur. For example, taking the average of 1, 2 and 5 gives you 4, which never occurred, whereas the median 2 did occur. Continuing with the same series, should subsequent values in the series be less than 5, the value of 5 will not occur as a moving median. Hence, the moving median eliminates outliers.

One of my appliances has three thermometers to measure temperature. The value displayed is the median (and hence a series of moving medians). Should one of the thermometers be broken, or distorted by being in a particularly hot or cold spot, the median will still give me the best estimate. This elimination of outliers is very useful.

Should you have data whose importance relies upon only crediting occurring values and need to eliminate outliers, then you should test moving medians. We ourselves had experimented with them regarding price series and written extensively about them, but do not use them in our current work. Our reason is that we consider the outliers in a price series to be particularly important.

Kim Zussman adds:

The following is a plot ratio of SP500 (10 week moving average) / (10 week moving median) for the recent 5 years (SP500 weekly close data).



One of the things that comes from reading Gods and Heroes: Myths of Epic Greece by Gustave Schwab is that Odysseus is one of the most loathsome men that ever existed. He routinely kills the noblest and wisest Greek of all, Palamedes, and he tries to kill Philoctetes and leaves him to die on a desert island. He reminds one of the most dishonest and unreliable people one has met in his life.



 Among the fascinating anecdotes in Art Shay's fascinating book Album For an Age, which I am reading with delight, is this description of the way they bought companies in Chicago in the 1970s. Nat Cummings of Consolidated and Henry Crown of General Dynamics and Hilton had a regular gin game at the Drake every Sunday evening. An entrepreneur with a major paint company, Kirsch asked Crown if he could present him with his game plan and financials with a view to a purchase. Crown said okay, meet me at The Drake, but be brief because I don't wish to interrupt the game. It would be disrespectful. Kirsch spoke for 5 or 10 minutes to Crown giving him the lowdown and the price. Crown said, "I'm afraid that the asking price is too high. Good luck to you. I'll discard the 9 of spades." Without interrupting the game Cummings said, "young man, I like what you said. I"ll buy your company. Hendry, how many points did I leave you with on that gin."

I wrote to Art: "My only regret is that I did not know you and your wife in previous years. I am an avid collector of books and letters and would have had so much to talk about with your family. And what a family it was."

Art replied: 

Likewise. Anyone who sends Bo to another continent to make business decisions should be worth meeting. It's still possible. I have 2 shows opening in Chicago–BUT have a nice show of celebrity pictures opening in NYC March 6 at the Morrison Hotel Gallery, 136 Prince Street in Soho. I'll be there. 

I'm 91, but am resolutely planning to do a new bio based on my 150 or so blogs on vault of Art Shay. I'm syndicated in 14 US cities, plus Toronto, Shanghai and London. Impetus came from a piece I did titled "Sleeping With Elizabeth Taylor and other perks of the photo trade." It got well over 50,000 hits. Look it up.



 Most of the people who come in my store say, "Glass? I would break it within an hour."

Did their mommies slap their hands once too often? You would think that we lived in a nation of klutzes, so thoroughly have these people been indoctrinated to use plastic.

The things I sell are borosilicate glass, an exceptionally strong and practical formulation fired at extremely high temperatures. Think Pyrex, Duralex. Sadly, verbal assurances fail to convince.

Today, I tried a new tack. "Drop it," I suggested to the customer. He hesitated. I shrugged. He dropped it.

I really didn't know what would happen. I had knocked all the bottles off a display table a couple of days ago without one of them breaking, but he was holding the bottle a foot higher. When he came in, I was in the middle of planning just such an experiment for after hours, with dustpan at the ready.

He dropped it. The glass survived.

"That was very convincing," he said, and paid.

Convinced of the power of demonstration, I sold a GlassFlask to the next people who walked in by pouring boiling hot water over a tea flower and offering them a taste in a Dixie cup.

It is bitterly cold today, and some people come in just for the Kleenex on the checkout counter.



 There is a serious game of cricket happening at the moment between England and Australia. A test match which goes for 5 days. In that 5 days fortunes are made and lost and reversed on a daily basis.

The comment section of most papers following the action gives one a good indication of herd mentality. If this is the same representation of those trading markets news and announcements, then it is little wonder most are caught off guard. A day ago it was all pro England comments and the Aussies were toast, and today it's…. "Doomed, we're all doomed, I tell you. Well played Australia. England haven't a hope in hell of saving this Test."



 Today's note is fueled by the discovery that Wikipedia has no entries for George S. Coe. Henry Varnum Poor dedicated his best work, Money and Its Laws, to Coe; but all one finds for George S. Coe in a search is this:

and, for disambiguation, this:

George Coe (Lincoln County War) (1856–1941), Old West cowboy George Coe (Michigan politician) (1811–1869), politician from the U. S. state of Michigan George Coe (mayor), American mayor of Lancaster, Pennsylvania, 1962–1966

 Coe did what Morgan did during the Panic of 1907; he persuaded all the major banks to join together to discount each others and their counter-parties' paper. What is truly remarkable is that Coe did it in 1861 solely by the force of his character and his ability to put the matter plainly: "What," he asked everyone in the room, including Secretary Stanton, "if we do not unite?"

Here is Coe's obituary from the Times.

Also, in 1888 the Commercial Advertiser printed Coe's letter to E. G. Spaulding and Spaulding's reply.

Spaulding was Treasurer of New York before the Civil War and was the author of the Legal Tender Act — something else for which there is no wikipedia article so this will have to do:

About Spaulding Stiles, the biographer of Commodore Vanderbilt, wrote: "If Wall Street had saints, then the college of financial cardinals would surely canonize Elbridge G. Spaulding."



 I came across about this rather nice summary of backtesting in the context of investment/trading framing over the weekend.

"Fool's Gold:Why most back-tested performance histories are bunk, and how you can identify the ones that probably aren't" :

Reasonable investors derisive of back-tests acknowledge that in theory back-tests can illuminate something true about the world but believe in practice back-tests can rarely be relied on to do so. The Vanguard study, by finding that past performance does not reliably predict future returns of asset classes, joins a chorus of studies by many independent researchers demonstrating the same. A skeptic might conclude back-tests are to induction what Richard Simmons' hair is to the category of things that can be burned for fuel.

The problem with that argument is too many successful investors are or were back-testers. Benjamin Graham, father of value investing and Warren Buffett's mentor, devised trading rules based on studies of what would have worked in the past–back-tests, in other words. Early in his career, Buffett applied Graham's back-tested rules to identify "cigar butts," statistically cheap stocks that had assets that could be sold for more than they could be bought for. Another successful Graham acolyte, Walter Schloss, achieved 20% gross annualized returns over several decades by "selecting securities by certain simple statistical methods…learned while working for Ben Graham." 

Ray Dalio, founder of Bridgewater Associates and arguably the most successful macro investor alive, uses back-tested strategies to run Pure Alpha, an unusual fund that uses only fundamental quant models. Mathematician James Simon's Medallion Fund, a quantitative, fast-trading strategy, has earned 35% annualized returns after fees since 1989.

Jeff Rollert adds:

The difference between back testing and understanding drift is the difference between knowing history as taught and understanding evolution.

That is my inner Hobbes speaking today.



 In August, Science published a landmark study concluding that poverty, itself, hurts our ability to make decisions about school, finances, and life, imposing a mental burden similar to losing 13 IQ points.

It was widely seen as a counter-argument to claims that poor people are "to blame" for bad decisions and a rebuke to policies that withhold money from the poorest families unless they behave in a certain way. After all, if being poor leads to bad decision-making (as opposed to the other way around), then giving cash should alleviate the cognitive burdens of poverty, all on its own.

Stefan Jovanovich comments:

In their efforts to avoid blaming the poor, the researchers failed to consider a possibility that Jesus himself acknowledged: people who lack mental abilities are overwhelmingly among the more impoverished people in a society. (How is that for a sufficiently politically correct rendering of Matthew 26:11? In the King James version: "For ye have the poor always".)

People with low IQs do not make not smart decisions about money or breaking the law or many, many other things; it is highly unlikely that giving them money changes any of that. The history of what lottery winners do with their windfalls should be all the proof a reasonable inquiry into the question requires.

Education is supposed to be an answer to this problem; but, like so many other efforts at social improvement, the principal beneficiaries of schooling, social work, et. al. have been the helpers. (As a concession to David's likely objection, I am happy to acknowledge that the principal beneficiaries of national defense and homeland security have been the non-combatant defenders and the equipment contractors. Whether from the right or the left, government is equally corrupt and inept except when people are free to choose the tenure of any authority.)

That still leaves the question of bribery. If giving the poor money will not make them smart, perhaps those who are also violent can be bribed to leave the rest of us alone? Alas, the "lesson" of history is not very promising. Americans have periodically paid bribes in the name of safety and security throughout our history; but it has not worked very well. Our most expensive attempt - until now - was the tribute paid to the Barbary States. Those pirates were happy to take our money, but they did not stop raiding our merchant ships or enslaving our citizens even after we made a succession of peace treaties. But, as in so many other things, we were blessed by having other people solve the problem for us. The piracies ended when the French and Spanish decided that coastal North Africa deserved to have extended visits from their armies.

Now, there is a possibility to be considered by future researchers. If we can have another country to take over the burdens of our many wars on poverty, won't that solve the problem?



Noted today on Bloomberg: 'Fractal analysis of similarities to 1929 is available to "analysts".'

Anatoly Veltman writes: 

Bloomberg's red line of 1929 is showing much steeper exponential rise "coming". Coincidentally, when RobinHood (more exactly, Peter Borish) began following the 1929 analogue in the early 1987, they decided to go Long first and capitalize on the blow-off that "was coming" first.

In my view, the main issue with all this is not what many think. Those who think this is ALL mumbo are not entirely correct. Chart developments do serve to illustrate participant psychology, which may well indicate over-doing the upside and thus setting up the downside. So that solitary aspect is indeed pro-analogue. My anti-analogue argument is NOT that human psychology has dramatically changed over past century - it has not. The issue I see in 2013-2014, which was not a factor in 1987, is that today's market is not driven as much by human psychology as it is by machine psychology!



Thank the good one that, as always, the bearish news of the Fed minutes were released one day before the tips auction so that the flexions would not be discommoded and would have an immediate one percentage point profit on their leverage bets backed by their rabbis.



 It is so frustrating to watch Smith create losses for the team, with their random one on one play, and only he and Melo shooting in the clutch that I've taken to listening on the radio rather than tv. Amazingly, the announcers on the radio are infinitely better than the tv, with Walt Frazier bringing up the rear on tv, with his ridiculous rhymes, "jiving and diving". Rather than commentary. Anyway, Spero on radio is sagacious. He routinely says things like, "the team that scores the last basket before an overtime, i.e. the catch up basket generally wins the overtime." Also, "when you shoot 3 fouls, there's a tendency to miss them much more than the percentages would show". Things like that should be tested in markets as they express highs and lows in human behavior.

Pitt T. Maner III writes: 

Just happened to watch the Knicks (6 straight losses at home) in the 4th quarter and in OT against Indiana the other night–it wasn't pretty. Shot selection was poor down the stretch and J.R. seems to have a knack for clanging critical shots. No comparison to the old days of Frazier, Bradley, Debusschere, Lucas, Reid, and the ever graceful, with bandaged knees, whirling dervish-like, "Earl the Pearl". Maybe they will do better when injured players return…

"It's possible that what Smith refers to as "panic mode" really just means that he's going to get serious and do his part to ensure that the Knicks don't continue to slide into the lottery. Still, it's interesting to consider what panic mode could mean for a player as enigmatic and frustrating as J.R. Smith. On a nightly basis, Smith baffles with his erratic shot selection, defensive breakdowns, and ability to take over a game playing exactly the same style that submarines his team's chances at a win. Panic Mode J.R. Smith could be even crazier, with a tendency to dribble with his palms and throw elbow passes as a matter of course. I mean, he already got stuck inside a garage on Thursday, so something must have changed."




