Today, in Baltimore as in many other cities across the United States, today is Opening Day, the first game of the 2014 baseball season. For many, spring began on March 21; for fans of baseball, it begins today. In the Baltimore of my youth, on opening day, there were usually a few empty seats in the classroom once noon came around. It was understood that some parents had procured tickets to opening day and that was that. One teacher at my elementary school tried to schedule a test on opening day as a means of getting her students to stay in school. Word of this innovation reached the Mayor, who subsequently called the principal and told her that such approaches were not in the best interests of civic spirit. The test was re-scheduled. My school was not unique, as this episode was reported across the city, and dutifully written up in the Sunpapers and the News American as though it was something novel when it never was.

 When I was 4, the premier home run hitter in the Orioles line-up was Jim Gentile. I remember screaming myself hoarse at many a games as though my utterances would have any impact on the path of his well hit balls to the deep outfield. Of course, they never did, and most times, the ball was caught. But that interest faded, as Brooks Robinson began what can only be described as his amazing career. (To this day (37 years after retirement), in Baltimore he is known as Mr. Oriole and when he travels in the city, it's as incognito as he can get not so much out of disrespect for the fans but, rather, in deference to them. I remember once waiting at the stoplight at end of the Jones Falls Expressway going into downtown Baltimore. The driver of the car at the head of the next lane over was Brooks Robinson. He was recognized by the driver in the car in the next to him, who promptly exited his car and, with paper and pen in hand, went to Brooks' car. A fellow in the car behind Brooks's car started honking his horn—the light had changed and the driver now by Brooks's car screamed back, "It's Brooks Robinson! Can't you wait a second, fellow?" The driver of that car soon emerged from it, also with pen and paper in hand. This scene repeated a few times, with a mob forming near Brooks's car. He finally got out of the car to rousing applause by the assembled fifty (maybe more) or so drivers and onlookers on the sidewalks leading to the intersection. He asked if anyone else wanted an autograph and as you might imagine, hands went flying into the air. Not a few were by parents with a child in tow, waiting to see the legend. He said he was pulling off to the side of the street on the other side of the light so drivers could exit the expressway and get to where they were trying to go. Of course, that didn't do anything to get the now abandoned cars off the JFX, as it was known. The mass of people moved forward and engulfed the car as Brooks got out of it again. A policeman came over to see what was going on, and there were soon Baltimore Police Department cruisers blocking off the streets around this scene. After about 45 minutes or so, Brooks started pointing at the abandoned cars and thanked everyone for their support over the years and how proud he was of the city and how much he looked forward to seeing them at the stadium. That was Brooks. Years later, Bob Costas was interviewing Cal Ripken after Ripken had broken Gehrig's streak. Costas noted that Ripken was known throughout the city as someone who, when walking somewhere and approached by any—especially anyone young—he would stop and talk with them, sign a piece paper and so on. Costas wanted to know why Ripken did it, it was so unusual for ballplayers. Ripken said that he had grown up "just up the road" from Baltimore, was a lifelong Orioles fan, and that when you grew up near Baltimore, you learned how to play third base by watching Brooks. "Watching Brooks taught me a lot about playing third, and also about living your life. Brooks did it, so I do it too. It's the right thing to do for the fans. Especially the kids.") As with many youth in Baltimore, when my father would take me to see an Os game, I went with my Spalding baseball glove (the one with Brooks Robinson's name in cursive on the palm) and my Johnny Unitas crew cut. If you looked around the stadium, every boy under 10 looked like me, convinced that there would be a ball hit towards them, and that the Brooks Robinson Gold Glove mitt would let they haul it in. I never figured out what the kids behind home plate thought, with the netting and all. If the netting gave way, though, they were prepared with their mitts ready for action and their right hand prepared to drop the soda cup to catch that ball.

 Boog Powell was another fixture of the Orioles of my youth. He played the outfield for a while, but at 6'4 and 225 pounds, he was too good of a target at first base to be left in the outfield. Powell was a strong hitter. He hit over 300 homers during his career—and these weren't balls that maybe without an assist from the wind would have been foul or good for a long fly ball out. Nope, these were creamed. There was no doubt that the ball would soon be gone. Which was good in a way, since Powell batted left handed and was a dead pull hitter. Lots of times, the opposing team would move the shortstop behind second base, the second baseman to midway between between first and second, and the first baseman guarding the line. It didn't much matter when the ball was smashed through the infield into the outfield. In 1970, Boog's AL MVP year, one team once tried a different type of shift. The third baseman playing behind second, the second baseman and the shortstop were playing between first and second, and the first baseman was holding the runner. Boog was the tying run, and the opposing team wanted to make sure he did not get on base. Boog proceeded to hit a curve ball to where the 3rd baseman should have been, in which case it would have been a pretty routine double play and the Os would have lost. The ball had lots of spin on it and after it hit the turf, it took a wicked twist into foul territory. By the time the 3rd baseman fielded the ball, the runner had scored and Boog, representing the tying run, stood at second base with a stand-up infield double. (No error, just badly positioned fielders for that particular player.) Elrod Hendricks (who subsequently became the Os bullpen coach), at least I think it was Elrod, came to the plate and on a 1-1 pitch, lofted a ball just over the right field wall. Os won by a run. There was the time Boog was on first, a left handed hitter at the plate, and Boog got a great jump on the pitcher (what pitcher in his right mind was going to hold Powell on first??). As just about everyone in the stadium fell off their seats (Powell never stole bases, he was simply too slow), the catcher released the ball pretty quick, and the shortstop came into position to take the throw and tag Powell for the out. Assuming of course that Powell was out. Which became a moot question when Boog drops to a slide, left leg extended, spikes visible to all. Seeing 235 pounds of angry pot roast coming at him, the shortstop got out of the way as the ball, thrown perfectly just right of second base, went sailing into center field. Powell wisely didn't try to take a base on the error, he would probably have been out. As it was, he scored two batters later. Someone (I don't remember who) interviewed the shortstop after the game about that throw. The shortstop replied that he could let the ball go by and take the error, or (seeing Powell starting his slide) he could take the throw and deal with the spikes and the mass behind them. He said he could live with the error but observed that it's hard to live when you're dead. Yogi Berra was not the only profound philosopher in baseball.

 There are others in Orioles history I'm sure many already know about—Paul Blair, whom Willie Mays thought covered more of center field than Mays ever could, and if Mays invented the basket catch, Blair perfected it—Frank Robinson, arguably the most intense competitor in the game during his career—even more than Pete Rose at the time and others. Bob Gibson said that Robinson was one of the players he most feared (his word) pitching to—"he has so many ways to beat you." Frank stands out not just for his exploits on the field but also his difficulties in finding a home for his family in Baltimore. This was in 1966, and Baltimore was still de facto (though not de jure) segregated. Robinson had trouble finding a house. He found one eventually, but not before the News-American, at the time with the highest circulation in the city, published a front page (not sports section front page) above the fold article about Robinson's experience. I wonder to this day whether that experience, and the publicity attending it, helped with integration (such as it was) in the city.

It's getting to be time for the game to start, so I'll stop here. It's time to think back to those innocent times as a kid, at Memorial Stadium (I have lots of memories from it), glove on my left hand peanuts in my right, ready for that ball that I was sure was coming my way, my father by my side. Tim M—do you think Tillman wins the opener?

Scott—sorry, I haven't followed the Cards this spring. The season needs to advance some for me to get much of an idea about them this year.

Regardless, it's time to "Play ball!"

Tim Melvin writes: 

Nice piece David. Tillman has pitched well all spring so he has a good shot at a win if he can go deep and keep ball out of the hands in the bullpen.

David Lillienfeld replies: 

Thanks. I agree with you on both counts.

I've often wondered if the tell on the re-ascendence of the US will be signaled when baseball resumes its long-standing role as the national pastime. The NFL may have over-reached with over-exposure, not to mention health issues. We'll see if the MLB comes back. Football is such a militaristic game (blitz, bomb, mounting a drive, etc). Nothing like that in baseball. Walt Whitman called it "our game, America's game".



"Economic Data–Fred–St. Louis Fed"

Download it because there are several longer time series like DJIA and SP500 won't be offered very soon. I use FRED on on a daily basis, but I have to say, their new website has many problems right now.



 2014 Payscale College ROI Report

Rocky Humbert writes: 

One cannot help but note the irony of Dr. Z posting this "data". I dare say, based on his seemingly unremitted skepticism towards the markets, he would not invest the tuition in equities, but would instead hold cash ensuring with certainty a negative after-tax, real return (comparable to the eponymous Goshen College). If one lacks confidence in stocks 20 years hence (despite history), why would one believe that these numbers have any predictive value over the same period? More substantially, the study is based on a static view of the world. Geologists and petroleum engineers are currently in short supply. But the market will surely respond to that with a glut in five to ten years. Picking a college based on this data is like buying Blackberry when it was "da bomb." Similarly, it seems that the study gives no account to GPA, major, or post graduate study. In the best case, these numbers will be ignored. In the worst case, this sort of thing will turn into the next-gen US News rankings. Either way, they do not reflect the many intangibles associated with higher education nor with any real forecast of individual results. Lastly and most importantly, I am extremely dubious about the accuracy of the numbers. I have never been asked by my Alma Mater about my income. And if I were, I would err on the low side to reduce my attraction to the every vigilant alumni fundraisers.

Kim Zussman writes: 

I cannot vouch for the calculator's accuracy, but if you look further it allows screening by major, as well as adjusting for financial aid. It was shared in part because it seems ironic to rank an educations ROI; not just because it resembles predicting markets long-term, but especially the implication that education is primarily to earn money.

It remains that universal skepticism is the hallmark of good science anywhere outside New Haven, CT.



 Friday’s end-of-the-week festivities failed to endure past the European markets’ close before the es began it’s daily swoon, and couldn’t even reach a level lofty enough to allow yesterday morning’s longs the opportunity to escape at break-even. After all is said and done, the SPX is still trapped in the ~40pt trading range that has defined the market for the past +1 month. Emerging markets re-emerged and displayed very good relative strength as money rotated out of past over-performers (bio-techs-naz and momentum stocks-rut) into past under-performers (EEM). The yield curve continued to flatten and credit spreads widened as the market discounted Yellen’s, and other’s hawkish comments. Once again, internals are mixed, with a bearish p/c ratio and breadth, juxtaposed against a benign and bullish $vix. After settling the week midway between the weekly S1 and the weekly pivot, the market appears to be waiting for long-term traders at-the-margin to weigh their options before stepping in full force. Relatively low vix and skew readings indicate an unreasonably complacent mood in the market, although a $2.8BB put position was executed this week — so someone is concerned about downside tail risk.

The market has taken on the visage of an aging fighter who has absorbed an inordinate amount of blows to the head and body, yet still remains standing; willing, but not as eager as he once was, to continue fighting. of course, the market cannot stay in the current trading range indefinitely; some endogenous or exogenous event will cause the threshold to be breached, and the market will eventually make it’s mark, as it departs from current value. Perhaps the fix is in, but somebody is betting a lot money, that an overextended and beaten down Mr. Market, finally utters “no mas” on his way to a hard landing on the canvas.



 I read this great book Poachers Were my Prey: Eighteen Years as an Undercover Wildlife Officer last year and kept thinking about how dailyspecs might like it.

The down low: this is the starter book of this type of law enforcement. He is the Donnie Brasco of wildlife rangers.

I think all specs will like the book. It's the hustle of the country roads instead of the city streets.