 The surprise bestseller of my first three weeks as a world retailer is a glass water bottle with a glass stopper that goes for $5. All vendors here were asked to offer one exclusive for the market and I chose to mark them down from $12.

I have a theory that most people are glad to pay up. Set the price too low and the bad connotations of "cheap" enters the buyer's calculations. At the extreme, a giveaway is considered of no value.

Exceptions exist. Children still believe things are free, living as they do in the golden time of innocence. Business minds like Chair will demand a 50 percent discount as a matter of course, being familiar with markup conventions. Chair also says buyers are vulnerable to Schadenfreude and are particularly happy with the idea that a purchase will come out of the seller's hide, completely without profit. And some people, as shown by my water bottles, find pleasure in being shocked by an unexpected bargain. "That's my bottle!" cried an ingenue. "I bought mine in Paris for $30 and broke it!" She was so happy to find the bottle that she overcame any disgust at the price. Perhaps she imagined herself at a Parisian flea market.

I am always experimenting with prices. If someone says, "That is so cheap!!" I mark the price up 50 percent as soon as they clear the door, if they don't buy. The same bottle that goes for $50 one day might be $40 the next and $60 the next.

I love people who bargain. We are collaborators then in the comradely game price discovery.

A deep exposition of this can be found in the Spec classic Horse Trading by Ben Green, recommended to us by a Yale games theorist and professor of great sagacity.



 Cryptonomicon looks like a fun read and perhaps presages some of the issues in the news now. What secrets will be revealed in the next 30 years about things going on today?:

About the book:

"With this extraordinary first volume in what promises to be an epoch-making masterpiece, Neal Stephenson hacks into the secret histories of nations and the private obsessions of men, decrypting with dazzling virtuosity the forces that shaped this century.

In 1942, Lawrence Pritchard Waterhouse—mathematical genius and young Captain in the U.S. Navy—is assigned to detachment 2702. It is an outfit so secret that only a handful of people know it exists, and some of those people have names like Churchill and Roosevelt. The mission of Waterhouse and Detachment 2702—commanded by Marine Raider Bobby Shaftoe-is to keep the Nazis ignorant of the fact that Allied Intelligence has cracked the enemy's fabled Enigma code.

It is a game, a cryptographic chess match between Waterhouse and his German counterpart, translated into action by the gung-ho Shaftoe and his forces. Fast-forward to the present, where Waterhouse's crypto-hacker grandson, Randy, is attempting to create a "data haven" in Southeast Asia—a place where encrypted data can be stored and exchanged free of repression and scrutiny. As governments and multinationals attack the endeavor, Randy joins forces with Shaftoe's tough-as-nails granddaughter, Amy, to secretly salvage a sunken Nazi submarine that holds the key to keeping the dream of a data haven afloat. But soon their scheme brings to light a massive conspiracy with its roots in Detachment 2702 linked to an unbreakable Nazi code called Arethusa. And it will represent the path to unimaginable riches and a future of personal and digital liberty…or to universal totalitarianism reborn.

A breathtaking tour de force, and Neal Stephenson's most accomplished and affecting work to date, Cryptonomicon is profound and prophetic, hypnotic and hyper-driven, as it leaps forward and back between World War II and the World Wide Web, hinting all the while at a dark day-after-tomorrow. It is a work of great art, thought and creative daring; the product of a truly iconoclastic imagination working with white-hot intensity."

Scott Brooks writes: 

I read Cryptonomicon about 10 years ago and found it to be a mostly fascinating and fun read.

I recommend it to anyone looking for an enjoyable way to wile away the afternoon.

That said, Stephenson has a very distinct writing style that is somewhat cryptic (if you'll pardon the pun). There were multiple times in the book when I would have absolutely no idea what he was talking about, who the characters were or what it had to do with the story. He told the story in a disjointed and odd manor.

It was like he was writing in a puzzle format and tried to make things a confusing…like he was trying to be clever. Unfortunately, he only came across irritating. He did tie things back together later in the book, but it became a bit off-putting after a while.

However, that aside, I did enjoy it and recommend it to the group.



Ode to Janet Yellen: A Fed Prayer

Dearly Beloved,

Let us pray.

Our Fed
Who art in Washington
Yellen be thy name
Thy printing come
Thy will be done by Ben as it is with Janet
And as it was before by Greenspan.
Give us this day our daily 3 billion
And increase us our debts
As we bail out our debtors
And lead us not into inflation
But deliver us from down markets
For thine is the printing, the bubble and the euphoria
Forever till taper

– Anonymous



 Those of us stuck in the print lane are still marveling at what the combination of alternating current-powered motors, (mostly) German ink chemistries and printing wizardries, and American/Canadian paper making did at the turn of the last century. Combined with cheap (yet still profitable) railway mail deliveries, it produced an imaging revolution that equals anything currently happening now with cell phones.

One example is "1921 Paramount Sales Movie Sensation Game Cards".

The movie studios, actually the Sales Organizations where the actual profits were made, produced these by the tens of millions. Now they are semi-rarities.



 I watched the 3D version of the movie Gravity yesterday in a remote city theater in China. I noticed on IMDB that the official showing date is Nov. 20th. I wonder how it gets shown in China a couple days earlier. Perhaps because a Chinese satellite is featured in the film.

Anyhow, aside from a scene in space, the movie's story is very simple and nearly empty. It goes basically like this: while in the wild away from home, two teenagers suddenly discovered their bikes got ruined. To save the stranded girl, the boy surrendered his life. Then the girl struggled to reach to other unattended bikes. She finally got one (a Chinese one), and returned home with it.

I noticed it is rated 8.5/10 on IMDB, an unbelievably high score. It seems like a scam to me. I would give it 5 only for the space scene, otherwise just 2.



 Here is some HFT fun for the whole family: The Wall Street Code.

This is the basic wrap about how flexions (all related at the big end of town, seats on exchange boards, shareholders, etc) have a fast track ticket entry to the front of the order queue.

If retail investors only knew this was the very least of what is against them.

Buy and Hold on monthly reset is looking more and more appealing.



 Thanksgiving, 2007, was a special day for me in a California hobo jungle scrapping with peers like vultures over a charity Turkey. It all began with the 'invisible principal'.

I was a happy sub with many feathers in my hat as the most requested by teachers and faculty alike at Blythe High School in Riverside County.

Besides hiring the new teachers, California had handpicked an ex-career army sergeant with two tours of Vietnam as the ramrod, whom the staff called 'the invisible principal' and the students never once saw for his policy of fierce orders from behind a closed door.

I too had heard but never saw him until two weeks into the term. On that day, in English, at last bell, the kids filed out shrieking, 'To the river, to drink!'

There was a BANG and the room slowly filled with smoke.

Advancing slowly from the door, the grey cloud headed at me kitty-corner at the teacher's desk. I squinted for the source counting 'one alligator, two alligator' until the cloud was at my nose, and then looked left at the window and right at the phone.

Like the sinking ship's captain — surely they will answer the distress — I picked up the phone and dialed the office emergency number. After eight rings, I hung up, still holding my breath, and redialed as fire alarms began to wail. A chalky dust settled on my head and clothes, as I held my breath, hoping.

The door burst open and a thick figure hung in the frame like a gorilla — the invisible principal!

He raced in to open the windows, and as the smoke escaped I exhaled holding the receiver, 'No one answered! Sir'

He cut me short, 'I had to clear the campus, teach.'

We discovered minutes later that a student had detonated the fire extinguisher.

A week went by, and there was a playground war. As usual, the school loudspeaker bellowed the secretary of the principal, "MR KEELEY, to the playground, immediately!"

It was another emergency. I dashed to the gym locker room where ten students and I were pinned down by rocks shot from outside by thirty more too disgusted in the heat to exercise more than these stones. I braved the salvo, and was smashed in the head by a soccer ball. An Aspergers student hid his head in his shirt collar like an ostrich and crashed into the canal. Fights broke out in more clouds of dust, but still no help arrived. The goalposts bent and weighted by students to the ground, screaming triumph!

They had their say that day, as I staggered wearily to the gym office and left my report on the desk. The next day I was fired, and all the feathers fell out my cap.

What does a canned sub do in his spare time? The next day I wrote a 'Letter to the Honorable Schwarzenegger'; it went unanswered. The day after the door shut in my face by a pro bono lawyer. On the third I filed for the first unemployment. On the fourth day I caught a freight out of Kolten yard San Bernardino to, as the hobos say, wherever it goes. Like an out-of-job depression tramp, I was absorbed into the system, and spent many hours reading.

It's said never to leave a complaint without a solution. Somewhere along the line I picked up a copy of Meegan's Democracy Reaches the Kids and thought that may be it, let the kids have a voice in the classrooms before they get all the teachers fired.



Examine the enclosed chart and answer the questions below:

1. What does the historical record of the Japanese stock market imply about the existence of bubbles?

2. (honors) What does it say about assumptions regarding long-term return of claims on earnings streams?

3. (law students) What effect has Japanese government had on their stock market long-term? Would the result be different were the default world currency were the Yen?



 For whatever wonderful reasons Amazon now has a $10 Kindle edition of Bresciani-Turroni's study of what is commonly known as the German Hyperinflation. It is the only study worth reading because it is the only one that points out the obvious — Germany along with the other countries in Eastern Europe had a war that they did not pay for even as they were fighting it. German tax collections between 1914 and 1918 were 23 million marks; during that same time the government wrote checks and paid cash totaling 164 million marks.

It makes one marvel yet again at the wonders of the gold standard as a fundamental restraint on collective insanities. Until July 31 1914 every mark spent had been redeemable by the recipient in gold. The market — the decisions of self-interested people — had foretold what would happen through the simple act of asking for gold instead of paper — so much so that, before the war's extravagances had even begun, the German currency had to default.

On this subject the wikipedia article on WW I Reparations also deserves a reading. The standard Anglo-Saxon academic explanation for the events of the 1920s and 1930s is the one taken from Keynes - i.e. the allies' reparations demands were impossible for Germany to pay and this led to the hyperinflation, which, together with the misbegotten belief in the gold standard, doomed Europe to financial collapse. As usual with Keynes, his predictions about the facts of the future were extraordinarily confident and mostly wrong. What is remarkable is how thoroughly the U.S. and Britain accepted his thesis. Raymond Poincare had the good sense to point out that France had paid a larger reparation (as a % of their economy) after the Franco-Prussian War than the one Germany was actually expected to pay. He also pointed out that France had undergone turmoil equal to what Germany had endured in the years immediately following 1918 yet it had not gone bankrupt or had the franc collapse as an international currency. But, of course, what would a - a mere Prime Minister and a French one at that know about political economy? It is appalling but not surprising, given what one discovers about the prejudices of the time, (Poincare was guilty not only of being French but also of being a good Catholic), that by 1924 the British Prime Minister was making public statements implying that the war itself had been the fault of "French" militarism.

Richard Owen writes:

Great scholarship as ever. As a quick question, as i have not yet tucked in to the homework assignment: France paid larger than the Germans requirement to pay (relative to the economy)? The amount Germany was expected to pay was impossible, so how could France pay larger than an impossible amount?