It will open your eyes to new cons and new applications to markets.

Now I know there are a few of these types of book out there, so maybe some have read others in the genre that they would recommend.




Data, from anonymous

March 28, 2014 | 2 Comments

 I often look at the amount of past price action used to attempt to predict future price action.

Some things that are useful to ponder, in my opinion, are:

1. Is more past data really going to help to make the future prediction more accurate?
2. Should there be a balance between look-back period and forecast horizon?
3. How important is data accuracy (tick level to daily range)?
4. Should reference points & times be changed every second, minute and hour of a day?
5. Should the definition of 'big move' and 'small move' be a fixed thing or relative to the market's current level?

For me, it's NO, NO, VERY, YES & RELATIVE.

Go Well.

Leo Jia writes: 

In Schwager's book "Hedge Fund Market Wizards", Jaffray Woodriff addressed this in the following way. Any comments? It does have to do with what one is trying to get, doesn't it?

"Do you give the same weight to data from the 1980s as data from the 2000s?

Sometimes we give a little more weight to more recent data, but it is amazing how valuable older data still is. The stationarity of the patterns we have uncovered is amazing to me, as I would have expected predictive patterns in markets to change more over the longer term."

Larry Williams writes: 

As I see it we certainly cannot compare data from the old pit sessions to today's electronic markets.

And how do we handle Saturday trading in the real old days or that markets were close on election day…or in 1967 the markets were close on Wednesday… or there used to be a massively important bond report the goosed bonds on Thursday??

We need to understand what the data represents.



It seems like computer science people are finally discovering ever-changing cycles.

"The Parable of Google Flu: Traps in Big Data Analysis

Victor Niederhoffer asks:

Do you believe ever changing cycles are related to the regression fallacy in any systematic way?

Steve Stigler writes:

No.  EC Cycles is a real change — a reaction. But regression is only a selection effect. Google Flu works. Google changes to add ads around it and draws more clicks. Google Flu stops working. Analysts adjust. Etc. 



Here is some Friday fun. Stimulated by the S-Man's comments about electrical utilities combined with the government report on corporate profit margins being near/at record highs while company hiring is sluggish….

Hypothesis: The S-Man has hypothesized that companies with fewer employees make better investments. This is consistent with the view that capital is cheaper than labor. And that government regulations have made hiring more expensive. Rocky accepts that companies with only one employee have no sex discrimination lawsuits. And companies with less than 50 employees have no ObamaCare issues. But do companies that produce more revenues per employee perform better per se (as measured by the stock price)? Rocky did a 5 minute back-of-the-envelope study on the 150 largest (by market cap) US companies.

He asked: what is the correlation between the 5 year total return of the stock price and the revenues/employee?

The answer: -.21 . That is, ceteris paribus, higher 5 year total returns are INVERSELY CORRELATED with higher revenues/employee. Or put another way, lower revenues/employee are correlated with better 5 year stock performance.

And it is suggestive that MORE employees producing FEWER revenues produce BETTER stock prices. Very counterintuitive.

This is a very sloppy analysis. But it's food for thought. Now it's pizza time. And that's even better food for thought.

(Rocky is sure that others have done this analysis in a more sophisticated way and he welcomes critical comments.)

Larry Williams writes: 

I tested revenue per employee a few years back so this is reaching into old rusty memory banks but the recollection is it was just "ok" as a value measure and did not fit all companies. Service industries have to have employees, some high tech and mortgage companies can get by with less.

Memory is clear that this was not anything special to use to find value in stocks.



 One must say that there is no reason to believe that banks are subject to always doing the wrong thing, putting on excessive risk. They've made mistakes in the past. That doesn't mean they will make them in the future. To assume that they don't learn, that they're more prey to error than others, is wrong. There are probabilities associated with their activities and expectations and distributions of the expectation. They make decisions. To assume that they should prepare now for a repeat of 2008 would be irrational. Perhaps there could be check points, where as they get closer to various pitfalls, they adjust their positions. That's what everyone in the world does,—- banks would do it also. Why should they prepare now for an event that occurs 3 times each hundred years. Anyone in the options business for example adjusts their position. They are not subject to wide spreads. I believe I've made my gist clear. They are flexible, and should be. The analogy with the bridge which usually can't be changed in its structure is not relevant for human being with access to many different alternatives to structure their balance sheet and access to many liquid markets.

Stefan Jovanovich writes: 

As some DailySpec readers already know from my private grumblings, I am still pissed off about having had to settle for an architectural degree from Harvard when what I wanted was one in naval architecture from M.I.T. The R-Man's bridge analogy may not be ideal; but he is right to look to the rivers and the oceans for a comparison. When you design a ship, one of the first calculations to be made is how strong will the bow steel be. To answer the question, you have to decide how large a wave will break over the bow - i.e. what the weight of water will be. Before satellite observation and remote telemetry buoys, the nautical world had to rely on the observations of mariners and the examinations of the damaged ships that survived rogue waves to determine what was an appropriate "stress test". What modern researchers have discovered is that the size, weight and length of freak waves is far, far greater than all previous estimates. The otherwise unexplained disappearance of super tankers and large freighters is now attributed to their having had the misfortune to run into a wave that literally tore open the ship's skin and flooded it beyond its buoyancy.

There is no lesson in any of this. Shipbuilders and ship owners still have to make the calculation of how much more money is to be spent on further strengthening bows and decks. Whatever budget is decided on will not be enough to assure absolute safety; the Breton Fisherman's Prayer will still be true.

What bewilders us aging cranks is why our central banking world persists in the belief that the fluid dynamics of credit can somehow be engineered so that nothing ever sinks. The common sense of the old world was that money should be something that could survive wrecks, storms and frauds. Credit needed no protections; it was in the very nature of people to believe in the future and to bet on it and to take the risk of sailing small boats on a large ocean. What was folly was to think that lashing all the ships together into mighty armadas would somehow persuade God to permanently moderate the waves. 



I cannot even count the number of trading lessons in this Bruce Lee video.



 The stress test that the Fed uses, which involves a 50% decline in stocks, a 25% decline in real estate, and 11 % unemployment is totally ridiculous. [Supervisory Scenarios 2014 32 page pdf]. It assumes that one wouldn't have a dynamic strategy involved to curtail risk on the way down, and that an event that has only happened 3 times in last 125 years would happen again, and that banks should run their assets as if it were to happen imminently rather than handling them dynamically with decision making under uncertainty the way all are taught in business school.

It must be a propaganda method to diffuse attention from all the hundreds of billions that they gave to the banks during 2008, and a method of flexionism if you get the drift that Mario Puzo and Janine Wedel write about. It is amazing that this bank or that bank only failed the test qualitatively. What a sponge for flexionism is such a "qualitative " test which allows the greatest amount of bargaining and begging. What a world we traverse.

Rocky Humbert writes: 

I just browsed the Fed document to which Vin alludes. It can be found here.

I didn't read the document closely, but it's unclear what the pass/fail criteria entails. That is, whether the test is "insolvency" versus "solvency" or some level of capital after the stress. Perhaps someone else knows the answer to this?? It's key to understanding whether the stress tests are ludicrous.

Structural engineers design buildings and bridges for Category X hurricanes and Y richter scale earthquakes. It is accepted that these are extreme and rare conditions and engineering for these stresses involve substantial costs. It is also accepted that the structure may sustain damage in the calamity but will not experience sudden catastrophic collapse. My guess is that the same sort of mindset is at work here. Dynamic risk management is not possible in structural engineering for obvious reasons. In financial institutions, if one believes that the amount of stress/risk in the financial system is static, then dynamic risk management may not work either — because risk will simply move from one institution to another institution … but the overall stress remains in place. Would anyone disagree with this characterization.

Ultimately, I believe the question is whether the Fed should be engaged in ANY stress tests. Once the answer is yes, then we are debating about the magnitudes. And the debate is similar to whether the new Tappan Zee Bridge must tolerate 100, 150 or 200 mph winds before it collapses….

The key difference is that an contractor can put a price on the incremental cost of each 50 mph tolerance. I am unaware of any cost benefit analysis from the Fed in setting its stresses. And I propose that this absence of cost/benefit analysis is where an objective critic should focus his energies. 

anonymous adds: 

Then, there is the further question. Since the Fed has the only checkbook that never needs to be balanced, why is it engaging in the pretense that it cannot "save" any member bank no matter how "stressed" it becomes? I understand why it is important for everyone who trades to follow the entrail readings of the Delphic Committee; but, as the R-Man notes, it becomes difficult to understand how there can be "any cost benefit analysis from the Fed in setting its stresses".

As I reread Sumner's History of American Currency, I find myself wondering if the R-Man's fellow alumnus could possibly understand our modern minds. Could he truly understand how we define money as central bank credit and then actually worry about whether the sovereign can run out of the ability to print/digitize its legal tender? I doubt it.

From the Preface:

"I regard the history of American finance and politics as a most important department which lies as yet almost untouched. The materials even are all in the rough, and it would require a very long time and extensive research to do any justice to the subject. I hope, at some future time, to treat it as it deserves, and I should not now have published anything in regard to it, if I had not felt that it had, at this juncture, great practical importance, and that even a sketch might be more useful perhaps than an elaborate treatise. It follows from this account of the origin and motive of the present work, that it does not aim at any particular unity, but consists of three distinct historical sketeches, united only by their tendency to establish two or three fundamental doctrines in regard to currency."

Yale College, 1874.

Mr. Isomorphism writes in: 

Anonymous, I find your final paragraph especially compelling, even more than the rest of your argument. However probabilities of catastrophe cannot be estimated. It's dubious whether they can even be quantified. Also human or social costs resist economic quantification. Against an unmeasurable times an unquantifiable, what basis do regulators have for precisely calibrating the cost and dimensions of their bulwark?

It seems to me one cannot reasonably do MB=MC, but rather very loose upper and lower bounds are the best one could argue with.

P.S. Even in normal times, eg the FDIC's various ratios are not calibrated against an historical "utility function". If a balance is achieved it's surely between the personalities and the powers of the regulators and the regulated.



 A documentary on the Yesterday channel just now about the Netherlands had a brief segment on tulip trading. Today tulips are sold by Dutch auction: an odometer graphic winds down marked with price and the first trader to hit his button wins the consignment.

Interestingly, a tulip history expert alleged that nobody went bankrupt due to the tulip bubble. She alleged Charles Mackay drew the myth from playful Dutch art painted in the period and it perpetuated from there.

The most desirable and expensive tulip in the Dutch bubble was the Semper Augustus. Its flamed appearance is now recognised to be a form of crop disease and so any such flowers in today's fields are immediately ripped out and destroyed.



 Instead of doing all the mumbo jumbo about social media mentions of various companies and the ridiculous studies that show that this board or that board would have done better on its shorts, all that's needed is to count the number of headlines with John Kerry in it. He's an albatross, a hoodoo, a jonah, a short black stick, for the market.



 Durk Pearson and Sandy Shaw are MIT trained scientists with interesting ideas about life extension.

I read their most well known book Life Extension, A Practical Scientific Approach many years ago, and still have a now yellowed relatively beaten up copy of it. I think the tricky thing about what they are attempting to do is that the research on antioxidants is mixed at best. In fact, many of their earlier recommendations may have resulted in an increased risk of some cancers. In looking at their current formulation, they have greatly scaled back the amount of certain antioxidants, probably based on later research. Kurzweil is another one we have mentioned on this list who is doing everything he believes possible to extend his life via supplementation.