Stefan Jovanovich replies: 

Richard identifies the key issue - what were the Germans expected to pay. The usual number offered is 132 billion gold marks; but that includes the "C" bonds that were, in effect, non-recourse. The actual "debt" secured by Germany's industrial and agricultural production, was 50 billion. They paid 40% of that amount; what is truly amazing is that, through the Dawes plan, they were able to borrow most of the 20 billion that they actually paid; and that 20 billion was, in turn, used to "pay" the debt the British and, to a lesser extent, the French owed the U.S. (FWVLIW, I remain bewildered by the reasoning behind the decisions of the higher minds at the Federal Reserve in the 1910s and 1920s. How exactly did they think it was in the interest of the U.S. to allow European nations to run up a tab that makes quantitative easing seem like fiscal prudence?) Back to the question of reparations - 50 billion was not an impossible sum, especially since it was to be paid out of decades. Germany's "Federal" government had spent more than that amount on the war in a single year.

Richard Owen writes: 

Very interesting. Keynes' numbers were something like $40bn treaty reparations owed and that Germany's max capacity to pay was $10bn. This is against an economy with c.$2.5bn exports. So the treaty reparations were c.16x exports. Even at peak estimate, Greece's modern debts were something like 5x exports pre restructuring. And I guess you could wonder the correct way to think about 'capacity' — a lot of Keynes' complaint was the deflationairy mistake of even going close to theoretical capacity. Which seemed to bear out.

Stefan Jovanovich responds: 

The difficulty is that Keynes used the numbers that the Germans offered, not the ones that experience proved out. For example, his estimates of coal production were only 2/3rds of what the Ruhr and Saar produced. The central fact is the one that no one in Britain or America liked; when the claimant took possession, the debtor paid. What defeated Poincare is the decision of the French communists to oppose the occupation of the Ruhr because the Comintern had decided that the Soviet Union's best interests lay in closer relations with Germany. Perhaps we can agree that these questions are those of political economy, not economic science. what remains unanswered is why the Fed thought countries that had defaulted could still set their currencies' specie prices independent of what money changers on the street corners thought the paper was worth. The best explanation for the blowoff of the U.S. stock AND bond markets after 1925 is the willingness of the Fed to pretend that Germany was materially broke yet somehow stable enough for the mark to be accepted at the administered exchange price.



 This man is worthy of a movie, which would very much unfold as dailyspec readers would expect, as he made fatal errors on the way up, including, it seems, expecting that the bull market wouldn't pop, and indulging his record cash outflow with much initial hubris. It's not over yet. He can still pull himself back from the brink.

"Boganaire - The Rise and Fall of Nathan Tinkler."

What strikes you about the tale of Tinkler is that he made two fortunes in his lifetime but never made a profit. Loss makers all: from his companies and coal mines to the Newcastle Knights, the Newcastle Jets and the Patinack Farm horse stud.

The other thing is the sheer velocity of the man's spending - the mansions, the cars, the planes, the bloodstock - and his unrelenting battles with creditors. Manning has totted up some 50 actions against Tinkler, mostly for not paying his creditors.

Tinkler made his first fortune scraping together $1 million and buying the unsung Middlemount coal deposit in Queensland. That was in 2006. A year later he sold it to his mentor, Ken Talbot, for $265 million worth of shares in Talbot's rampaging Macarthur Coal.

The timing was exquisite. He cashed out of Macarthur for $442 million in May 2008, then embarked on what must be the biggest spending spree in this country's history. By the time he came to his second ''deal of a lifetime'', he was out of cash, Manning says.

After a reckless spending spree of its own, and crippled by the global financial crisis, the mining giant Rio Tinto was dumping assets. It was early 2009 when Rio put its Maules Creek coal deposit up for sale.

Again, Tinkler saw the potential. He paid $480 million - almost all of it borrowed from US hedge fund Farallon.

All he put down was a 5 per cent deposit, but he didn't even have that. Talbot had tipped in $15 million in a short-term loan.

Aston Resources and Farallon and their lawyers were poised to sign off on the deal in the Brisbane offices of Freehills when Tinkler sent the Aston boys a text message.

He was down at the nearest pub, the Pig 'n' Whistle, in his shorts and thongs. You better come down, he said. Tinkler confessed that he hadn't been able to refinance Talbot. Farallon was about to fund Tinkler into a half a billion dollar deal when they found out his 5 per cent deposit wasn't all his.



 The half hour documentary "Magnus Carlsen's Last Big Title" gives a glimpse into Carlsen's world. It's remarkable how he has developed his talent. He has memorized thousands of games and he thinks about chess constantly. Of course he has studied every single of Anand's games.

Enough chess; time to study historic price data!



 You're invited to come along on my Holiday Decorations Tour.

On the day after Thanksgiving I visit NYC shops to admire their holiday windows and holiday interiors. It's about seeing beautiful things, not shopping. It's also a time to notice how businesses entice people to enter, how they use their space to present groups of items and to appreciate how they light their space and merchandise.

Friday, November 28, 2013

If you're coming, just meet us at 10:00am outside Anthropologie on 3rd Ave. at 71st St., NW corner.

Best wishes,

Iris Bell


3rd Ave. at 71st St., NW corner

This is an unusual use of space. About half the floor of the main level has been removed, creating a lower level "great room" instead of a normal basement. The great room changes the way we see all the spaces in this shop. Last year there was a splendid Xmas tree on the balcony. Except that the "balcony" is actually below street level.

Ralph Lauren Men

Madison at 72nd St., SE corner

This mansion's interior was created in 1983 to the taste of Ralph Lauren. It's inside the shell of this 1890s building. The windows, all the floors and even the decor of the back stairways are worth seeing.

Ralph Lauren Women, Home and Children

Madison at 72nd St., SW corner

This mansion was built in 2010, to the taste of Ralph Lauren. It was inspired by the 1758 building in Paris where Lauren has his shop. All it's windows and floors are worth seeing. Every detail, from the hinges on the counters to the handrail supports have been chosen to create elegance and beauty.

Donna Karan NY

Madison, between 68th and 69th Sts., E. side, mid-block

The windows have dramatic holiday decorations. The back of the main floor has a Zen style outdoor garden with an indoor/outside pool.

Crate & Barrel

Madison at 60th St., NW corner

The main design element I appreciate are its walls, which create many partial rooms throughout the main floor. They're at a slight angle. This angle makes the space seem open, keeping the eye from noticing the many pillars, in a tight grid, holding up the building. We'll look at these walls on the main floor as we walk through toward 5th Ave.

Bergdorf Goodman

Fifth Ave. between 57th and 58th Sts., NW corner

The windows are some of the largest and most heavily decorated in the world. The top floor has a display of ornaments under a skylight.



 This is an old 2009 video that discusses the localism on the North Shore of Oahu. No matter how you slice it and dice it, there is some level of localism at every break, and there are always problems associated with localism. If you show up at someone else's break, respect and be humble towards the locals, especially towards the alpha who will be easily identified, and you might have some fun. Hubris does not serve visitors very well. Hubris doesn't help in the markets either.



Parallel Problem Solving from Nature 2014:

Natural Computing is the study of computational systems that use ideas and get inspiration from natural systems, including biological, ecological, physical, chemical, and social systems. It is a fast‐growing interdisciplinary field in which a range of techniques and methods are studied for dealing with large, complex, and dynamic problems with various sources of potential uncertainties."



 I dreamed I visited Galton's house at Rutland Gate. He was seated at his desk dressed in 21 layers against the cold and drinking from his whistling key kettle while he held a notebook in his other hand. "I am looking at Cousin Darwin's stock and consul investments. He's very good, but he shouldn't short so much. The power of compounding combined with the high return on capital is too great" he said. He laboriously got up and led me into the dining room where Cyril Burt, Jensen, Dimson and Stigler were sitting. An attractive Japanese woman served the meal and Burt kept making gallant remarks to her concerning the mutton. There were setting for additional guests.

He got up and I offered him my arm to stabilize him. He presented me with a notebook ruled with horizontal and vertical grids. He said, "Use these to copy down the market prices with time on the vertical and price on the horizontal. There's a big difference between reading it from the Babbage or the typewriter and doing the calculations and counting yourself." I woke up with tears in my eyes.



 It's shocking to see with all the disapproval of the Oval that the stock market keeps going up. Usually the Oval is like a father figure, and when disapproval of him goes up, it makes everyone insecure in a freudian way. Suicide and expiation for evil thoughts comes to the fore, even the sale of stocks. I think I'll sell some tonight.

Gary Rogan writes: 

I note with interest that Aetna was up 1.74%, Wellpoint 1.67%, United Health 0.61%, Humana 0.89%, and all of them are a lot closer to their 52 week highs than lows. Superficially the Oval has created a dilemma for them today where they will supposedly be blamed for an incredible mess as they are now "allowed" to re-offer the just canceled individual plans that they can't possibly offer in time to have the formerly insured covered again in the new year on any scale as it takes too long to reprogram their computers, send the letters out, get various local approvals, etc.

Vic Niederhoffer wrote at 10:06am EST via Twitter:

All bad things must come to end including shorts. I call this a draw. I
will go after believers in flow funds more important than stocks next week.

Steve Ellison writes: 

One wonders if the stock market is moving inversely to the diminishing likelihood of any further attempts at agrarianism before 2017 given the tremendous loss of political capital by the Oval Office and the lame duck status of the incumbent.



 Like the lucky break that keeps you in a position you should get out of, that is disastrous in the end as you lose much more, the Knicks' win with Smith starting will be the kiss of death for them. He has a bad eye, and a defect in character, and can't play as a team player, and is a gunner. A friend who knows basketball infinitely better than me said you could walk around the school yards of new York and find a hundred players like Smith on the perimeter scratching the back of their colleagues.

It's unfortunate to see good guy Woodson on an inevitable fall down the hill to firing as he puts his reliance in the tried and true Smith and his brother and stays away from the "Rooks". 



 Once again the sensibilities of the centrals and sovereigns and flexions galore who buy the bonds at the auction were not discommoded.

Gary Rogan writes: 

I have maintained for many months that they will not let the rates run away for as long as they can help it because they just can't afford it. Those who thought that the employment report would provide some cover for the would-be taperers and sold everything in sight wrongly believed that the supposedly taperers needed cover. Their only real job is to delay the death spiral of higher interest payments => higher borrowing to make those payments => higher rates => still higher payments for as long as possible. Well, OK and to keep the big banks permanently on the dole. How can they ever do anything deliberately that will signal higher rates? Only mistakenly as Ben did in May, a mistake he tried hard to correct but not enough to even think about tapering.

But the good news according to Ms. Yellen that the stock market isn't in any kind of bubble either, so it's safe to buy. To infinity and beyond! Abby Joseph Cohen a noted expert on value in the market still sees some so it's all good.

Craig Mee writes: 

So many fake outs, levels of deception, noise, and price runs come to mind, but just a few take away from that trade that you look back on and think to yourself, "how easy should that have been, all I had to do was hold".

Gary Rogan adds: 

A few days ago Goldman's Hatzius found two Fed economist studies that support lowering the unemployment threshold for tapering. Of course that's only to help unemployment as all of the Fed's goals are ultrapure. How often do we see Fed studies that permanent money printing on this scale isn't something that has a precedent and these projections are on the level of "climate science"? Once again, to the man who only has a hammer everything looks like a nail.



 From "Technical Analysis of the Futures Markets: A Comprehensive Guide to Trading Methods and Applications" by John J. Murphy, Prentice-Hall, 1986:

"The flag and pennant represent brief pauses in a dynamic market move. In fact, one of the requirements for both the flag and the pennant is that they be preceded by a sharp and almost straight line move. They represent situations where a steep advance or decline has gotten ahead of itself, and where the market pauses briefly to 'catch its breath' before running off again in the same direction.