I am perhaps not the best poster child for life extension as I have struggled with my weight most of my adult life, but I have had a strong interest in it, particularly the area of supplements, for decades. I am still interested in supplements, but I am currently of the belief that vitamin D is the only one worth taking without a doubt. I also do take fish oil and more recently ubiquinol. Despite the mixed study record on fish oil, I think it is worth taking a chance on it.

It is very challenging to parse out what supplements may actually be of value in the quest to extend life.



TEASER ALERT: I am not about to write what you expect!!

A popular blog site recently posted a story that advocated people to tap their home equity and buy stocks. The link is here or if that link doesn't work, here. 

What I find interesting about this article is that it is being met with universal revulsion judging from the blog comments and other related postings. (Not naming names.) The so-called Pros are saying it's irresponsible, ludicrous, sign of a top, etc. etc. etc. And the so-called pros are also saying that people will get sued for giving this advice. (I have no opinion).

Let's ignore the fact that this column's recommendation was extremely good advice for the past 5, 10, 15, 20, 30, 50 years, and let's also ignore some of the weaker arguments in the story.

I think we should step back and analytically consider that there is actually some merit to the concept (for some people). (Caveat: I am not bullish on stocks).

Imagine the very responsible Mr X who every month took all of his extra income and paid off his mortgage early. He's now about 40 or 50 years old. And he owns no stocks. He owns no bonds. And he has no mortgage. And he's got enough cash to meet any emergency. I can make a very rational argument that Mr. X would be very well served to place a modest mortgage on his home and use the proceeds to acquire some financial assets. Not necessarily all stocks. But definitely some financial assets. There are several underlying arguments in favor of this: But first and foremost is diversification. We know mathematically, over time, diversification is the only free lunch.

So the authors of this controversial blog post got distracted by things like positive carry. And some other not-so-true things. But all of the readers spewed venom. And this reaction may have informative value.

Remember: A home is both a consumption good and a store of wealth. If someone put 100% of their net worth in a single undiversified stock, they are asking for trouble. And a home is really no different in that respect.

anonymous writes: 

I agree 100%.

The negative reaction, it seems, mistakenly seems to argue the case of not selling one's residence to buy stocks (which is clearly not what the author of the original piece advocated). Clearly, if one were to buy a second residence with that same home equity, in the case of agnosticism as to the direction of home prices and equity prices, would their reaction be the same?

Leo Jia writes: 

I think it all depends on who Mr X is.

If he is financially skilled (which seems not the case at all in Rocky's description), then maybe OK.

If not, then he should stay at where he is.

Or if he is really tempted, he should first spend a lot of effort in getting the skill. But Mr X should be well advised that he would still have no clue of what that skill is after many years of fooling around.

Do we all believe that investing is an easy job for everyone?

Different from the house, a financial asset is liquid and evidently volatile. Ordinary people can not tolerate the pain when the change of their asset value is vivid and clear. With the benefit of liquidity, the pain would cause them to do a lot of stupid things, which will then burn them out in no time.



 The trailer is, well, weird. It is episodic bits and pieces of the full film, but you never get a coherent notion of what the film is about. It's Sacha Baron Cohen without the crudeness or the array of self-conscious cleverest boy in the room.

When you see the film itself, you understand why.

It is a solidly hilarious, but understated, shaggy dog tale. An as-told-to yarn about a marvelous mythical old hotel with the period furbelows and flourishes of a great majestic institution catering to the wealthy—at one time—and the down and out, as it slowly deliquesces. It is framed by F. Murray Abraham and Jude Law talking about the lustrous past. It is like Mad Mad Mad World, but less noisily hectic, [slightly] more refined.

Okay, a tidbit thumbnail: It is the Campbell's condensed soup adventures of Gustave H, a mythic concierge at a famous European hotel between the world wars, and his faithful servant, Zero Moustafa, the Lobby Boy who becomes his most trusted accomplice and confidante. Mixed in is the theft and recovery of a priceless Renaissance painting and the legal bataille royale for an enormous family fortune — against the backdrop of a dramatically evolving, modernizing European continent.

The movie stars Ralph Fiennes, but he is just the topmost foam above the vast surge of hilarious cameo appearances by beloved or irascible stars who are all but unidentifiable under moustaches, or bald pates, or beards, or tattoos. A lot of the fun is decoding who was that official arresting the duvet chevalier M. Gustave? Who is that chambermaid cum confection spinner with a birthmark the shape of Mexico? Who is the twittery old dowager, ready to plight her troth, with the agitated face and the powdered hair who adores M.Gustave? Adrien Brody plays against type, Willem Dafoe doesn't. Bill Murray is smarmy, Jeff Goldblum is sticky, and on and on.

It is an effervescent and convoluted bonbon spun in grand style, and even if we explained it, so what? The fun is giggling through reel after reel, seeing all the silliness and unbelievable script goofiness that has been perpetrated. The whole thing looks like it could be miniaturized into a Hummel Swiss coo-coo clock, with hourly suavely concierges bedding dowagers to everyone's delight. (Almost). And bad guys chasing good, followed by evil stepbrothers and ugly kinfolk and nasty hooligans trying to wrest away the spoils. (Priceless painting.)
One knows for sure that the dozens of actors who leapt at the chance to do these marvelously counterintuitive roles must have had a hell of a good time in rehearsals. It has many of the qualities of a Feydeau farce. About the only thing that bothered us were the stolidly American nasality, the inexplicably flat American accents. One kept expecting the carnival carousel of characters herein to skein out in guttural or mystifyingly unidentifiable European sonorities. This they resolutely did not do. Aside from this constant quibble, the movie is a foamy ice cream sundae of inebriated entertainment.

No bad scenes. No bad words–um, save for a few in exasperation, well earned. Plunking you back into the past elegant century in mittel Europe.

If you have ears to hear and eyes to glom, enjoy this silliness and giggle yourself away for a coupla hours.



 BBC 4 put on a documentary about the creation of the album Tubular Bells this weekend. It was one of the biggest hits of the seventies and one of the top sellers of all time.

What was interesting about the documentary was a number of coded and in some cases explicit jabs at Richard Branson who financed the recording.

Instead of a visionary, he was titled as a used car salesman who sold imported records illegally by one chap. Other pokes were directed towards Branson's lack of musical knowledge and his betrayal of the 70s sound by financing punk bands.

This is perhaps a bit odd given that many of the individuals featuring in the documentary were sitting in palatial recording studios or homes that might not have existed had Branson not hustled for a record that may have become a damp squib.

When Oldfield, in a panic, nearly pulled out of the launch concert, it was Branson who corralled him onto stage. It was presumably Branson who helped locate and negotiate the deal that made Tubular Bells the soundtrack to film the Exorcist and sent international sales skyrocketing.

Branson has recently had a second book published about him by Tom Bower, neither of which are fully complementary. Perhaps sour grapes are contagious?



It is interesting to note that Alfred Cowles the founder of the Cowles Commission, and author of the first good empirical paper on stock market variations, and son of the owner of The Chicago Tribune, in the early 1900s, is a forgotten man. No bio on wikipedia or mention on google except for his father exists. Like Sloane and Kettering at Memorial, the denizens of the institution he founded seem to be ashamed of him. I corresponded with him when he was 70.

Orson Terril writes: 

This is a song from a skit that junior researchers performed in the 1950's:

"The Cowles Commission was featured in this one, to the tune of "The American Patrol" march:

We must be rigorous, we must be rigorous,
We must fulfill our role.
If we hesitate or equivocate,
We won't achieve our goal.
We must investigate our systems complicate
To make our models whole.
Econometrics brings about
Statistical control!

Our esoteric seminars
Bring statisticians by the score.
But try to find economists
Who don't think algebra's a chore.
Oh we must urge you most emphatically
To become inclined mathematically,
So that all that we've developed
May some day be applied!

Its exact authorship is surrounded by a certain degree of obscurity, which perhaps is just as well."

Little late here, catching up. I would like to echo our underwriter's points by expressing my surprise that there is not a single entry of Alfred Cowles on the wikipedia article for the Cowles Commission. This is worthy of surprise because, as was alluded to, the Cowles Commission is also now the Cowles Foundation. Titans of economics like Nobel Laureate Robert Solow, whose growth models are given a thorough workout in any intermediate or above macro-economics course, were funded by the Cowles Foundation. Robert Shiller is a researcher there. If he, and others, are worthy of a Nobel according to those who make such decisions, the namesake of his underwriter is certainly worth a mere wikipedia entry.



1. "Never marry a position you wouldn't wish to get out of"

2. "Don't play in markets where men named Doc control it"

3. "The rules committee members never lose"

4. "Don't go against the palindrome or others with unlimited capital"

5. "Moves before key flexionic announcements will continue"

6. "The Israeli market is the most sagacious in predicting the US market"

7. "The DAX and SPU dance together with one leading the other"

8. "The bonds and stocks move opposite until the reverse monkey rope snaps"

9. "The most assured way of losing money is to short stocks" (the palindrome told me he lost more money that way than any other, and all the great traders I know except for Ed Marks have told me similar )

10. "Reverse at the beginning of a period and go with at the end"



March 2014 E-mini S&P 500 (Dollar) ESH4 3/21/2014 3/21/2014 3/24/2014 1893.30 (Official settlement price for the E mini S&P march futures)

Highest price for the S&P index today is 1883, cash settles 10 points higher @1893!! (E-mini futures last price 1881.75). Guess what, if you actually bought ATM options right before the expiration, you would have hit the lottery every single time. Check to see the data for your self. If this isn't price fixing I don't know what is.

(Link to the past settlement prices)



 I found so much value in this article. Worth your time:

"The Surprisingly Large Cost of Telling Small Lies"

Russ Herrold writes:

That article makes me think about something that has been on my mind lately.

One of my routines for more than a decade has been starting the day at the coffee shop. There is large cohort of people who drop in (and leave without needing to say good-bye) for work or other obligations. Lots of social strata, lots of political viewpoints, and lots of economic situations are represented.

Another Dailyspec member and I have a common friend who frequents that coffee shop. We both were discussing the other day how quickly strangers could pick up on a dissonance between our common friend's words and his true behaviors.

I do not even feel that it is a malicious difference nor perhaps is it under the control of that friend. Certainly he would takes offense if we pointed the dissonance out, and so we have all learned or been trained to avoid confrontation.

Time and again, that common friend would be introduced into a new situation or exposed to new people. Almost at the onset of the introductions, the new counterparties would approach him or me privately during a later debrief or meeting and remark on the 'strange vibe' they got when interacting with that common friend.

I think Polonius' advice in Hamlet and Twain's adages about honesty and lying are relevant here. There is some background detection process running in a thoughtful person that picks up on coinage offered which does not ring true.



 I follow the sports news and commentary and find it much more erudite
and analytic than the financial commentary. Try reading the NY Times
analyses of games The Knicks play, and you'll learn more about the
market and human nature than you will from Bloomberg. 

Ken Drees writes: 

I once worked on technology to automate sports reporting using "canned" or routine language. It came to nothing at the time but it amazed me how simple it would be to automate sentence and paragraph structure of a simple sport score/ game report. You would have selected templates and fill in bursts of stats to make it seem true. Anyone who listens to an athlete's interview these days hears the same old same old.

"We battled, and that's what we are about–never give up, keep focused on the game at hand." "No, I am not looking ahead towards the next series, I am focused on the day to day–what it takes to win today is what I am about".

Seriously all these athletes talk program. All the same crap every time—I can hear it before they say it!

Anton Johnson writes: 

This is the best ever basketball interview.

Ralph Vince writes: 

It is a most peculiar sport, and the great Meadowlark Lemon worth study; that someone can be so good, so adroit at what they do, which is not comedic, that they can transform it into comedy, not take oneself so seriously, and perform to perfection. Mastery occurs when someone can do something to such perfection that they can laugh about it and about themselves as their virtuosity expresses itself, carried on a wave of euphoria of their own creation.

Contrary to what I would have expected, basketball seems to have players who are more articulate and analytical. Among the worst are those who are involved in the individual sports like golf, tennis, as well as most NFL locker rooms. For whatever reason, NBA players seem to do far better in front of the microphone.

Stefan Jovanovich writes: 

Players are not any better than actors at coming up with original lines on their own; it is the coaches (who like the writers are usually not on camera) who have the interesting stuff to say.



 With spring in the air and mosquito season not far behind (especially in Minnesota, where the state bird is the mosquito and there are two varieties—the ones small enough to fit through the window screen (aka "no-see-ums") and the ones that just lift the screen up), a note of caution: Beer seems to render one more attractive to a mosquito—i.e, a bigger target for a bite. This is true at least for malarial mosquitoes. I suppose it's possible that other mosquitoes are not so attracted. Perhaps the next round of research will examine those other mosquito varieties.



 I recently saw the movie Snowpiercer. I thought it was very interesting. Before going, I checked IMDB which rates it at 7.6/10. The short intro is:

"In a future where a failed global-warming experiment kills off most life on the planet, a class system evolves aboard the Snowpiercer, a train that travels around the globe via a perpetual-motion engine."

I didn't have a very high expectation, thinking that it is yet another sci-fi movie from Hollywood, but on a weekly half price day, I went to watch it anyway.

I must say that it is one of the most thought provoking movies I have seen lately.

It is about the debate of two opinions: 1) everyone, especially the lower class, should stay in its place for the overall harmony and equilibrium of the habitat that is made possible by the ruling elite class; and 2) the lower class should revolt and overturn the ruling class in order to achieve equality. The movie seems inclined toward the former with an ending that due to a revolt the habitat is destroyed and nobody survives.

Given the nature of movie censorship in China, it is very interesting to see the intention of showing this movie.

IMDB seems to indicate that US show time is June.



 One of the many, many reasons I adore my wife is that she is not someone who can be gulled. When a friend of ours in the California Bar came soliciting for the ACLU, Susan asked him why their only First Amendment cases were defenses of pornography. "Surely, they are the one class of defendants who can afford their own lawyers?"

Secretary Paulson hardly needs conspiracy theorists to contribute to his defense; he has been more than artful enough to evade the main question that should have been asked - namely, why did the Treasury decide that it would guarantee the banks' counter-party assets instead of their deposit liabilities?



"U.S. says Russian decision not to ease Ukraine crisis 'regrettable'"

(Reuters) - Russia's failure to take steps to ease the crisis in Ukraine is "regrettable" and the United States is ready to respond quickly following a referendum planned for Sunday on whether Ukraine's Crimea region should join Russia, the White House said on Friday.

"We have obviously not gotten to a situation where Russia has chosen to de-escalate, where Russia has chosen a path of resolving the situation peacefully and through diplomacy. That is regrettable. We will have to see how the next several days unfold," White House spokesman Jay Carney told a briefing.



"Jerome Bruner, the Harvard psychologist, says that he has never visited a lab that was worth a damn where the people weren't having a lot of fun. The physicists at Niels Bohrs lab in Denmark, where they split the first atom, were always playing practical jokes on each other."



 While on route to Bermuda, I whiled away the time by studying the logistic equation which models the growth of a population when constrained by space, resources, and competition. I read section 1-5 of Braun's excellent book Differential Equations. The formulation that Braun uses which is general is dp/dt = ap - b ( p) x (p). The curve grows to a limiting value of a/b. It grows at an increasing rate to 1/2 x ( a/b) and then starts decreasing. Its graph is called a logistic or an s shaped curve. It models very well the growth of innovation, the growth of salmon when confronted by sharks, and the start of epidemics, when p ? A/b. This is relatively elementary to those who study population models, but I found that many companies with innovative products seem to follow the logistic curve, and many markets seem to follow the curve with a lag when confronted by startling movements in other markets. I wonder if fitting logistic curves to markets and companies under appropriate conditions would be of use for prediction? As for Bermuda, a country with no income service rate, no unemployment, and no welfare, and great prosperity and civility, conformity is the norm. One was fortunate not to be expelled, one believes.



The Theory and Practice of Selling the AGA Cooker has been called the finest sales manual ever written.



I would like to share some thoughts regarding present and past market correlations. One of my mother's sisters, aunt Franca, spent her life with my grand father, taking care of his many vices. She used to tell me that to have an edge on events they used to check share activity in Textiles and Heavy Industry in order to anticipate probable war declarations, or military activity. The rationale is clear.

The government ordered uniforms and mechanical spare parts before undertaking belligerent efforts. The same went for paper and other similar indicators that showed some kind of economic activity. For this reason I have given a look, first at the long term graph of copper, then added the S&P index.

The resulting picture gives an idea of a total and sudden decorrelation of the stock market and price of copper since mid 2011. I'm sure that better statisticians will be able to justify such a strange phenomenon: economic prosperity and declining raw material prices.

And mind you, not any raw material, but copper, the dear metal, the center of the electronic and electric universe. The S&P has risen roughly 49 percent since September 2011, while Copper (COPA LN bbg ticker, etf quoted in $ in London) has lost 22 percent in the same period.

The visual shock is, of course, much stronger than the raw numbers. Is this predictive of a market correction?

Not sure about it, although the crowding effect of larger and larger troops of SPU bulls give me a chilling feeling down the spine and the uncomfortable "dejà vu" state of mind.

Alston Mabry writes: 

If one were to search the interweb for the "copper, china, collateral", one would find several stories claiming that copper is used as collateral in the "shadow banking system" in China and that sharp moves in price are due to such stores being liquidated.



 This professor in my daughter's department at MIT is working on using viruses to build batteries. I found this article about it pretty interesting.

"The DNA of Materials"

Molluscs produce proteins which combine with ions of calcium and carbonate in seawater. This provides the material for them to make two types of crystals, which they assemble into layers to create an immensely strong composite structure.

As [Angela Belcher] looked out of the window one day while wondering about this, her gaze drifted to a periodic table of elements stuck on the wall. If an abalone has within its DNA the ability to code for the proteins needed to gather the materials to construct a shell, would it be possible to tinker with the DNA sequences in other creatures to gather some of the elements on the periodic table? In particular, Dr Belcher asked herself, could creatures build semiconductors like those used in electronic circuits?

Pitt T. Maner III adds: 

The ascidians (sea squirts, tunnicates) ability to concentrate vandium at 100x the level found in current seawater has always been an interesting evolutionary puzzle.

1. Check out the wikipedia article on vanadins

2. Here is some related recent research involving vanadyl compounds used to inhibit gastric cancer cell line.
3) Ascidians provide a fertile ground for studies in the field of natural products. Similar to sponges and bryozoans, many ascidians avoid predation or fouling by producing noxious secondary metabolites [48]–[52]. Because of these properties, numerous species of ascidians may thus be a potential source of new anti-cancer compounds [53], [54]. Trabectedin (earlier known as ecteinascidin-743, commercial name Yondelis®), a marine-derived alkaloid isolated from extracts of Ecteinascidia turbinate, is now being used in treatment of soft-tissue sarcomas [55], [56]. Antimalarial compounds have been isolated from the solitary ascidians Microcosmus helleri, Ascidia sydneiensis and Phallusia nigra [57], and numerous other compounds with anti-cancer, anti-viral and anti-bacterial capabilities are in various clinical trial stages by the pharmaceutical industry. The management and use of these organisms as sources of natural products is dependent, however, on understanding their taxonomy, the integrative basis of biology.



What free market? Maybe I'm missing something here, but I can't really believe this at face value anyway. Tesla getting squeezed out seems… would "un American" be the right phrase?

"Tesla Stores May Be Closed After N.J. Blocks Direct Sales"



 On a recent ski trip to Hokkaido Japan, we had 10 days of heavy snow on top of 3-4 meters on the ground. Deep fluffy light blower powder.

Food, lodging, recreation were very cheap. Nice airline Airport hotel for $65. Spaghetti dinner $9, wine $2. French Chateau bottled 2011 vintage $12, French regionals Medoc, Bordeau $9. Full room and board at rural onsen $60/day per person. Ski lift tix $40, $33 for senior, $10/single. Noodles $6. Big Mac, fries, coke…$7. Part of it is the recent 30% devaluation of the yen, but it still does not explain the values.

The Japanese were very polite and many more had some English than 25 years ago. Very noticeable demographic age bracket bulge in 60s and 20s.

Yishen Kuik writes:

Japan is cheap these days.

Hokkaido is a major tourist destination, famed for hot springs, sapporo beer, nikka whisky, the countryside, fruit from yubari, champagne powder skiing and a spectacular snow festival among other things. It is an island north of the mainland but chitose airport is beautiful and large and the shinkansen links it to Tokyo.

Pretty much the entire skiing population of Australia, New Zealand, Singapore, Hong Kong and South East Asia skis in Japan and Hirafu, Niseko in particular has emerged as the international ski capital of Australiasia with 1000 usd a night for a fashionable 2br apartment as the going rate in peak season. Malaysian, Australian and Hong Kong developers have filled the town with modern eateries and apartments.

But elsewhere, 100 usd a room with breakfast buffett and onsen is the norm at the many good bubble era hotels built all around the country. Cheaper alternatives go all the way down to 40 usd a night at ski pensions. Many Australian seasonaires are to be found in Niseko working the bar, cafe, ski hire and hotel.

In major cities outside Tokyo, food is excellent, crime non-existent, public infrastructure superb and the level of service is exemplary. In downtown Kyoto iirc you can get prime real estate for 400 usd psf and non-prime at 200 usd psf. You can lunch at a touristy place for 20 usd or pay 10 usd for an excellent bento box lunch. Kyoto is the cultural tourist destination for the Japanese and japanophiles with festivals throughout the year. A wonderful town where Steve Job's favourite hotel, the Tawaraya, is located.



 Have you read Rashard Mendenhall's retirement letter. For those that haven't read it, it is worthy of your time.

Ralph Vince writes:

He got out near the top of his game.

Gramps, just before he died, a man who forgot more about the game than almost all will ever know, made a comment to me shortly before he passed away, about a running back for San Diego names Natrone Means: "A running back in the NFL these days has a lifespan of about two years, maybe three."

I found it very surprising when he said that, but have watched it occur over and over since. Mendenhall was a great running back, and his is a wise move.



 The SAT has been diligently and scientifically designed to predict performance in college. It predicts such performance better than HS grade point average.

Think about that for a moment. A 3 hour test that predicts college performance better than 4 years of HS exams, papers, classroom performance, etc. Pretty impressive.

Further, when judging the value of the SAT for college admission, one has to ask, "compared to what?"

HS grades? As indicated, the SAT is better. And HS grades are impossible to compare across thousands of different high schools, and in addition are subject to significant manipulation by the high schools seeking to look good or have their students do well. That's why college admission offices use both the SAT and HS grades.