"A bullish pennant resembles a small symmetrical triangle … the move after the pennant is completed should duplicate the size of the move preceding it.

So … with apologies to the Chair and all others who believe that this is a load of mumbo-jumbo (and I count myself among those folks EXCEPT when the chart agrees with my bias and position), I note that the Nikkei since May has been in a Bullish Pennant and if last night's move over 15,000 is sustained and extended somewhat, then Mr. Murphy would expect the Nikkei to approach 20,000+ in the near future.

Unrelatedly, but quantifiably, I would further note that the Nikkei is now within a cat's whisker of having a 10 year total return (in US dollars) that is equal to the S&P demonstrating the magnetic pull of reversion to the mean. (The S&P has been compounding at about 7.5%/year.) This is a factoid that few know or would believe and is thus a stealth bull market, which is the most insidious and powerful kind of bull market. Only after the Nikkei's performance has exceeded the S&P's for a few years will the public (and pundits) wake up and announce that "Japan is back!" much like gold bulls awakened in 2009 as evidenced by both Google Trend searches and price.

I was bullish and early on the Nikkei, when it was an extremely contrarian view. I remain (on balance) bullish on the Nikkei even though it's somewhat less contrarian. My opinion plus $1 can't buy a cup of coffee, so reach your own conclusions — but don't fight the trend.



 Some time ago Mr. Jovanovich posted an anecdote about old man Mellon to the effect that his kids never let him pay for a bill at a restaurant because the old man felt that prices should be the same as they were when he was a young man and that they were too high today. This is a common thing one runs into in certain people of age. They are accustomed to the old p/e, the average of the last 10 years, on those rare occasions in the 1930s when Ben Graham wasn't chasing the skirts, when you could buy companies at below their liquid cash, assuming incorrectly as he did that any shares were available and they weren't losing so much that the previous balance sheets were meaningless.

Galton had a way of dealing with such things, and he was the most revered man of his age, commanding universal respect, and heading all the leading scientific and geographic societies. "Let the bygones be bygones". Don't fret about bad things that happened, or look to take back the things that you could have done that would have made you so much better off. The woman you didn't marry. The stock you didn't pick. The limit order that wasn't filled.

I recently ran into this in a business meeting where I was trying to sell a company. When negotiations started the earnings of the company were half what they were when the negotiations resumed. The buyer was stuck on the old price and old earnings. The buyer consequently missed an opportunity to make a tremendous profit, of about 10 times his investment of millions in several years.

One often makes this mistake in the market. You try to catch a falling star and you miss it. And then it goes in the direction you had hoped. But you never come in again because you are trying to catch it at the bygone price. Anatoly once mentioned that he was trained in checkers by the KGB to learn to be an amnesiac so he wouldn't regret moves that he should have made on the board, and would look to the future.

In chess, the good players always say forget about the prices that have been taken and concentrate on the pieces that are on the board. I believe this is a common mistake in life and markets, and would be interested in the scientific and empirical and life and market lessons that you all have learned from similar ruminations.

Richard Owen adds: 

 Ted Turner believes a large component of his success is attributable to the fact he readily accommodated and cared not much about what had past. The Buddhist concept of acceptance and Kabbalahist idea of cause and effect are similar.

Compare Germany and Silicon Valley. In Silicon Valley ones past mistakes accrue as experience. In Germany there have been many internet start ups but also inevitably failures. Speaking to German friends, a failure there is carried like a deadweight around ones neck.

Society is destablising somewhat as the record of evidence of one's past peccadiloes becomes more extensive. Nobody can get into office or past congressional approval unless they lived a prude life of Cromwellian perfection. And its not clear one is best led by a Cromwellian prude.

Ralph Vince comments: 

There's two ways we learn things, the easy way, and the hard way.

If we learn things the hard way the FIRST time we climb up off of the pavement — that is the definition of a windfall.

Learning things the easy way is to accept facts like an obedient database. The only payoff to learning things the easy way happens when our perspective on the matter at hand altered such that we see it in its proper light and thus actually understand it, rather than merely as data.

To convey ideas to other human beings, we must amend their perspective, their point of reference on the matter, to see it anew from an entry point that they will understand it. To spare them the inevitable beatings of otherwise learning it the hard way is such a gift.

Stefan Jovanovich comments: 

In our misbegotten adventures in L.A. we had minor and almost all indirect dealings with the mouth of the South. Mr. Turner was so acutely aware of his father's defeat and death that even in casual dealings outsiders learned how determined he was to avenge/outpace/overcome his family legacy. He also was notorious, even in Hollywood, for accumulating personal grudges.

A great deal of individual success in Silicon Valley has come from the fact that the U.S. income tax code allows the tax-free pyramiding of gains through (1) buying and selling of principal residences and (2) exchanges of corporate interests. When you add the glories of carried interest, the result is a society of the well-connected in which there are very, very few failures who haven't held on to at least a respectable amount of the OPM. From the little I know of the German tax code, none of these opportunities to do a heads I win/tails you lose coin toss has ever existed in that country.

 Cromwell was many things, some of them awful; but he was never a prude. He and Elizabeth Bourchier had 9 children; and he and his wife were both, by religion, Independents. That meant they were those rarest of people who believed that Jews and (from the point of view of their Anglican, Presbyterian and Puritan contemporaries, even worse) Catholics were entitled to political and religious liberty.

What Richard may have meant is that Cromwell, as a military commander, was as piously single-minded as Joan of Arc. Like hers, his army never lost a battle once they had received proper inspiration; and each soldier literally believed in him and "the cause" for which they had a clear catechism. This was not ever going to be good news for anyone (Catholic Irish; Scots Presbyterian) who opposed him just as the Hussites (as dissidents from the true Catholic faith) would not have much mercy from St. Joan.

P.S. I find the history of Cromwell's catechism fascinating. If one were to ever come up for auction, the 1643 edition might be priced at a figure that even lovers of Bacon (the recently mentioned artist, not the writer) would respect.

For the American sequel to the story, check out The American Tract Society.

Victor Niederhoffer adds: 

One notes the Chinese proverb on a similar theme: "don't carry your hatreds into the new year" or the English variant, "you can't run a mill with water that's past". All languages seem to have a proverb similar to "let the bygones be bygones". The Jewish custom of asking forgiveness at the new year for all the harms that you have inflicted on other in the past year, and sharing a torte and tea is from a similar vein. 

Jeff Watson adds: 

One of my proverbs is to take the hit, forget about it, and move on. But then again I don't mind small losses as they are just part of my business, and I take many small losses of a couple of cents when I smell that the trade is going to be wrong. Just like surfing, where there will always be another good wave, in trading, there will always be another good trade.

Alan Millhone writes in: 

Dear Chair,

A grudge is a difficult thing to dismiss.

My Mother used to say, " I can forgive — perhaps not forget "



Gyve Bones writes: 

Oliver Cromwell was an unmitigated bastard and I find no evidence he believed that Catholics were entitled to religious liberty. To the contrary, his raping and pillaging and wholesale theft of Ireland, which was clinging tenaciously to the Catholic faith, and the Penal Laws enacted for the suppression of the faith and Gaelic language starting then and continuing for a couple of hundred years was an attempt, largely successful at cultural and racial genocide.

His puritanism certainly enforced a prudery on England. Within 50 years of Shakespeare's death, his plays could not be performed. And prudery is not the same thing as having a fruitful but chaste (no roaming to other bedsteads) relationship with one's wife.

— G.B.

Show me a Puritan, and I'll show you a son-of-a-bitch. -H.L. Mencken

The President of the Old Speculator's Club writes: 

 Though Dailyspec seems to be a great repository of Mencken fans, there were a few voices which, although agreeing with him on many items, diverged on others. One such notable was G.K Chesterton. The two quotes which follow immediately demonstrate some common ground.

"The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary." —H. L. Mencken

"We are perpetually being told that what is wanted is a strong man who will do things. What is really wanted is a strong man who will undo things; and that will be the real test of strength." —G.K. Chesterton

On the issues of science and religion, however, Chesterton suggested that Mencken was equally skeptical:

I have already noted that, if there is such a thing as religious mania, there is also such a thing as irreligious mania. Just recently, perhaps, it has been the commoner of the two. But a very interesting study of the matter comes from a country in which we may say, without injustice, that both are fairly common. I had occasion to remark recently, in this place, that an American paper had accused me of being an anti-American writer; and I commented on the curious irony that the American paper was itself an anti-American paper. But, though I may be permitted thus to parry a purely personal charge, and a highly preposterous one, I should not like anyone to suppose that I do not both enjoy and value the magazine in question.

I am quite well aware that Mr. Mencken, the editor of the American Mercury, is really doing his duty as an American citizen in being an anti-American critic. I myself have been regarded often enough as an Anti-English critic, when I regarded myself as a patriot. In short, there are immense internal evils for Mr. Mencken to attack, and he is perfectly right to attack them. All is well so long as the good citizen abuses his own city. The trouble begins when the foreigner abuses it—or, almost as often, when the foreigner admires it. But, anyhow, the chief efforts of the American Mercury have to be directed towards this howling wilderness of sectarian sensationalism.

The popular science, that rages in the American Press and local government, is simply a dance of lunacy more ghastly than a dance of death. And an exceedingly valuable and important protest against it can be found in the same number of the Mercury from which I have picked the examples of theological hysteria. The protest is all the better because it is not the sort of protest that I should write, or that any person of my beliefs would write. The critic is writing entirely in the interests of Science, and is perfectly indifferent to the interests of Religion. And he enters a virile and telling protest against that science, which is his only religion, being dragged through the mire as a degrading superstition.

From a great article: "Religion in American History: I
Hate Methodism; and G. K. Chesterton vs. H. L. Mencken: Battle of the
Monogrammed Dudes. Surprising or Otherwise Interesting Primary Sources,
Pt IV"

Richard Owen writes: 

This is fascinating stuff. The modern day argo in British English of referring to something as Cromwellian is along the lines Gibbons indicates, although at one step removed perhaps.

Cromwell instilled the Protestant Work Ethic in puritanical fashion. That still pervades much of British psyche today, and is captured in popular imagination, for example, in the writings of the Daily Mail and the books of Tom Bower, Britain's foremost hatchet biographer of businessmen (I say this with great respect; his books are well written and I suspect Mr. Bower would be glad to acknowledge his genre bias).

Thus the Protestant Ethic mentality is to be rich and industrious. But with the emphasis on the latter. As Martin Sosnoff said of his Dad, something like: *"he never thought he'd earn an easy dollar, and he never did".*

The one thing that really irritates the Cromwellian mentality is to find out, after slogging ones guts up to Vice President and exiting to early retirement with a Carriage Clock and blue chip pension, is to find out the reason for corporate downsizing was because a kid from the JFS, assorted Anglo Norman public school boys, or an Asian immigrant rustled up a grub stake into Forbes Four Hundredism. And possibly even had some good sex, bad drugs, and hella fun in the process.

Not to make light. These are complex neuroses and threaded reasonable sense given each parties bias.

Craig Mee writes: 

Victor, the point can also be made that although a potential lost opportunity arises and there are fewer pieces on the board, the situation is then more clear. Although you may not establish the solid position you initially hoped for, many more tighter risk reward opportunities now present themselves, sometimes allowing you a defiant win on the move all the same. However, this outcome may be related to your initial and ongoing foresight about what's unfolding.



 I am reading two of the best books: Master Trader by Laszlo Birinyi and and Where We Lived by Jack Larkin and one of the worst ever, Forecast by Mark Buchanan.