Teacher recommendations? They are notoriously even worse.

The recommendation of the Headmaster of Exeter as to which 40 or so of his graduating seniors should be admitted into Harvard? That's the way things used to work. Good luck to Vic Niederhoffer's getting admitted to Harvard under that system.

Stefan Jovanovich writes: 

The SAT is a scam. It has been around for 50 years. It has never measured anything. And it continues to measure nothing. And the whole game is that everybody who does well on it, is so delighted by their good fortune that they don't want to attack it. And they are the people in charge. Because of course, the way you get to be in charge is by having high test scores. So it's this terrific kind of rolling scam that every so often, somebody sort of looks and says–well, you know, does it measure intelligence? No. Does it predict college grades? No. Does it tell you how much you learned in high school? No. Does it predict life happiness or life success in any measure? No. It's measuring nothing. It is a test of very basic math and very basic reading skill.

- Jon Katzman, Founder of the Princeton Review

The interview is worth reading in full.

But (of course, there would be a caveat from yours truly), Katzman wants to ignore the success that crammers have always had because he, like everyone else, does not want common public education to be what works - an intensive drill and practice of basic reading and math skills. These are subject that are, as Katzman himself says, "Nothing that a high school kid should be taking." Yet, they are the very skills that almost all children leave school now without having mastered.

Victor Niederhoffer writes: 

And yet. I disagree with him on all parts. I believe the sat is a basic measure of IQ, highly correlating with it. And IQ is the best predictor of success in school and life. I'll have to look at the studies that confirm or infirm this.

Stefan Jovanovich adds:

Gentlemen: Mr. Katzman is admittedly hyperbolic, and he was, very skillfully, talking his book. Of course the test measures IQ, but IQ is itself a measure of one's ability to take these kinds of tests. That was and is his larger point. Schooling should be about test-taking and there should be as many different kinds of tests given as possible - those for dexterity, spacial awareness, physical assembly of a jumbled set of parts. The advantage that Eddy and all the other bright kids have is that their home schooling was competitive and testing yet built confidence and pushed away fear because there was always a new and different test to take and they quickly discovered that, in some things, they could be even better than their old man. My Dad was right - for all but the most fortunate school is simply the barrel in which the poor are told to put their children so they can learn how to keep each other from climbing out. That truth is what Mr. Katzman discovered about the Joes of this world and how much the SAT has become the barrel used for adult life; and, to his credit, it pisses him off just as much as it did my old man.



 Has anyone noticed the action in the hog market lately?

A rapidly spreading PED virus with an 80% mortality rate among piglets has already killed off 4-5 million pigs or roughly 4% of the market.

The market is taking this very seriously and has been going ballistic this past month.

I am glad to not be short hogs right now.









 There are several things to be considered here. First, the aircraft. The Boeing 777 is one of the most reliable aircraft ever built. Only three of the aircraft hulls have been lost:

1. British Airways flight 38 crashed short of the runway at Heathrow on Jan 17, 2008 due to ice crystals in the fuel that clogged a heat exchanger and prevented the engines from delivering thrust at a critical point on the landing approach. This situation only occurred in certain Rolls Royce engines [Trent 800] and has since been resolved by a new design of the engine oil fuel flow heat exchangers and restrictions on the amount of time the aircraft is permitted to operate with fuel temperatures below -10 degrees Celsius. This can safely be disregarded as a possible cause in the Malaysia incident.

2. Last years highly visible Asiana 214 accident at San Francisco was due to pilot error and a failure to maintain proper airspeed on the landing approach — there was nothing wrong with the aircraft.

3. On July 29, 2011 an Egypt Air B777-200ER was destroyed in Cairo when a fire erupted in the cockpit while parked at the gate [Final Report, Egyptian Ministry of Civil Aviation 172 page PDF]. This was attributed to a probable electrical fault or short circuit involving the first officers oxygen mask delivery hose, but the cause was not conclusively proven. It resulted in a a Boeing Alert Service Bulletin that in turn prompted an Airworthiness Directive that "requires replacing the low-pressure oxygen hoses with non-conductive low-pressure oxygen hoses in the flight compartment." [2011-NM-279-AD 8 page pdf]

The Cairo incident is interesting in that a cockpit fire can cause catastrophic damage and result in the loss of the aircraft, see Swissair Flight 111. A cockpit fire could reasonably prevent the flight crew from communicating their situation with air traffic control especially if it was fed by oxygen and required prompt attention from both pilots.

There was some speculation about an electrical failure which may have been the cause of the disappearance as well as the cessation of communications. I seriously doubt this however, as the B777 is equipped with a RAM Air Turbine to generate sufficient power to run essential systems in the event of such a failure.

Also, it is possible that the aircraft, like Air France 447, was transmitting system diagnostic data to the airline (not air traffic control) via ACARS  (which could provide clues) but if this information exists, we haven't heard about it yet.

In this article in today's New York Times  Malaysian authorities have stated that radar data may indicate that the flight had "possibly attempted to turn back". As a radar controller, and a witness to the events of 9/11, I can state that if there is radar data available, even if the aircraft's transponder was shut off or disabled, one can make reasonable assumptions by linking any strong primary targets to the last beacon targets if they are consistent with the track or with the turn characteristics of that type aircraft at it's last known altitude and speed. This is exactly what air traffic control did when the transponders aboard American 11 were turned off. There were strong primary radar returns that began where the beacon returns ceased and they were certain that they were looking at American 11 as it turned south down the Hudson river and when it disappeared over Manhattan.

As we don't have access to any radar data that the Malaysians may have, we cannot make any statements about it other than what we hear from them.

If there was a change in course this could imply many things — the crew was distracted by something like a fire or severe problem with the aircraft or possibly a cockpit intrusion. The fact that nothing was communicated to air traffic controllers could also imply that the crew was either too busy and therefore unable to communicate or they were prevented from communicating by intruders.

It is certainly possible that the aircraft was hijacked. A loss of transponder returns would occur if hijackers were savvy enough to turn the transponder off and a change in course would be consistent with a hijacking. This aircraft was fueled for a long flight and if the aircraft was indeed taken by force, there is no telling how far or where they might have taken it.

There is also the possibility of some sort of catastrophic explosion. Possibly a bomb or dangerous or poorly stowed cargo. There are many precedents for cargo fires, Value Jet 592 comes to mind as does Federal Express 1406 [Accident Report, 147 page pdf] (This flight may be of particular interest to DailySpec readers as it was carrying,I am told by persons directly involved, on the order of 100 million dollars in federal reserve notes on their way to Boston to be taken out of circulation and destroyed.)

There has also been speculation of a possible crash/suicide by one of the pilots.

This too is not unprecedented, Silk Air 185, Egypt Air 990, and most recently LAM Mozambique 470 are all suspected to be murder-suicides by members of the flight crew.

Any of these scenarios may prove true. The search area is very, very large and if the aircraft went down in the water, it may take a long time to find debris. There should definitely be some identifiable debris — even if the aircraft exploded. Strangely, it may prove easier to find evidence of a crash in the sea than one on land. Floating debris will probably persist on the surface for some time, whereas a crash site in remote territory may be amazingly difficult to locate, especially if their was no fire or if the aircraft came down in small pieces. If this happened over dense jungle or forest, there is very little chance that it will be detected from the air.

I am just as anxious as the next person to know what truly happened. This will take some time, investigations cannot be rushed.

Pitt T. Maner III writes: 

There is an attempt to crowdsource the satellite imagery in order to remotely sense objects that might be related to the crash zone.

I have not seen this site before. In the oil industry "lineament analysis" of aerial and satellite imagery was used to try to find surface features that might be associated with potential subsurface geological structures.

So it is like looking for a small, anomalous linear feature–"needle in a haystack" as they say. Problem being that there are many linear features caused by breaking ocean waves, seafloor substrate, clouds, shadows and such.

It seems a computer program could also look for aligned pixels or anomalies and at multiple bandwidths.



 One was asked for the market lessons learned from the current bachelor Juan Pablo who didn't find a girl to get engaged to after dating 30 of them, and didn't have a persona except to say, "you're so pretty" to all the girls. Apparently he misled the losing finalist, and she walked away from him. Susan said that he proved the palindrome's adage about never marrying a girl you wouldn't wish to divorce when she told him off and he said, "thank goodness I didn't pick her."

I am usually good about finding market relations. But all I can think of is the person who looks at 20 different signals and announcements, and each one twists him a different way, and he can't make up his mind to trade at all or to get out of his position. And then there's the derivatives specialist who lures you into a trade telling you that you can buy or sell it at a vol of 28-29, and doesn't mention that the bid asked spread is 200%. There's also the dishonest intermediary who quotes you an interest rate of 5% with great leverage to get your account, and then once you have your position on says they're going to have to raise the interest rate to 10%. (all of the above has happened to me, and more). But in general, he was a man without a foundation, he reminded me of the scarecrow in The Wizard of Oz, the person that enters the fray without a raison d'etre, bound to lose. Thank goodness the fine women on the show didn't end up hitched to such a person. What other lessons can we learn from that reprehensible personage who tricked the producers into giving him a ring and a vacation, with the idea that he was seeking to find a woman to fall in love with.

Tim Hesselsweet writes: 

 When you said "a person who looks at 20 different signals and announcements, and each one twists him a different way, and he can't make up his mind to trade at all or to get out of his position", it made me think that
a speculator needs a rudder but sometimes the uncertainty is the source of opportunity. The following quote from Seth Klarman's Margin of Safety illustrates the idea:

"Most investors strive fruitlessly for certainty and precision, yet…investors frequently benefit from making investment decisions with less than perfect knowledge and are well rewarded for bearing the risk of uncertainty."

anonymous writes: 

To most people, uncertainty is instinctively regarded as something bad. But it simply refers to an inadequate mental state, which in no way can be tied to things good or bad. At most, it may mean that there is a probability that something bad could happen. But with that, one should never forget that it also means that there is a probability that something good could happen.

Gary Rogan writes: 

 The last statement probably applies more to long-term investments than short-term speculations simply because over the long time uncertainties do get resolved. Besides simply not having the information available at all, searching for precision among mountains of data seems counterproductive for things that can easily lose 90%+ of their value or go up 10x.

Ken Drees replies: 

A few weeks prior to the finale (unfortunately the ladies around my house watch this show), I saw a headline in a tabloid at the market that Pablo was a no-good. So the tabloid had him pegged.

Juan Pablo, reminds me of the dog who had two bones. A dog with a bone in his mouth goes over a bridge and sees his reflection in the water. What's that? A small dog with a big bone is staring back up at him, so in greed he opens his mouth to attack or get the bone and then drops his real bone into the pond. Greedy greedy makes a hungry puppy. Maybe JP just kept looking for a bigger profit till he ran his account into the ground.



 The market today is like a pretty girl. It is very attractive from the long side in many markets, but it gives you no opportunities to buy on the cheap. Where is Anatoly with his bargains outside of Hawaii and Disney today?

Larry Williams writes: 

One of our members has not had a losing trade in many years now; not a one in, I'm not sure, maybe 10 years. Ironically one of his clients, a large bank, closed out a few years back thinking something was wrong because of the excellent performance. Such is the life of a trader.

Alston Mabry writes: 

"The Holy Grail Of Trading Has Been Found: HFT Firm Reveals 1 Losing Trading Day In 1238 Days Of Trading"

You could argue that you don't need a transaction tax when it has already been levied by HFT firms.