A disproportionate number of scholarly people have below average ability in spatial relations. I am one of them. I am reading Barrons' "Mechanical Aptitude and Spatial Relations Test" to improve.

Ha. I now know what a tongue and groove pliers and an allen wrench is.



 If you clicked on this email expecting to find my latest prescient thoughts on Apple, you will be disappointed.

Rather, I'm looking for some inexpensively-valued stocks in iNDIA and iNDONESIA. (I know, I know, Russia is supposedly cheap too.)

I looked at the big caps in the India ETF's and they don't look cheap for a country that is suffering from the early stages of a capital flight. And I don't trust my Bloomberg for finding diamonds in Chanakyapuri.

Does anyone have some favorites? As Sergeant Joe Friday would say, "just the tickers, Ma'am

(Don't be shy. I only harass Mr. Rogan when his stocks go down.)

Many thanks.

Sushil Kedia writes: 

Define a CIX b'berg as: CNX Nifty Index / CNX500 Index. That would be a ratio of Largest 50 stocks index and the broader 500 stocks index.

A severe flight into safety has played out. Looks like the penultimate round. Obviously the small and mid caps have had visited 10 year lows, more than half of the 4500 listed stocks trade at P/B <1 and about one fourths of the stocks are at a P/E <10.

Elections are due in the first half next year for the Union Govt. Important state elections in 5 states results on 8th Dec.

New high in large cap index got everyone's granny to orgasm. Market closed lower last 5 days.

Flight into safety brings a market to all time highs, with no breadth so to say. The severe divergence in small caps and mid caps produced a jumbo rally in them briging them to be now "overbought".

While the hoi polloi rejoices both the new high trip in the prior weeks and the sizzling rally in smaller stocks, there are heavy signs of distribution. This market is right now hollow.

Flight into safety… hmm… a final scramble of a flight away from safety, i.e. no place to hide remains due…

Well, if this time its different is an adage everyone heard all their lives, I am watching outside of India, while sitting right inside here. Will emerging market currencies sell off? Will this whole world sell off ONLY after FED actually tapers off and there would be no reward to those who will anticipate and speculate?

Cheap… without some reason? The obvious may have first become unobvious, yet once more.

Jeff Rollert writes: 

Bristol Myers gas had this strategy for years. They're basically banks now.



 I found this article very interesting. Yet few of the investment greats have PhDs or CFAs. QED? Albeit that PhDs are overweighted vs, their population weight.

"What a Difference a PhD Makes: More Than 3 Little Letters"


Several hundred individuals who hold a Ph.D. in economics, finance, or others fields work for institutional money management companies. The gross performance of domestic equity investment products managed by individuals with a Ph.D. (Ph.D. products) is superior to the performance of non-Ph.D. products matched by objective, size, and past performance for one-year returns, Sharpe Ratios, alphas, information ratios, and the manipulation-proof measure MPPM. Fees for Ph.D. products are lower than those for non-Ph.D. products. Investment flows to Ph.D. products substantially exceed the flows to the matched non-Ph.D. products. Ph.D.s' publications in leading economics and finance journals further enhance the performance gap.

S. James writes: 

I struggle to find anything less important than the letters after one's name when assessing investment managers.

Ralph Vince writes: 

I would certainly argue that more education is preferable to less, in any field, provided such education doesn't impede someone's ability to reason things through for themselves.

Whether it facilitates thinking this way or not is not something I (nor one who does posses those credentials) can determine from our own experience.



 There was a very interesting segment on 60 Minutes last night about GoPro and its young CEO, Nick Woodman. A fellow who failed with an earlier business but who came up with a great and very profitable idea.

One can imagine attaching the GoPro camera to a RC mini-quadcopter along with certain geosensing tools (small magnetometers, maybe gravitometers, GPS etc. –depending on lifting capacity of the copter) in order to aid prospecting for minerals in rough or jungle terranes. Certainly it suggests a way to more quickly do local remote sensing projects.

I would imagine it potentially useful for archaelogical or environmental work too. One can envision a "smart" GoPro that could process remotely sensed information (possibly in extended wavelengths like IR). Inspection of all types of man-made structures becomes easier.

As mentioned in the 60 Minutes program, coral reef surveys have been greatly improved by utilizing the underwater GoPro cameras.

Here is the TV segment with Anderson Cooper.

Here is a company with geosensing possibilities like GoPro uses. 



Many of the estimated 6-7 million expats have headed to Mexico but Medellin, Colombia has been mentioned before as a good city for entrepreneurial souls. Perhaps Rosetta Stone or other language companies will do better as more boomers head south.


"Medellin, the former drug capital of Colombia, has launched a film commission as part of concerted bid to convert it into the film capital of this Andean nation. Spurred by Medellin mayor Anibal Gaviria, a 10-year strategic plan begins with construction next year of what Medellin film commissioner Francisco Pulgarin describes will be the largest audiovisual complex in Latin America with film and TV studios and other amenities. Infrastructure build-up will complement an initiative to train more people — in both English and Spanish — in the audiovisual sector."


Medellín: With a metropolitan area of about 3.8 million people, it's Colombia's second-largest city. Its location in the northern Andes ensures pleasant weather year-round, with temperatures rarely rising above 80F or falling below 60F. Most buildings are constructed of red brick, set off by the greenery of the city's many parks and botanical gardens. Five of Latin America's 35 top-rated hospitals are located in Medellín, Peddicord says.

Downsides: Air travel to the U.S. generally requires changing planes at least once; air pollution can be a problem in the center of the city; and the English-speaking expatriate community is small. "You are going to have to learn some Spanish," she says.'



Over the past year all of my worst trades have all been long term positions that I sold at a nice profit. Yet I only realize this after tallying up realized losses and the mind wanders to "what happened to the ones I sold at a gain" and I tally it up to see that the missed gains dwarf the realized losses. Certainly a function of the bull trend, yet still… It seems to be a psychological phenomenon where the market plays tricks on my perceptions — or perhaps I trick myself.

Craig Mee writes: 

Ed, that's a good example of why when your cycle is in and you're making money in the market, you have to keep things tighter than ever, as if you have to start shooting from the hip because your saddle bags are full. It will end up with your cutting good trades to pay for the new losses, the market's own little stoppy to make sure you don't get to much of the action.



 It's surprising how many retired execs, engineers, and doctors I know who work for Lowes, Home Depot and Rockler. The guy who invented the artificial knee as we know it works for my local Rockler store selling woodworking tools.

My friend sent this story to me, writing, "It's a great story and I've found exactly the same at WalMarts and Home Depots across america. You wouldnt believe… until you walk in there and take a quick survey of the help, and choose the graying one with a spring in the step who's intellect is superior than all the shoppers. Ayn Rand didnt get to see WalMart and Home Depot in proclaiming that the clerks and workers of america were second class. One in 20 of them is a former dignitary."


You just have to appreciate this one. Young people forget that we old people had a career before we retired…..

Charley, a new retiree-greeter at Wal-Mart, just couldn't seem to get to work on time. Every day he was 5, 10, 15 minutes late. But he was a good worker, really tidy, clean-shaven, sharp-minded and a real credit to the company and obviously demonstrating their "Older Person Friendly" policies.

One day the boss called him into the office for a talk.

"Charley, I have to tell you, I like your work ethic, you do a bang-up job when you finally get here; but your being late so often is quite bothersome."

"Yes, I know boss, and I am working on it."

"Well good, you are a team player. That's what I like to hear."

"Yes sir, I understand your concern and I will try harder."

Seeming puzzled, the manager went on to comment,

"I know you're retired from the Armed Forces. What did they say to you there if you showed up in the morning late so often?"

The old man looked down at the floor, then smiled. He chuckled quietly, then said with a grin, "They usually saluted and said, Good morning, Admiral, can I get your coffee, sir?



$WFM - Whole Foods posted its first material slowdown in sales post the recession - Credit Suisse

Richard Owen writes:

YE reporting is going to be a minefield of canaryism: intra-shutdown slowdown vs. Th-Th-Th-Th-Th-… That's all, folks.



This is a fascinating little essay by Wendy McElroy describing two types of child labor in England during the Industrial Revolution: "The Industrial Revolution You Haven't Met"



 I recently spoke with two doctor friends (an independent study with n=2) about their relationship with the government in their medical practice, specifically in Medicare. Both were quite willing to get paid a fraction of the normal cost to treat their medicare patients or not get paid at all. This they could shoulder. One recounted that late in the year, around this time, state medicare funds completely dry up and they get almost nothing in pay from medicare. What they could not abide however, was government oversight/compliance in the name of fraud prevention.

Now that all the easy targets and hucksters in FL have been rounded up, government needs to find other sources of revenue. So they go after legitimate doctors. One received a $300k fine for minor offenses in not checking certain boxes on certain forms. The other was reprimanded and fined for working pro bono on some patients and not others. Apparently he was not qualified to make a determination over who he could treat for free. The government fraud receipts have gone up from a few $100 million several years ago, to over a billion now and is a part of funding ACA. With so much focus on demand (ACA, affordable this or that), very little consideration is given to supply. Incentives for doctors are largely ignored. They predicted fewer hospitals staffed with fewer doctors. On a positive note maybe Walgreens or Rite Aid will fill in the gaps with NP's and there will be a positive certainly unintended consequence.



 Eike Batista is clearly one of the most exceptional businessmen in history. His achievements are incredible. Next to him we are all minnows. Sadly it appears he has lost 99% or 100% of his c.$35bn fortune (depending on reports). Courtesy of Forbes, below are the English translation of his ten business rules. They seem quite piquant in light of his struggle. It must surely be a reminder that we must all diversify to some extent away from our own self.

1. "Nobody is happy alone. To share experiences is always a good thing."

2. "You grown as a person when you face your own challenges, or stressful moments, as I like to say. A good entrepreneur must be prepared to evolve in adversity."

3. "The good seller is the one who is also a good listener."

4."Believe in yourself. If you doubt yourself, you won't be able to face your co-workers. Or the market, for that matter."

5. "Don't quit at the first adversity. Believe in your intuition, but try to be down to earth as well, paying attention to research and polls."

6. "Don't think you are unstoppable or foolproof. Don't think that the only way your business will work is through perfection. Don't aim for perfection. Aim for success."

7. "To have a dream is one step closer to achieving something in life. The difference between the dreamer and the maker, though, is that the latter actually makes it happen."

8. "Look forward; focus on what people don't see at first sight."

9. "Look at a business in all its depth and think of every detail with maximum accuracy and minimum risk."

10. "Luck is important, as it is part of any project. But luck will only be present when the project is well designed."



Note: This was a brilliant article by Ken. It should be read by all market people, all athletes, and all others. I'd like to retain Ken to teach my children a few things. I wish I knew and practiced all these things. vic

"Feet-work" for Racquetball Court Movement

Ken Woodfin

How you move on the court greatly affects how you play because ultimately when you aren't there you can't create your competitor's despair.

First, here are movement suggestions for your feet, or "feet-work", and how to build these skills. Second, we'll progress to tactical feet-work and how using certain feet-work skills will raise your game in specific match situations.

I. Feet-work Skills

• Stay Active

Keep your feet alive. And begin from the middle! Here we start with simple principles and then we cover other effective and innovative movement skills.

- Keep moving

When you close in on a ball, take small adjustment steps as you read the ball. Keep your feet light and moving so you may adapt to the bounce of the ball. Play the ball instead of allowing it to play you. Think of it as when your feet stop moving your brain may stop, too! So keep your feet alive, your mind open, and then react and stay active right up until you can just about reach out and pluck the ball out of the midair. Then set your back foot, wind up as you walk into your shot and stroke confidently.