Ed Stewart writes: 

Virtu's dividend paying history seems very aggressive to me relative to what looks like its operating earnings and net assets. Last year $250m of the $430m dividend payment was financed. $250 being very close to the firms book value equity while earnings were 180m.

2011 and 2012 had earnings near 90M and dividend payments of 120M and 130M. Around 1.5B total paid since 2006.

Is this the magic of steady returns + finance + limited liability?



 Hi Bo, I have a friend doing some development around the downtown train tracks who would like to know the origin of the phrase "riding the rods." Can you enlighten him? Where are you these days? Coming to Memphis any time?



Bo Keely answers: 

Riding the rods comes from the name given the Brake Rods which the hobos used to ride underneath the freight cars. a board called a 'ticket' was propped spanning two brake rods that each is like 1'' rebar running the length of the undercarriage. Train tramps rode their little Ticket to avoid detection by the RR bull. That was when steam trains were in vogue prior to late 50s & went more slowly. nonetheless it was a chancy ride because you had to stay awake or roll off between the wheels. I've ridden a ladder on the side of a freight for hours, caught there & tied myself on in case I lost my grip or napped, however I've never heard of modern hobos riding the rods because there are other safer places. Also, I've observed that the old brake rods hung lower beneath the belly of the pre-50s cars to allow more room to lie or sit on the board. A particularly nasty bull would stand on top a moving freight car he thought a hobo was riding the rods beneath the carriage of and drag a chain on the ground between the rails flipping up ballast rocks in the tramp's face. U might see examples of riding the rods in the classic Emperor of the North, Woody Guthrie's Bound for Glory speaks of riding the rods.

I'm in Miami after a trip out west. 



 I read this article today and wondered if it will have applications in the financial sphere.

"Perjurers and fake reviews train software to spot lies":

LAWYERS and judges use skill and instinct to sense who might be lying in court. Soon they may be able to rely on a computer, too.

An AI system trained on false statements is highly accurate at spotting deceptive language in written or spoken testimony. It can also be used to weed out fake online reviews of books, hotels and restaurants."

Also, I found this new book on poker tells that also may be of interest: Reading Poker Tells

The poker tell is one of the most romanticized ideas in gambling, the notion that there is a code that will tell you everything about your opponent's hand just waiting to be unlocked. In reality, tells are usually more subtle than they are in the movies, but that doesn't mean there aren't some big, honkin' obvious ones. Here are some of the most transparent ones to ever make it onto television, and how to spot (or avoid making) them yourself. 

And here is the author's Twitter feed.



Let's assume the HFT does take a 1/2 tick out of the market per trade. But reflect back to the good old days when you would call in your orders to the floor. Then the locals would sit on the order for 1-2 minutes allowing plenty of time for front running, and other evil dong, then charge execution commissions of .50bp to 100bp. This was all before decimalization so instead of spread of .01 or .005 on stocks you had spreads of .06 or .25, higher by a factor of 5x. For a stocks or futures trader I will go with current electronic age even with those pesky HFT algos. If I was a floor broker, sure the old days were a lot better, but if you are sitting upstairs today beats by a mile.

Jeff Watson writes: 

But the trouble with the electronic market is that it's harder to know the size of the market (ie: how much wheat is really for sale in the pit). Plus, the electronic market eliminates the visual and auditory clues that one would get in the pit. The feel of the grains has changed significantly since electronic became the mainstay, but a bad fill is a bad fill, and your market order can get you a bad fill.

Gary Phillips writes: 

Floor brokers in the bond pit were under extreme pressure to provide institutional customers with good fills

Brokers were only as good as their last fill…

Good fills were taken for granted, but fills that were perceived as bad, were always acknowledged and then contested.

Adjustments for bad fills were de rigeur, if a broker wanted to retain his business.

But when a broker had an error, he had to eat it himself.

The risk /reward was definitely skewed against the floor broker.



 Sir Harold Jeffreys recommends that the simplicity of a model be counted as the number of degree, the order, and the sum of the absolute values of the coefficients of the differential equation that models. He believes it is an immutable law of science that all great discoveries fall into a sum less than 7 or so . (See Ackermann [8 page pdf] for review and critique).

I wonder if the moves of markets can be modeled usefully in simple laws like this. The simplest solutions of an exact equation are

y dx + x dy = 0 which derives from xy = c and dx/x + dy/y = 0 which derives from ln ( xy) = c

Which markets move like that during a day or week and can useful predictions about the continuation of this relation for further parts of the period be made? Are there other simple models which work like

x (y)(y) = c or (x)(x)(y) = c

that are just a tad less simple that work as well.

On another note, a visit to the Drexel Museum of Natural History reveals the interesting fact that even though the lion is classified as the king of the jungle, old lions are often eaten by hyenas and leopards. One can see that playing out in the corn belt and those businesses that rely too heavily on yoga.

The beaver on the other hand, one learns often sends a seasoned emissary to help his colleagues build a new dam before returning home.

Gary Rogan writes: 

I'm having trouble thinking of any reasons why the markets should behave like simple laws of physics or simple differential equations. Conservation laws in physics are fundamentally based on the symmetries evidently present in our universe and also on the constancy of the amount of some quantity integrated over any surface enclosing it's source. Why would any of this be relevant to the decisions of millions of people and computers, all in the presence of a great deal of noise?

Anatoly Veltman adds: 

Yes, reflexivity theory is more appropriate. For instance, Ukraine is a negative — but only longer term. That's because trade wars, etc, cause stagflation, which is a long-developing process. US equity prices are more likely to suffer from credit contraction, and that's why China woes are way more significant. But US equity players will only begin catching up to this reality after China's drop gains speed.



 Has anyone put into practice or examined Ray Kurzweil's (of Google fame) lifestyle advice for living long enough to make it to the singularity (the point where nanotechnology will allow you to live forever?). It's described in his book, Fantastic Voyage: Live Long Enough to Live Forever

(I have not read it yet).

anonymous writes: 

I have a copy of the book, and have read it. I am interested in working with a doctor who is Kurzweil friendly but have not actually broached the topic with mine. My biggest concern with some of the content is the large number of unproven supplements Kurzweil is ingesting. He is a believer in the health properties of alkaline water which I have a very hard time buying into. There are also other supplements that I don't think bear out under scrutiny. A lot of its recommendations are common sense in terms of what to eat and what to avoid. However, I did find other parts of the book to be interesting though, and think it is worth a read. Some of the theory in particular will be of interest for those inclined to go down the rabbit hole.

If you go to their website, you can actually download a short guide to much of what the book goes into depth here.

After doing a lot of my own research, I think Vitamin D is probably a key supplement for most people, and I am now taking it daily.

I've actually read all of Kurzweil's stuff and am a fan overall. I would question though why the singularity has not already happened somewhere else, unless we truly are the only intelligent civilization in the entire universe. It seems like at the very least we should have encountered probes by now.

David Lillienfeld writes: 

There are some data available, and those have been looked at many times. The Mediterranean diet, for instance has repeatedly come up in the Seven Countries Study, and ditto for the Adventist Health Study. Migration study findings of differences in mortality likely includes differences in diet, but what exactly that is remains unclear. I don't thing there's much debate about the Ornish diet reducing mortality, though the practicality of getting anyone to remain on it for any length of time may be questioned. Depending on how one looks at alcohol consumption (whether a food or something else), one can say that there's pretty good data that reductions in alcohol consumption are associated with relative reductions in mortality, though the effect is best seen at higher levels of consumption. In contrast, trying to make sense of any of the data collected using FFQs has been challenging at best.



 The late Feb New Yorker has an interesting article on Amazon and books by George Packer. It's available for free online.

One could teach an entire college course on this article. How it is built on quotes from disgruntled employees and everyone in publishing who has ever had anything bad to say about Amazon. More importantly, how the article in virtually every sentence is infused with a subtle anti-free-market, anti-creative-destruction, and pro-elitist bias against a disrupter whose business model is based on greater availability and choice, and providing convenience and low cost to the consumer.

And yet the exciting story of Bezos and Amazon shines through, notwithstanding the author. Bezos is one of the great businessmen of our time, ranking with Gates and Jobs. And as one editor admits in the article, in today's digital world, books might not even still exist. But instead of disappearing, they are thriving. Thanks to Amazon and all its boorish, low-class, non-literary-sensitive ways.

Ties in to Stefan's today mention of Ron Chernow, since the same is true of Chernow's best-selling biography of John D. Rockefeller, Titan. How, Chernow asks, could one person be such a fierce capitalist and also the world's greatest philanthropist? Chernow cannot begin to understand the business fairness and beneficial aspects of Rockefeller's creation of Standard Oil, but the story comes through to a reader without Chernow's prejudices.

The same with Packer's supposed expose of Bezos and Amazon.



 Frank Zappa said it best. The market may not appear to be portrayed against a bullish backdrop, but irrespective of fundamentals, geopolitical perturbances, inter-market context, and lofty location, it is the willing beneficiary of the matriarch's munificence and investor inflationary expectation.

you are what you is
you is what you am
you ain't what you're not
so see what you got

a cow don't make make hams
and a bear don't make clams
five years since its birth
the bulls still inherit the earth

p/c ratios, breadth and volatility are all sanguine — but not overly so, it is what it is — and that's all it is.



Here is an economics anecdote on trade that I can explain to my six year old. Yesterday at an outdoor plaza there is a soup vendor I normally go to and a taco guy next door. I notice my soup guy is eating tacos, and I look over to taco stand and he is having soup. I ask the soup vendor about it and he quips that he is checking out the competition and hopes he is not poisoned. But I see a nice illustration of comparative advantage, value creation and utility curve optimization.



 What took so long? I do not know. The Putin nomination makes some sense. If you look at it objectively, they gave the prize to Obama, when Obama was barely elected president and had done nothing for World peace.

Putin has done a lot for world peace.

Firstly, he is keeping a tight leash on Russian hardliners that want nothing more than a return to the good old USSR (the article from this month's print version of Bloomberg Magazine about Sechin missed the point by so many yards that I will not even begin talking about it).

Secondly, he averted a war in Syria.

Thirdly, he is defending the right of people to self-determination in the Crimean part of former Ukraine.

Very objectively, he saved more lives than Mother Theresa.



"Reading, after a certain age, diverts the mind too much from its creative pursuits. Any man who reads too much and uses his own brain too little falls into lazy habits of thinking." - Albert Einstein

Stefan Jovanovich writes: 

This certainly explains why he and so many other brilliant people fall for the idiocies of socialism. As a system it is flawlessly logical; it lacks all the chaos, confusion, corruption that liberty produces. It requires more than a little reading to learn just how insanely vicious the logical systems of political economy all have been.



 Las Vegas is a very interesting city to visit and a pleasant surprise, outside of the gambling establishment and Strip areas. There are very reasonable prices for rooms and buffets and surrounded by many natural wonders within a day's reach.

Various cons, of course, are on display 24/7. While leaving the parking area I was approached by a vehicle with two men who wanted to offer me a fantastic deal on a 3-carat diamond that had recently come into their possession. "No thank you", I said and they quickly moved on without comment. A limo driver noted later that he had had an offer from a rich, turbaned man for his car (a red Cadillac) many years ago with payment to be made in 4 gold bricks. The driver checked two of the bricks with the local pawn shop and fortunately determined that they were worthless.

The city has its share of down and out transients but all in all the city vibe is positive and the energy associated with the arrival of NASCAR week and a huge display of construction-related equipment (excavators, trackhoes, platform lifts, various concrete pump trucks, etc. in the convention center–all supersized) was palpable.