- Go Middle

After you stroke the ball make it *your* tendency consistently to move middle. Even in a slower paced rally, like a nick lob game or ceiling ball exchange, simply *take a walk* back middle. That walk gets you in prime coverage position. When you stay on the fringes of the court, such as against the back wall, up against a sidewall, or locked in the service box after serving, you leave yourself way out of position. Take a more proactive, tactical approach and seek control of the middle. From the middle you may move where you see the ball going or you may move to allow the required straight and crosscourt shots owed your competitor. Now let's explore faster ways to move about the court and always return to the middle.

• Athletic Body Position

How tall are you? Play a little bit shorter than your full height. Why? Know that as soon as you stand up too tall, you have to drop down to move, burning up your moving time. Also, when you bend down too low, you first have to rise up a little to move most efficiently. Slightly bend at the waist. Flex your knees and ankles. That slight body coil spring-loads your whole frame to be ready to move about the court more easily and smoothly.

• Be "ambi-footress" - Start on Either Foot

Choose to avoid being, for instance, just right footed, like you may be right-handed or right eye dominant. Learn to start out equally well off either foot and you'll be able to move about the court even more efficiently and quickly. You can teach yourself to be "ambi-footress". Place your heels flat up against the back wall. Step off aggressively with one foot. Sprint off the wall for a short distance. Return. Switch to the other foot. This exercise is done for two reasons. One, by learning to take shorts sprints off the wall, you train yourself to eliminate a possible false step backwards, while you step off strongly with the lead foot to begin your sprint. That forward only move makes you faster because you don't start going forward by first going backwards. Two, by switching feet and drilling with both, you teach yourself to step out equally well with either foot as you move about the court. That duality makes you a more versatile, efficient mover and harder to back into a corner.

• How to Shuffle Step

Most players are very familiar with the shuttle step as a form of court movement. Here is a short primer: Start near back wall facing either sidewall. Drop down a little height-wise and slide step sideways away from the wall using the foot furthest from the wall. To complete a shuffle step, slide the trail foot sideways, bringing it up next to the first landing foot before you continue your sideways shuffle.

• Power Down to Stop Shuffle Step

As you reach the service line or first line, put on the brakes by bending your lead knee and then flex your trail knee to lower your body. This knee work gracefully stops your forward momentum. The braking move lowers you center of gravity. Bending your knees uses their natural shock absorption to slow down your body when moving about the court. The ability to stop puts you in better, lower position to: (1) perform a balance stroke, or; (2) "freeze" to cover as your competitor strokes, or; (3) bolt to take off in another direction. How do you *bolt* best?

• Why Use Crossover Steps?

The crossover step gobbles up ground from the get-go. To teach yourself to crossover, again do the shuffle step from the back wall toward the service line. When you approach the first line, again put on the brakes by bending the outside leg and then flex the trailing leg. The control method first: As soon as you stop, push off the lead, outside leg and step off in the opposite direction with the trailing leg, the one furthest from the line. Take off in a sprint towards the back wall and slow down well before you reach the wall. That's the SLOW way! Now let's learn the faster, crossover way.

- Crossover As You Learn

To incorporate the crossover, repeat what you did before by shuffling to the service line. This time, when you get to first line, bend that outside, lead knee, then inside, trail knee, brake, and push back as you pivot off both feet (on the pads behind the toes). Then stay extra low as you turn your hips and shoulders and crossover aggressively with the outside, trail leg. Make it a big crossover step. Drive your arms, even pumping with the one holding your racquet, as you dash your very best to the back court. This big crossover step simply makes you faster. The crossover step works for several court coverage situations, such as …

- Dash Forward

When you're stuck in the back court or right up against the back wall and you can see the competitor placing a low kill in the front court or when you see a high ball about to fly way off the back wall, use your jets to dash forward. How: First step crossover into a low, arm pumping all out sprint. Stay low and run quietly or avoid stomping. On the way decide which shot you should hit? Take off running with the ball making sure the ball is away from you. If the ball is flying off the back wall, keep it in the corner of your eye to avoid it running up your back. Use the racquet in your hand and pump both arms to run to where you think you can intersect with the ball while letting it drop extra loooooow.

- Play Keep-away vs Always Drop Shooting

Front court rundown shot tip: get up sideways to the ball and selectively use soft drop shots against a rapidly closing competitor. Be ready to snap off an angled pass toward the least covered back corner. Only when the competitor checks up and backs off to camp on your pass should you hit a soft, disguised dropper.

• Just Jump

An advanced form of the shuffle step is a flick of the feet into a small leap or jump. The jump is used to begin your move or jump to a stop. The player jumps back, sideways or forwards off both feet at the same time. The jump is used to instantaneously adjust your positioning to: (1) clear for your competitor; (2) approach the ball, or; (3) start your run. The landing of the jump is ideally soft and springy, ready for more movement. Still lots of little adjustment steps remain to get in the best position to cover or to flow into a ball that's still reacting to walls or spin. Both an analogy and a metaphor may help explain the ease of the jump and the importance of still moving after landing.

- Leap to Start Analogy

Watch basketball players standing along the free throw lane. After a made fee throw the players do a little rising up leap to get their engine running before they head down court to switch ends. That leap on court can be a little more plyometric or a rapid leap to move over some distance. Learn to emulate a b-ball player by getting yourself in motion.

Mighty Mouse Swoosh Metaphor

Oftentimes players land like Mighty Mouse just even with the ball as if to say, "Here I am to save the day!" But really Might Mouse has lots more still to do. Landing a little behind contact allows for momentum to be built up in the post landings stroke. Coiling back and then stepping into the ball or at least moving forward into the ball is best done with little adjustment steps, then weight back and through, and timed body prep and uncoil.

• Split Step Potential

A technique well known in tennis is the split step. In serve and volley tennis, as the server approaches the net, at the "t" formed by the center line and the back line of both service boxes, the net rusher spreads his feet to a two-footed, paused landing type hop versus coming to complete stop. He reads the situation and then takes off toward the angle where he sees or *expects* the ball to be. The same principle of using a split-step may be applied to racquetball, too.




- Split-Step Tactical Cover

After stroking a deep pass or ceiling ball, dash forward to the dashed line. Step on the line with one foot, and spread your feet to a balanced, on your toes, split-step ready position. Partially face the competitor and read his shot. Get ready to take off toward any one of the 4 quadrants (4 corners). Adjust. If your competitor must retreat to a back corner, you may split-step again to angle off and partially face the competitor.

- Block the Reverse

Move and split-step ON the imaginary diagonal line between the ball in deep court and the opposite front corner. On the diagonal you have a good view of the competitor, while you face the front corner on that side of the court. You get to legally block the reverse by the competitor when you get there before he can set up to shoot. On the diagonal you're ready to cover first the down the line, then the front court, then the crosscourt, and always a ball back through the middle. If instead you were to just face the front wall, widest DTL balls may be just tantalizingly out of your reach.

• Crisscross, a Football and Basketball Feet-work Staple

When you move sideways along the sidewall and you can see the shuffle step is just not gonna cut it and you need to get further, faster, the crossover step with the trail foot BEHIND your lead foot, the "crisscross" gets you there on balance, quickly. As you crisscross, the foot that's being crisscrossed acts as the post. That post foot is your temporary balance point supporting you until the other shoe lands. The crisscrossing foot lands just past the posting foot. Then the posting foot flashes ahead to complete the crisscross. Crisscrossing is sort of a skipping maneuver behind your back. The object of moving about the court is to go as efficiently as possible. The crisscross allows you more options when you need to move sideways lickity-split. As an example, many top flight players serve and then crisscross with their lead or plant foot behind their trail or back foot as they retreat out of the box. It's all about the way to most quickly move and clear the box to cover the receiver's options by being a “littler” further back. A crisscross is much faster than the shuffle step out of the box. A full crossover step commits you more toward the side where you crossover leaving you more vulnerable to the crosscourt return angle. So the crisscross-over is often the crossover of choice to escape the box. The crisscross is an example of a transition to tactical feet-work. Now let's look at more tactical feet-work examples.

II. Tactical Feet-work

• Banana In Approach

Ideally stroke the ball from a light, springy, slightly closed stance, with your front, plant foot half a sneaker closer to the sidewall than the back, push off foot. The partially closed stance allows you to turn your body into a forehand or backhand. How do you get into that ideal stance off BOTH wings? Once you've moved behind and to the side of the ball so that it's about an arm's distance away, you're ready to take on the *banana in approach*. Set the big end of your imaginary banana as the back of your stance. It'll be the push off leg. Then step in with a curved stride with your plant, front foot. This is the "banana in approach", stem in. Stem in means your weight pulls "in" toward the stem or in toward your body. This flow of force and body weight in toward your center gets your legs involved. Force then works up through your hips, turning your torso and finally catapulting your upper body as it synergistically connects to your lower body for greater summed forces.

• Jab and Cross

When the serve is not rocketed into a corner, use the time to jab step with the foot closer to the ball. Then crossover with the trail foot to both close your stance and apply better force and weight into your return. The crossover offers the best balance, while ideally allowing you the receiver to take the ball out in front or ahead of your stroking shoulder.

• Crossover Lunge For Photon Serves

When you pick up a super-fast "photon" serve as it rebounds off the front wall or worse case, as it rockets by the server, crossover with the far leg and lunge low. Be purely focused and doggedly determined to get the ball back to the front wall. Know that you may make contact BEFORE your lunging leg lands, but fear not; you WILL land! The crossover step also serves to coil your shoulders and your racquet naturally flares back with them. Use that natural prep and look to go down the line with your ROS or even DTL to the ceiling to push the competitor sideways and back. Know the main object is to get the ball back to the front wall. The secondary objective is to get the competitor out of the middle. Even a crosscourt pass or ceiling may work because the server will many times be moving your way pursuing the flight of his serve and blanketing the line which is the most dangerous return. Often making good string contact will be enough because you may use the server's power against him to bunt the ball away from him before he may react.

• 2-step Serve Footwork

Paint the edges of the very back line of the box with your sneakers. The foot that will be the plant, lead foot in serving stance starts ahead of the other. The feet are slightly apart and you're in a slight crouch or balanced bend while not squatting down. The racquet is out in front of you in a threatening position. The ball in your offhand resting against, let's say the grip of the racquet. Step up with the back foot toward the front foot. Land inside the front foot and just behind it with both sets of toes pointed at the sidewall.

*Rec: as you step up, draw your racquet back and use and your other arm like a tightrope walker holding his balancing bar.

- Immediately crossover with the front foot toward the front of the box, even landing with the arch of your foot on the front line. Then work your plant leg against your push leg to power your drive serve.

• Get Out of the Box

AFTER you serve and complete your full follow-through your next step is to get out of the box. When you stay in the box you make yourself vulnerable to the pass you can't reach or the ceiling you can't short-hop. Sure you're closer to the attempted kill, but "he", the receiver *sees* you and his pass may rocket by you. So clearing the box, even by just a step, improves your chances considerably.

- How to Get Out of the Box

The way to get out of the box is to first regain your balance. Most of your weight is ideally on your front foot after you serve or stroke. So backshift your weight from your front to your back foot. Take a crossover step with your front foot toward the middle and partially spin toward the ball to flow out of ”no mans' land" in the service zone. Only body spin enough to get a view of the receiver over your shoulder. For protection use your racquet head to look through your strings as you cover your head.

- Retreat with a Crossover or Crisscross

The crossover step is the fastest way to retreat out of the service box. The crossover step may be in front of your back foot or it may be a crisscross-over behind your back foot, which will be covered later. The main point is to avoid a stretch back step with your back, trail foot. A step with your back foot spreads you out, slows you down, exposes you to a loss of balance and an inability to quickly reverse your field should you need to dash back into the front court for a possible low return. Pivot on your back foot and crossover. After the first “crossover” step do another crossover to cover ground even faster. You may shuffle, side-to-side to flow back for serves you read the receiver will return way back in deep court. However, compared to the crossover, the shuffle is in slow motion, as you retreat out of the service box.

- Practice Getting Out of the Box

As part of practicing your serves, practice the crossover (or crisscross-over) step to get into center court. The ultimate objective is to straddle the dashed line with both feet. At a minimum, make your goal to touch the dashed line with your back foot. ALWAYS BLOCK REVERSE pinch angle. From there you can cover most all ROS's. Finish by angling off and face the sidewall in the front court and be ready to blanket the line, your primary and most vulnerable cover.




Over the past year, all of my worst trades have all been long term positions that I sold at a nice profit. Yet I only realize this after tallying up realized losses and the mind wanders to "what happened to the ones I sold at a gain" and I tally it up to see that the missed gains dwarf the realized losses. Certainly a function of the bull trend, yet still… It seems to be a psychological phenomenon where the market plays tricks on my perceptions — or perhaps I trick myself.



TSLA is down $26 (about 15%) today post-earnings. That seems like a pretty big move. But it isn't.The stock was trading at about 170ish yesterday. If I had bought the at-the-money straddle (170 calls and 170 puts) expecting a "big" move, I would have broken even. The Chair, who would have sold the 170 calls and the 170 puts, would also have broken even. The Chair won this round.



 Grist for the toxicologists and epidemiologists and experts on the site. I am concerned about sushi. Check out this article.

"Although uncertainties remain regarding the assessment of cancer risk at low doses of ionizing radiation to humans, the dose received from PBFT consumption by subsistence fisherman can be estimated to result in two additional fatal cancer cases per 10,000,000 similarly exposed people."

I wonder if the mercury, PCB, and other contaminants have more impact from a toxicological standpoint or is it an order of magnitude.

This is the Fukushima radioactive "tag" used to track fish migratory patterns.

On another related subject, this is a paper on atmospheric fallout (and congenital hypothyroidism, CH) from Fukushima:

"Understanding why CH rates have risen in developed nations such as the US is a complex task, as multiple factors are likely involved. Exposure to radiation, especially the thyroid-seeking radioiodine isotopes, should be considered as one of these factors. The meltdown at Fukushima Dai-ichi presents an opportunity to analyze this factor, and studies such as this one should continue."



Apple is hardly worth the hair splitting, and here's why: First compare Apple's market capitalization performance to their stock performance. The executive culture there looks like they will be getting paid via stock hold dilution for a long time; considering they are also hoarding incredible amounts of cash from shareholders… that's not a pretty image.

Apple is Hollywood, Google is Silicon Valley. Apple doesn't innovate. They sell the sizzle not the steak. They had an idea (the guts) for a larger phone when everyone was going smaller; creating efficiencies from more integration between software and hardware meant they had a solid 2 year lead for a comparable product. We can romanticize the qualities of manic CEOs, rightfully, but when we do, we lose that these basic plays are what really mattered.

Now its Over. Every idea they've had in the last decade is the same idea in different sizes. Furthermore, as the net gets faster, computational devices will "hollow out". There will be less native software, AND hardware. There is going to be less physical product to compete over/with (per item, not in total). Design will matter more; this part of the story is Apple's bright spot: Lexus not Toyota.

Of course Apple's stock is undervalued. Even if Apple came out with products that doubled their sales, there are diminishing returns in the stock itself. That is the nature of mega-stocks, is it not? The rules of diversification ensure that money managers are unlikely to generate the demand necessary to make them expensive, even when they have substantial growth. Consider the structural problem: If Apple were to run to 1 trillion in the next year (100%), that would be equivalent to nearly 30% of Gross Private Savings, yet their stock would have only doubled. Do you honestly believe it is "likely to very likely" that Apple could triple or quadruple in that time period with that kind of constraint? That would take $500 billion- $1.5 trillion in value from somewhere else; relative undervaluation would become more common amongst other companies. At this point, for a medium term speculator it is probably best to buy a Jan. 2016 $500 call, and sell a $600 call for the same month to fund your venture.



 A moment of Zen: What do the markets and skydiving have in common? The occasional fiery crash.

Mr. S. James writes: 

Common Traits include:

1. Success in either field requires deep respect for counting.

2. Checking equipment before the taking the plunge.

3. Absolutely no hesitation at the pre-planned moment.

4. Understanding that, regardless of planning, there do exist events beyond one's control that can finish everything.

5. The weather.

6. An understanding that, despite the people around you, it really is all up to you.



 Prof. Charles Calomiris of Columbia Business School will speak at the Junto this Thursday evening about his forthcoming book, Fragile by Design: The Political Origins of Banking Crises and Scarce Credit, co-authored with Stanford Political Science Prof. Stephen Haber.

"Systemic bank insolvency crises like the U.S. subprime debacle of 20007-09…do not happen without warning, like earthquakes or mountain lion attacks. Rather, they occur when banking systems are made vulnerable by construction, as the result of political choices."

Fragile by Design

Time: 7:30 p.m. - 10:00 p.m.

Date: Thursday, November 7th

Place: 20 West 44th St., ground floor

Format is highly interactive, with plenty of opportunity to engage the speaker. Hope you can make it.

P.S. I paste in below Calomiris' review of The Bankers' New Clothes, which appeared in this week.

The Bankers' New Clothes: What's Wrong with Banking and What to Do about It, by Anat Admati and Martin Hellwig

Reviewed by Charles Calomiris

"Capitalism without failure is like religion without sin," as economist Allan Meltzer once wrote, a stricture that applies with special force to the capitalist activity of banking. When banks that cannot pay their bills are protected from that failure by government, the banking system not only allocates funds inefficiently, it may recklessly pursue risks that bring down the economy.

The financial crisis of 2007-09 wasn't the first to demonstrate that government-protected banking systems tend to blow up. Over the past three decades, there have been over 100 major banking crises worldwide in which government protection often encouraged excessive risk-taking. Given these concerns, authors Anat Admati, a finance professor at Stanford University, and Martin Hellwig, a director at the Max Planck Institute for Research on Collective Goods, deserve much of the praise they have received for *The Banker's New Clothes*. By raising public awareness about the dangers of taxpayer bailouts of "too big to fail" banks, they have contributed to the growing support for stronger, prudential regulation of the banking system, especially in Europe and the U.S.

 The two main cures the authors propose are another matter. They would force banks to maintain much more of their financing in the form of equity rather than debt, so that bank stockholders rather than taxpayers bear the downside risk of bank losses; and they would break up global banks into much smaller entities. Both proposals, if implemented as specifically set forth in this book, would be quite costly in social terms and unlikely to avert future bank crises.

Admati and Hellwig assume that increasing bank equity is a matter of boosting the minimum requirement for the book value of equity relative to assets, which includes loans. Were it only that simple, but it is not; increasing the equity ratio based on book value does not necessarily increase the true bank equity ratio. Also, any simple equity-to-assets requirement could encourage banks to pursue hidden increases in asset risk. Empirical studies of bank failure typically find no relationship between the book equity ratios of banks and their danger of insolvency. This does not mean that raising equity ratios is a bad idea—just that requiring increased book equity by itself does not result in higher true equity, much less in higher equity relative to risk, which is the essential goal of regulatory reform.

Taking their book's title from Hans Christian Anderson's fairy tale, the authors completely dismiss the idea that higher equity requirements might entail costs as a "bugbear" that is "as insubstantial as the emperor's
*new*clothes in Andersen's tale." In their view, "For society there are in fact significant benefits and essentially no costs from much higher equity requirements."

This view has been proved false by decades of research. The potentially high cost to society from requiring high equity-to-asset ratios is a reduction in banks' willingness to lend. When a bank is forced, either by sudden equity losses or by increased regulatory requirements, to raise its ratio of equity to assets, it typically decides to reduce lending rather than to raise equity to maintain its existing amount of loans.

Not that recognizing the costs and complexities of boosting ratios means we must abandon the idea altogether. Raising equity is costly but worth it, because the benefits of a stable banking system exceed the costs of reduced loan supply that would result. Accordingly, I would raise required equity to roughly 10% of assets, about twice today's level.

But we must also ensure through additional reforms that banks maintain that ratio in actual equity, not just book equity, and that they do not offset that increase in equity with a big increase in risk. Higher equity will work as a reform only if it occurs alongside other changes in regulation to ensure that banks maintain adequate equity relative to risk. All this is a far cry from the authors' call for a simple hike in required equity ratios, based on book value, to about 25% of assets, without accompanying reforms.

What about breaking up big banks? The studies on which Admati and Hellwig base their conclusion that there are no social advantages to large-scale, global, universal banking are simply not useful for judging the scale advantages of global universal banks. The data used in those studies come mainly from banks with very narrow ranges of products, services, and locations. Citing those studies to gauge the efficiency of global universal banks amounts to an apples-and-oranges confusion between two very different types of banking enterprises: small traditional banks and global universal banks. One cannot be a global universal bank, with multiple product lines and locations in scores of countries, with an asset base of under $100 billion. Such banks provide important and unique services to the global economy, which Admati and Hellwig are wrong to dismiss.

Despite these criticisms, The Bankers' New Clothes is an important book that identifies correctly the central problem of government protection of banks. But regulators should not single-mindedly focus on very high book equity requirements or on breaking up global banks. When those prescriptions prove to be costly and inadequate for the challenging problem of reducing bank instability, policy makers might find themselves as naked as the emperor in Anderson's story.



 I have a hypothesis that older people with money to invest put too much value on youth in their investments, i.e, that they think that young people and things that young people buy are better than other things. I wonder if this is because of their desire for immortality or just a rejection of their loss of virility. I looked for articles that were relevant to this hypothesis but not having the scope or sweep of Pitt, or Mr. E, I have not yet struck pay dirt.

Vince Fulco writes: 

Add to the mix of hypotheses, worry about not keeping up or relevant on world developments, IT, or scientific advancements. It is exhausting for some generations given they were raised with sliderules.

Scott Brooks writes: 

Isn't it fair to say that the growth companies of yesterday are the value companies of today?

Older people probably want, at least, some growth in the portfolio, so they invest some of their money with the younger generation who generally more innovative and/or more attuned to "newest" innovations and idea's that come out.

This makes me think of the thread that we had on the open list last week about music. The older we get, the less we are attuned to modern (innovative?) music. We become entrenched in what we know and what impacted our lives growing up.

My theory is that the growth stage of our lives occurs during our teens, 20's and 30's. In our 40's we begin to transition into entrenched value stages and by our 50's (and one), we are value driven.

I think this applies to music and investing.

However, if we are smart (and I'd like to think we are… least some of the time), we inherently understand that "youth innovates and invents" and we want to be a part of that.

And since by the time we are in our 40's (and up) we have the money, we are the ones that the "youthful innovators and inventors" come to for cash to fund their ventures. And if we missed the Angel/VC and even IPO stage, we'll still invest a portion of our portfolio's with them to harness their vision……and recapture some of our own lost youthful vigor and insight.

Kim Zussman adds: 

Perhaps this wasn't the case before Microsoft (Apple, Google, Facebook, etc) showed that young computer mavens could hit it big, and that nerds will rule the world. People who came of age in the PC era.

Weren't the big success stories pre-1980's stodgier companies?

Scott Brooks writes: 

Wouldn't it be fair to say that GM, Ford, IBM, were the growth and innovative companies of the Henry Ford and Bob Hope Generations?