A very spectacular, geologic structure, the Keystone thrust fault is located just west of town in the Red Rock Canyon Natural Conservation area. Hiking through this beautiful area with crossbedded ("herring bone") Aztec sandstone and red, Jurassic Kayenta Fm. One sees the many adaptations that plants and animals have evolved to collect and conserve water that comes during infrequent rains– and often in the form of raging, flash floods.

Fossils, despite promising intel from locals, however, are not easily found and only a few, small crinoid plates were noted during a long walk over a fossiliferous ridge south of the main park along horse and burro trails. It's a tricky business when you are walking along the Permio-Triassic extinction boundary!

A good museum on crime (as in "does not pay") is located downtown and aptly called the Mob Museum and graphically shows the typical end result of the "gangsta" lifestyle. Several hours did not do justice to the displays.

I was interested that Estes Kefauver held a session in the early 50s of his crime in America investigating committee (broadcast on national TV) in the same Mob Museum building. My grandfather once worked as a floor manager during one of Kefauver's presidential bids– and also for baseball commissioner, "Happy" Chandler in similar vein on other occasion.

The National Atomic Testing Museum was quite fascinating to visit although I did not pay the extra fee for the Alien Area 51 exhibit and focused instead on the historical displays of atomic and hydrogen bomb development. Trinitite was on sale in the gift shop but high prices for a tiny piece of fused glass held little appeal.

Skiing is available nearby and quite fun even for a cautious, green run specialist like me (the resort gives a free lesson for warmup purposes that helps the novice get reacquainted with skis)  And of course, the Death Valley area, is a mere 1.5 hour drive away and holds such unusual stops as Marta Becket's Amaragosa Opera House   and fantastic variegated colors at Zabriskie point.

Well I had to put $20 on the Florida basketball team (giving away a ridiculous 12 points to LSU) and by sheer luck (with perhaps a touch of insight about season-ending, home court propensity) walked away with $18.50 (after vig deduction) in order to leave Vegas, this time at least, a winner on all accounts.

Stick to the natural wonders, folklore and history and you will always win out West.




October 14, 1774

Whereas, since the close of the last war, the British parliament, claiming a power, of right, to bind the people of America by statutes in all cases whatsoever, hath, in some acts, expressly imposed taxes on them, and in others, under various presences, but in fact for the purpose of raising a revenue, hath imposed rates and duties payable in these colonies, established a board of commissioners, with unconstitutional powers, and extended the jurisdiction of courts of admiralty, not only for collecting the said duties, but for the trial of causes merely arising within the body of a county:

And whereas, in consequence of other statutes, judges, who before held only estates at will in their offices, have been made dependant on the crown alone for their salaries, and standing armies kept in times of peace: And whereas it has lately been resolved in parliament, that by force of a statute, made in the thirty-fifth year of the reign of King Henry the Eighth, colonists may be transported to England, and tried there upon accusations for treasons and misprisions, or concealments of treasons committed in the colonies, and by a late statute, such trials have been directed in cases therein mentioned:

And whereas, in the last session of parliament, three statutes were made; one entitled, “:An act to discontinue, in such manner and for such time as are therein mentioned, the landing and discharging, lading, or shipping of goods, wares and merchandise, at the town, and within the harbour of Boston, in the province of Massachusetts-Bay in New England;”: another entitled, “: An act for the better regulating the government of the province of Massachusetts-Bay in New England;”: and another entitled, “:An act for the impartial administration of justice, in the cases of persons questioned for any act done by them in the execution of the law, or for the suppression of riots and tumults, in the province of the Massachusetts-Bay in New England;”: and another statute was then made, “:for making more effectual provision for the government of the province of Quebec, etc.”: All which statutes are impolitic, unjust, and cruel, as well as unconstitutional, and most dangerous and destructive of American rights:

And whereas, assemblies have been frequently dissolved, contrary to the rights of the people, when they attempted to deliberate on grievances; and their dutiful, humble, loyal, and reasonable petitions to the crown for redress, have been repeatedly treated with contempt, by his Majesty’s ministers of state:

The good people of the several colonies of New-Hampshire, Massachusetts-Bay, Rhode Island and Providence Plantations, Connecticut, New-York, New-Jersey, Pennsylvania, Newcastle, Kent, and Sussex on Delaware, Maryland, Virginia, North- Carolina and South-Carolina, justly alarmed at these arbitrary proceedings of parliament and administration, have severally elected, constituted, and appointed deputies to meet, and sit in general Congress, in the city of Philadelphia, in order to obtain such establishment, as that their religion, laws, and liberties, may not be subverted: Whereupon the deputies so appointed being now assembled, in a full and free representation of these colonies, taking into their most serious consideration, the best means of attaining the ends aforesaid, do, in the first place, as Englishmen, their ancestors in like cases have usually done, for asserting and vindicating their rights and liberties, DECLARE,

That the inhabitants of the English colonies in North-America, by the immutable laws of nature, the principles of the English constitution, and the several charters or compacts, have the following RIGHTS:

Resolved, N.C.D. 1. That they are entitled to life, liberty and property: and they have never ceded to any foreign power whatever, a right to dispose of either without their consent.

Resolved, N.C.D. 2. That our ancestors, who first settled these colonies, were at the time of their emigration from the mother country, entitled to all the rights, liberties, and immunities of free and natural- born subjects, within the realm of England.

Resolved, N.C.D. 3. That by such emigration they by no means forfeited, surrendered, or lost any of those rights, but that they were, and their descendants now are, entitled to the exercise and enjoyment of all such of them, as their local and other circumstances enable them to exercise and enjoy.

Resolved, 4. That the foundation of English liberty, and of all free government, is a right in the people to participate in their legislative council: and as the English colonists are not represented, and from their local and other circumstances, cannot properly be represented in the British parliament, they are entitled to a free and exclusive power of legislation in their several provincial legislatures, where their right of representation can alone be preserved, in all cases of taxation and internal polity, subject only to the negative of their sovereign, in such manner as has been heretofore used and accustomed: But, from the necessity of the case, and a regard to the mutual interest of both countries, we cheerfully consent to the operation of such acts of the British parliament, as are bonfide, restrained to the regulation of our external commerce, for the purpose of securing the commercial advantages of the whole empire to the mother country, and the commercial benefits of its respective members; excluding every idea of taxation internal or external, for raising a revenue on the subjects, in America, without their consent.

 Resolved, N.C.D. 5. That the respective colonies are entitled to the common law of England, and more especially to the great and inestimable privilege of being tried by their peers of the vicinage, according to the course of that law.

Resolved, N.C.D. 6. That they are entitled to the benefit of such of the English statutes, as existed at the time of their colonization; and which they have, by experience, respectively found to be applicable to their several local and other circumstances.

Resolved, N.C.D. 7. That these, his Majesty’s colonies, are likewise entitled to all the immunities and privileges granted and confirmed to them by royal charters, or secured by their several codes of provincial laws.

Resolved, N.C.D. 8. That they have a right peaceably to assemble, consider of their grievances, and petition the king; and that all prosecutions, prohibitory proclamations, and commitments for the same, are illegal.

Resolved, N.C.D. 9. That the keeping a standing army in these colonies, in times of peace, without the consent of the legislature of that colony, in which such army is kept, is against law.

Resolved, N.C.D. 10. It is indispensably necessary to good government, and rendered essential by the English constitution, that the constituent branches of the legislature be independent of each other; that, therefore, the exercise of legislative power in several colonies, by a council appointed, during pleasure, by the crown, is unconstitutional, dangerous and destructive to the freedom of American legislation.

All and each of which the aforesaid deputies, in behalf of themselves, and their constituents, do claim, demand, and insist on, as their indubitable rights and liberties, which cannot be legally taken from them, altered or abridged by any power whatever, without their own consent, by their representatives in their several provincial legislature.



First order differential equations of the form:

the rate of change of a variable + the original variable x a constant equals a constant times a function, or

dy/dt + p * y =  k1 * q(t)

has wide applicability in all physical settings. it's used to model the cooling and diffusion equations for example, as Arthur Mattuck in a brilliant and relatively easy to assimilate lecture shows.

For what variable in the market does its rate of change depend on its level and the movements of a second variable. The moves of stocks relative to bonds and currencies comes to mind. Is it predictive in certain cases and how do random perturbations affect the solution and its predictivity? Are there any methods used to solve these first order equations that are useful for markets without regard to stochastic, useless solutions?

Leo Jia writes: 

I once attempted to use it to model the market, but I did not proceed. The reason is that I realized the solution would be a function of two coefficients, i.e. K and K1 in this case, and so by varying the coefficients, one can fit the solution well onto the historical chart. The way to fit it wouldn't be very distinct from that of fitting a moving average onto a historical chart. So to me it seemed to fall into the same dilemma as trying to profit from a moving average model. Would anyone correct me?



 Just as a morning exercise to the the brain going…

Looking at SPY monthly 1993-2013, calculating Open-to-Low and then Low-to-next-High, sorting them all by O-L and getting means for the deciles, with the sd and z for the L-H column:

and here:

Now there is good criticism, especially for the z's, I think, but that's left as an exercise for the reader.

Oh, and Re the "should hit?" estimation…

the Feb high for SPY was 187.15. 



 "Low Protein Intake Is Associated with a Major
Reduction in IGF-1, Cancer, and Overall Mortality in the 65 and Younger
but Not Older Population"


Mice and humans with growth hormone receptor/IGF-1 deficiencies display major reductions in age-related diseases. Because protein restriction reduces GHR-IGF-1 activity, we examined links between protein intake and mortality. Respondents aged 50-65 reporting high protein intake had a 75% increase in overall mortality and a 4-fold increase in cancer death risk during the following 18 years. These associations were either abolished or attenuated if the proteins were plant derived. Conversely, high protein intake was associated with reduced cancer and overall mortality in respondents over 65, but a 5-fold increase in diabetes mortality across all ages. Mouse studies confirmed the effect of high protein intake and GHR-IGF-1 signaling on the incidence and progression of breast and melanoma tumors, but also the detrimental effects of a low protein diet in the very old. These results suggest that low protein intake during middle age followed by moderate to high protein consumption in old adults may optimize healthspan and longevity.



 There seems to be a widely held belief that the Russian leaders are, and always have been, a collection of power-hungry thugs with little or no finesse. I have long felt that Putin, far from fitting that stereotype, has been a patient and successful player in the "great game."

Rather than get involved in the current duel, I suggest checking out New Lies for Old by Anatoliy Golitsyn. Written in 1984, Golitsyn had defected to America in 1961. His book, in addition to being a severe critique of the west's intelligence services, gives a whole series of predictions as to what would (and has) happen to Russia and its government. Considering how accurate most of his prognostications have turned out, it might not be a total waste of time. It's a long read and can be arduous, so I suggest reading some of the reviews before making the commitment.

Stefan Jovanovich adds his two cents: 

1. The comparisons of Putin to Stalin have to stop. Roy Medvedev (a Georgian) has calculated that Stalin killed 20 million Soviet citizens (this does not include any of the people who died during WW II) when you total all the premature deaths from these events: 1 million imprisoned or exiled between 1927 to 1929; 9 to 11 million peasants forced off their lands and another 2 to 3 million peasants arrested or exiled in the mass collectivization program; 1 million exiled from Moscow and Leningrad in 1935; 4 to 6 million dispatched to forced labor camps; and at least 1 million arrested for various "political crimes" from 1946 to 1953. The Soviet records alone directly confirm these deaths: 6 to 7 million killed by an artificial famine in 1932-1934 and 1 million executed during the ''Great Terror'' of 1937-1938. Solzhenitsyn thought Medvedev's number was almost a naive underestimation; he put the figure at 60 million.