IMHO, every generation has their MSFT or AAPL, or GOOG……it's just that by the time we know about them (we being the next generation), they've become value companies.

The car companies and airline companies of our parents generation were the equivalent to the computer companies of our generation.

Pitt T. Maner III adds: 

 One would think that the influence of youth is increasing due to the higher use of the internet by the over 50 crowd (which includes me).

1. "Baby Boomers Driving Technology Wave":

'What explains the rapid pick-up of tech tools among the older crowd? "The younger investor is usually an influencer towards their parents in terms of technology," says Ryan by email.

The numbers dovetail findings by the Pew Research Center's Internet & American Life Project that more than half of adults 65 and older are online today. They're flocking to YouTube, social networks and shopping sites—while also growing more comfortable using banking and other financial services online. They form a surprisingly active demographic for Facebook, where 57% of those 50 to 64 are on the social network, according to Pew.'

So you might look at who are the main internet influencers with respect to individual stocks and the stock market and older internet users. For instance Cramer appears to have a fair amount of online "clout" with respect to stock selection as might several others on CNBC.

2. There are many companies trying to figure out and somewhat quantify who the influencers are– such as Klout.

3. This is a recent paper on the influence of the collective mood state on Twitter with respect to the market.

Behavioral economics tells us that emotions can profoundly affect individual behavior and decision-making. Does this also apply to societies at large, i.e., can societies experience mood states that affect their collective decision making? By extension is the public mood correlated or even predictive of economic indicators? Here we investigate whether measurements of collective mood states derived from large-scale Twitter feeds are correlated to the value of the Dow Jones Industrial Average (DJIA) over time. We analyze the text content of daily Twitter feeds by two mood tracking tools, namely OpinionFinder that measures positive vs. negative mood and Google-Profile of Mood States (GPOMS) that measures mood in terms of 6 dimensions (Calm, Alert, Sure, Vital, Kind, and Happy). We cross-validate the resulting mood time series by comparing their ability to detect the public's response to the presidential election and Thanksgiving day in 2008. A Granger causality analysis and a Self-Organizing Fuzzy Neural Network are then used to investigate the hypothesis that public mood states, as measured by the OpinionFinder and GPOMS mood time series, are predictive of changes in DJIA closing values. Our results indicate that the accuracy of DJIA predictions can be significantly improved by the inclusion of specific public mood dimensions but not others. We find an accuracy of 87.6% in predicting the daily up and down changes in the closing values of the DJIA and a reduction of the Mean Average Percentage Error by more than 6%.

4. That reminds me of these websites



avoiding the herd

5. This influence effect on the older investor might have to be considered with respect to the depressing findings asserted by this research:

"Examining the economic costs of aging, we find that older investors earn about 3-5% lower annual return on a risk-adjusted basis. Collectively, our evidence indicates that older investors' portfolio choices reflect greater knowledge about investing but their investment skill deteriorates with age due to the adverse effects of cognitive aging."

David Lillienfeld writes: 

And the problem is that it's unclear that there's any company to take over the place of MSFT, AAPL or GOOG besides AMZN, which can't seem to earn any money (real profit, not just revenues). I had hoped that my now, there would be some suggestion of which companies those may be, but I'm not seeing them.

Scott Brooks writes: 

You could have said almost the same thing about railroads…..then came big steel.

You could have said almost the same thing about big steel….and then came GM.

You could have said almost the same thing about GM…..and then came IBM.

You could have said almost the same thing about IBM…..and then came MSFT.

You could have said almost the same thing about MSFT…..and then came GOOG.

You could have said almost about GOOG…..and then came……?

You have successful well run companies that create cash flow and then use that cash flow and credit to buy up smaller (other) companies….and become dominate.

Isn't that just the way the eternal business cycle works?

Isn't that really just the way of mankind and government?



 There is a beautiful location within view (for now) across the intracoastal from me. Attractive ladies and their cute dogs frequent the area. And a row of investment service companies are right around the block.

Demand for Large Boat Slips at Town Dock Surges

"There's become such a demand for bigger boats, and there's not enough space for them," said Dockmaster Mike Horn. "Last week, the phone didn't stop ringing. A lot of people will call, and we just have to say 'no.' The 38 slips for 100-foot-plus yachts are completely booked, with seasonal and annual leases."



 The advice of Art Bisguier comes to mind when considering the Australian's post on turning off the lights. "Schtalll," he always said. "Sit on your hands and write your move down before you move the piece." I always say if you waited a day or two or hour or two on every trade, or definitely to the end of the day on every trade, you'd do much better. We live in a web of deception.

Anatoly Veltman writes: 

With due respect to everyone quoted, I'm not sure. Just like in board games there is time limit, so in any market contract, there is window of opportunity to cease a favorable price. Have recent tests shown that reversals occur between sessions, as opposed to intra-session?

I agree that was the case in yesteryear, because participants who over-leveraged during the day had to liquidate on the close, amplifying the riot. But these days, the pre-set electronic limits prevent such intra-day indiscretion. So it's just as likely to hit major pinnacle or nadir any time in the session.

Craig Mee writes: 

 Wouldn't it make sense to take all the bright lights, and colored up and down arrows, and green and red charts off your screens and replace them with blacks and greys. The flickering of the table creates undue excitement in one's mind and drives one to "play" when they probably should sit. 

Pitt T. Maner III writes: 

Funny, I was just reading something along the same lines but related to gambling. Best not to confuse the exciting red cherries and the appearance of green as being indicative of possible success.

"How Slot Machines Trick Your Brains":

"A reel on a virtual slot machine may seem to be cycling between 22 positions, but the machine powering it could have 64. This means you're seeing those cherries moving by way more than the odds that they will stop. Schull cites a study by Kevin Harrigan, an expert in algorithms, which says that if this type of machine were to pay off according to what people are seeing, players would win 297 percent of the time."



 A funny thing of mandatory doping goes on in psych wards. When the cops knocked on my door at the Rainbow Hotel down from the LA library, and barged in, cuffed and hauled me to the nut hatch… The reason is that I had paid a week in advance and not left the room, having returned from world travel and needed to hole up.

The manager called the police, I believe, because the hotel was full and he wanted the room to collect double rent. On skid row there are all sorts of tricks to generate income. The hatch they stuck me in was considered LA's finest, and as a former professional athlete I was labeled 'dangerous'.

The nurse gave me a thorazine pill to swallow that I used sleight of hand to stick it in an apple. Otherwise I could have been stuck in that place for a century doing the 'thorazine shuffle'. On thorazine there is no wiggle room for the mind to think through an escape. The California law is that one is observed during a '72 hour hold' and then evaluated by a psychiatrist to see if the patient should be held for a further period of observation or released. Fortunately, on this and two other occasions for similar reasons to confinement during my hoboing years, the evaluating shrink was a compassionate, intelligent guy. He knew that as in jails the gov't pays a stipend for three days an inmate is held, and after that it's his duty to shoo the client out to make room for the next. It was another double rent situation.

The evaluating psychiatrist asked me a few preliminary questions and I proved I was a veterinarian by telling him that his wife's poodle's gestation period was 63 days. Then he said, 'If you were me, would you let yourself out?' I answered by requesting a couple dollar bills from his wallet, and quickly memorized the serial numbers, returned the bills, and rattled off the 20 digits. He signed the release and instead of returning to settle the score with the Rainbow manager I moved on to the succeeding adventure.



 A recent article making the rounds describes WalMart nomads proliferating nationwide. People who spend the night in the car or RV is frowned on at best, and illegal at worst, but WalMart welcomes such customers with open arms who camp as I do in their parking lots. Think what you may politically of the chain, it treats its peripatetics well. Note the distinction between nomads and the homeless. We have vehicles and credit cards and, for crying out loud, just need a quiet spot to park and shop.

The WalMart parking lot outside of Brawley, CA that is my 'home' away from home in the desert is a spacious lot of asphalt covering as many acres as many small towns. There are shade palms and 24-hour security who drive around in a white truck with a blinking yellow light and smiles at you. They are ordered to do so by the store chief because he knows that each day you will spend money in his store and raise his commission and Xmas bonuses to the employees.

The typical day at Walmart, in my case, goes like this. I arrive at 3 am from the desert and park in my favorite spot out back by the mountains of crates where morning traffic won't disturb sleep. I rise at 9 am and drop my car at the WalMart auto service for an oil change. While that's being done there's still time to catch the breakfast special inside at McDonalds. Then I shop for supplies. Sometimes this takes one or two days. Loaded to the gills, my CarV and I return two hours to the desert and not to resupply at Hotel WalMart for another month.

Unlike me, most of the nomads are snowbirds in gigantic RV's who set up in the front parking lot as if it were a trailer court, with lawn chairs, radios, picnics and pets. Many of the families are WalMart hoppers who drive from one to the next en route to certain locations throughout the southwest. There is new breed of WalMart children who are savvy from this circus travel.

Victor Niederhoffer writes: 

The indirect benefits of the profit motive.



I knew many Silicon Valley entrepreneurs on the spec list and in business in the late 1990s. To a man, they all refused to invest in other Silicon Valley companies claiming that they knew everyone in the industry, and they were all phonies, and finaglers, not to be trusted. The kind that hyped their stock, sold out and repeated in some other field with the glow of unjustified success on their backs.

I have met many who fit this description since. However, I did not generalize the situation to Canada, but apparently I should have as the iconic Canadian company's insider trading of the last several years, and announcements before sales shortfalls (they were big on "shipments" rather than sales shows. The big product presentations as Disney should have been a signal.



 Exchange & Power in Social Life By Peter Blau, 1986 has an excellent discussion of the importance of taking into account both micro and macro considerations in understanding the dynamics of personal and institutional behavior. The reason is that microsociological and macrosociological theories require different approaches and conceptual schemes, and their distinct perspectives enrich each other. He shows that people's attitudes and actions are determined by exchanging gratitude and approval for intangible values like respect and money. He puts much emphasis on economic concepts especially the diminishing marginal returns that come from a colleague of higher position helping one lower on the totem pole. The lower one gains less and less help as he adds additional units of admiration. And the approval becomes less and less beneficial to the expert or higher up. The book covers such areas as voting behavior, intermarriage, group affiliations, friendship, compliance, employment, attraction, authority, competition, leadership, punishment, reciprocity, status, risk versus reward, trust– all in the context of exchanging tangible and intangible values in everyday life.

There are no tables and equations in the book. And the economic concepts used are very elementary and fuzzy. However, I found the book insightful in many areas and quite a nice perspective for thinking about markets.



The Jan-October return of the SP500 index for the period just ended was +23%. This 10 month return is 4th highest since 1971 (4th out of 42 years).

Over this period, for Jan-Oct returns over +10%, the following two month returns were up (2-month return of the next Nov+Dec), an average of 4.9% with 16/18 positive:

Date Jan-Oct nxt Nov-Dec
10/1/1975 0.299 0.013
10/2/1995 0.266 0.059
10/1/1997 0.235 0.061
10/2/1989 0.226 0.038
10/1/2003 0.194 0.058
10/1/1991 0.188 0.063
10/1/1980 0.181 0.065
10/3/1983 0.163 0.008
10/1/1986 0.155 -0.007
10/1/2009 0.147 0.076
10/1/1996 0.145 0.050
10/1/1976 0.141 0.044
10/1/1985 0.135 0.113
10/1/1998 0.132 0.119
10/3/1988 0.129 -0.004
10/1/2012 0.123 0.010
10/1/1999 0.109 0.078
10/2/2006 0.104 0.029

Richard Owen writes:

Great work! If you dial it back a day or two and bolt on 87, I wonder what it looks like as an average.


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