2. The use of Emersonian racialist categories (Slavs) is not only bad history but also in very bad taste, given what the 14th Amendment to our Constitution says. "Slav" is a category invented by people who wished eastern Europeans nothing but harm (like Marx's label of "capitalism" for the freedom to own yourself and your own property). No one now alive in Eastern Europe recognizes the word as having any meaning. The Ukrainians speak a language largely indistinguishable from Russian; but they are separated from the Russians by religion, heritage and history. They are only fellow "Slavs" in the eyes of the rest of the world, which knows as much about their history as David knows about Hungary and Kosovo and the occupation of Paris by the German Army in WW II and the List knows about the Russians' two-hundred year war with the Chechens and the four hundred year war in Northern Ireland among the Irish, Scots, English, French and Spanish.




Thursday March 6, 2014 the NYC Junto will feature Mark Skousen as speaker (bio ).  He will discuss Benjamin Frankin's advice for today.  Meeting begins at 7:30pm, speaker at 8:00pm.  General Society Library, 20 West 44 St, NYC. All DailySpeculations readers are invited.

Mark Skousen is the author of "The Making of Modern Economics: The Lives and Ideas of the Great Thinkers" (M.E. Sharpe, 2009) and "Investing in One Lesson" (Capital Press, 2007).



 1. The SPU on March 3 showed a rise of 45 points relative to the DAX which was down 3.5% versus the SPU 0.75%. The ratio of DAX to SP fell from 5.20 to 5.09 in one day.

2. Eileen Power,  the libertine expert on medieval economic history who no woman or man could resist (she was engaged to the chief senichal of the last emperor of China) had a father who apparently used the same techniques as Drier to defraud his creditors. He pretended that he was borrowing money for his clients, and used their balance sheet to borrow, but he kept the money for himself. It is amazing how in frauds there's nothing new under the sun.

Stoudemire is the only one that seems to know the source of the Knicks problem. Smith, of all people, the worst player in the NBA said the problem with the Knicks is they don't have heart. No one had the courage to contradict him, apparently because they all frequent the same clubs as him, except Stat who said "before making accusations, the accuser should look in the mirror".

 4. The move from Friday to Monday and Monday to Tuesday in all markets was an amazing example of a Lobagola. It usually takes at least a week or two for the elephants to migrate back the same way they started, but this time it only took a day. And as the wild liberal from the Beltway said in his most (perhaps only) intelligent pronouncement: When it goes one way big and catches you, and then it recovers, go with it. Hold on. This must be tested.

5. The great composers always have poignant thing to say about life that are applicable to our field. I like what Verdi said: "symphony is symphony, and opera is opera"; he wasn't talking about the proper separation between technical and fundamental analysis, but he should have been.

 6. I am re reading the book Our Mysterious Panics by Charles Collman, 1930. (see prev post ) He believes the cause of all the panics was excessive speculation and lack of liquidity. He asks relative to the 1907 panic, "Did Morgan deliberately engineer a stupendous financial panic, which was likely to paralyze business, ruin industry, throw his own interests into confusion and set the country back ten years at least, simply to buy at a low price, a stock valued at seventeen million dollars." He bought Tennessee Coal and Iron Company on the cheap at the height of the panic.

7. Stocks are opening at a new all time high today, March 3, after a big decline the previous day. It's never happened before. You have to give the market mistress credit for always coming up with something new. As usual the unusual is a good motto for the market. Time and again, one tries to encap the most similar events to a given days moves looking back 10 years or so, and finds nothing similar.

8. The biggest mistake that new speculators make when trying to look at things like trade station plus, lim, or the things that they "borrowed" from me is to make things too complex, and to forget about the problem of multiple comparisons. When you cut a sample 2 or 3 times, you need a probability of 1/1000 at least to come up with something inconsistent with normal 5% randomness. The next biggest mistake is when keeping it simple is to assume that the simple relations will repeat. Thus, between Scylla and Charybdis.

 9. The predictive relations between bonds and stock in the short term is exactly the opposite in 2013 and 2014 from what it was in 2012.

10. The fawning coverage of the benevolent grandmother at the Fed was guaranteed to happen. After all, no chair of a Fed ever has been more devoted to the idea that has the world in its grip than her. I like the comment that "she is perhaps the most qualified chair of the Fed in history". People in my family took her course in International trade at Harvard, and have confirmed her fine sense of humour of which there are 1.4 million references thereto on Google.

Anatoly Veltman writes: 

August 1991's failed Russian coup comes to mind as a proper example of two-day Lobagola in stocks, bonds, USDDEM, and oil.



 The post on the site about introducing wolves into Yellowstone and seeing changes in river flow a while back got me thinking. It's like adding one or more random but significant variables to a relatively stable process and not expecting any change. It's almost the negative definition of insanity, doing same thing and expecting different results… I see it in manufacturing all the time. It seems to affect hubristic management the most. And seems like politicians do both all the time too.

Example: Stable system + some random change(s) = *total surprise it blows up*


Stable system + system left alone = *total surprise it doesn't blow up*

The safest method I've found is introducing small variables for a short time, recording results, then removing variables, and recording the results. Repeat two more times. If ALL results are similar, then the variable + system can be characterized. Just cranking a knob or dial and hoping is roulette with nearly loaded gun.

A nice method is Evolutionary Operation or EVOP. I bought this software, but couldn't get it to work any better than manual method. I just think it might have a viable use in trading schema.



One notes that if stocks were down as much as DAX today (March 3rd), they'd be down another 45 big points SPU.

Anatoly Veltman writes: 

But of course on the day when the Russian Index shed 11% and Russian currency traded a record low, the DAX reflects liability and the S&P is nearly a safe haven lol.



Something I wonder about is at what stage does a "meaningful" run higher need to be justified with a fundamental reason that's ongoing, equating to the acceleration and allowing you to hold stock at these levels or at least be overly geared to the long side?

Boris Simonder writes: 

Can you quantify the definition of meaningful. Surely there's a wide interpretation.

If the security is gapping up aggressively, or in an usual way, more than its group peers, there may indeed be fundamental reasons behind it to justify holding the security. On the other hand, less liquid securities could just move faster (higher beta) without any fundamental reason we see today or the time of the move. But then again this could also apply to any security. The trick is to use the right input/tool (to justify a position) at the right time, regardless of methodology.



Here's an interesting article for the layman regarding the use and misuse of P values.



 All is calm, all is bright.

Richard Owen writes: 

Further proof one should never forget obscure cross-market correlations, and here is a link for those who didn't grow up in the UK.



 The grains (especially wheat) in the after hours are reacting to the Ukrainian situation. Big move to the upside that kicked in late last week when the commercials started buying. Grains tend to show sensitivity to events in the Ukraine.

Vince Fulco writes:

One wonders if the "seeds" for this were in the fertilizer firestorm a few months back? 



Perhaps the discussion about the events in eastern Europe could focus on the issues that are actually at hand between Russia and the Ukrainian revolt: (1) Having, once and for all, the Russian minority in the Ukraine and those still nostalgic for Soviet rule lose political control over the western Ukraine, and (2) Russia's securing absolute control over its Navy's only year-round open water port that is the Crimea.

To date the public hue and cry has been more than a bit like a discussion of how those nasty West Virginians are causing the Civil War by seceding from Virginia after Virginia itself had seceded.



There have been at least 5 instances in the post WWII era in which Russia has invaded another country: Hungary, Poland, Czechoslovakia, Afghanistan, and Georgia. Are there any analyses on what happened to the S&P the day following the start of the invasion, the week following, the month following, and the year following?

Kora Reddy writes:

War                                         Start      First Market Open Date     t       t+1    t+5    t+10    t+20
Hungarian Revolution                23-Oct-56    23-Oct-56                -0.24    -0.41    0.54    2.15    -3.14
Invasion of Czechoslovakia        01-Sep-61    01-Sep-61                0.18    -0.34    -1.33    -1.44    -2.08
War of Attrition                         20-Aug-68    20-Aug-68               -0.04    -0.26    -0.22    2.26    3.67
Eritrean War of Independence    01-Jul-67    03-Jul-67                       0.3    0.49    1.73    2.85    4.91
Ethio-Somali War                       13-Jul-77    13-Jul-77                    0.14    0.59     2.01    -0.8    -1.44

Soviet War in Afghanistan         24-Dec-79    24-Dec-79                   0.07    0.11    -1.76    1.29    5.37
East Prigorodny Conflict            30-Oct-92    30-Oct-92                    -0.52    0.97    -0.26    0.9    3.03
Civil War in Tajikistan               05-May-92    05-May-92                  -0.02    -0.01    -0.13    -0.11    -0.54
Georgian Civil War                    22-Dec-91    23-Dec-91                    2.53    0.63    5.11    5.36    5.37
First Chechen War                    11-Dec-94    12-Dec-94                     0.56    0.15    1.88    2.89    2.71
War of Dagestan                       02-Aug-99    02-Aug-99                   -0.05    -0.44    -2.28    0.2    -0.3
Second Chechen War                 26-Aug-99    26-Aug-99                   -1.43    -1.01    -3.15    -0.76    -6.22
Russo-Georgian War                  07-Aug-08    07-Aug-08                   -1.79    2.39    2.12    0.92    -1.88
North Caucasus Insurgency        16-Apr-09    16-Apr-09                      1.55    0.5    -1.55    0.87    3.21

                                                                                              avg    0.09    0.24    0.19    1.18    0.91

                                                                                         median    0.03    0.13    -0.18    0.91    1.21
                                                                                                std    1.03    0.79    2.13    1.75    3.48
                                                                                             t-test    0.32    1.14    0.34    2.54    0.97
                                                                                               max    2.53    2.39    5.11    5.36    5.37
                                                                                               min    -1.79    -1.01    -3.15    -1.44    -6.22

for MICEX, the historical data goes back only till 1997.

War                                            Date               t        t+1    t+5    t+10    t+20

War of Dagestan                      02-Aug-99      -0.43    -1.81    -13.57    -6.56    -9.12

Second Chechen War               26-Aug-99       -3.94    -3.55    -3.65    -4.65    -21.49

Russo-Georgian War                07-Aug-08         1.61    -5.25    0.69    -2.81    -10.66

North Caucasus Insurgency     16-Apr-09          1.23    1.72       1.2      0.35     10.44

                                                         avg    -0.38    -2.22    -3.83    -3.42    -7.71
                                                     median    0.40    -2.68    -1.48    -3.73    -9.89
                                                         max    1.61       1.72    1.20    0.35    10.44
                                                         min    -3.94    -5.25    -13.57  -6.56    -21.49 



Someone asked me, "If you were asked to give a single figure for the "average" drift of the entire market (measured, say, by the Wilshire) over time, what would it be if 0% were all down and 100% were all up?"

The answer is 51.

The Dimson data shows equities earning a roughly 5% annual premium over t-bills over the past 110 years. That's about 0.02% drift per trading day.

Let's take the annualized volatility at about 15%, and equivalently the daily volatility is about 1%.

So roughly, I'd say the drift is about 2% of the daily "sturm und drang". In Stefan's terms, the number is 51.


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