I have one fleeting thought about the GNP numbers and many similar numbers. What does the weakness of the economy (presumably caused by the bailouts and uncertainties of how to pay for money printed by the Fed), have to do with the likely course of the stock market? Is it bullish or bearish for the future? Have bad numbers for GNP been good or bad for the stock market? The stock market look ahead to future discounted earnings over a long period. The Gordon model et al. Similarly for other releases. Empirically and theoretically the good or bad numbers have to be tested as to their impact.

In the trend following paper Rocky asked me to review, they point out that if trend following works, it's a true violation of efficient markets because the prices should homeostasize. And the impact of exacerbating a move from homeostasis should be particularly unprofitable. But they claim it isn't. Especially in the 19th century and the 1970s or some such. And sometimes in grains et al as Jeff can attest. I agree with their idea that it should be particularly unprofitable. And that's why it's so profitable to go against the temporary moves to economic numbers which often in a day cover 1/5 or 1 /10 of the total move of stock markets in a year.



Thursday May 1, 2014 the world-renowned economist William Easterly of NYU will address the NYC Junto. He is the author of 2 best selling books: The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics (2001) [link ], and The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Harm and So Little Good (2006) [link ]. He will be talking about his latest work: The Tyranny of Experts [link, review1 , review2]. All DailySpec readers are invited: Meeting begins at 7:30pm, speaker at 8:00pm.  General Society Library, 20 West 44 St, NYC.



 I was talking to an old friend of mine yesterday. He was a floor broker for Lehman Bros in the bond pit (he once sold me 500 calendar spreads while standing next to me at a urinal in the men's room). When he first left the floor he attempted to trade electronically and within a relatively short period of time went through all of his money. He had to take a job with the CME working at their help desk, and was eventually promoted to associate director of the Globex control center working the third shift from 3 a.m. to 11 a.m., and is now a senior director at the CME.

He told me an interesting story about his experience trading after he left the CBOT. It was about another ex-denizen from the floor. This individual, however, had worked as a clerk for a mutual friend of ours, who had been a trader. My friend went on to tell me how the ex-clerk had been making $1,000- $1,500 screen trading, per-day, like clockwork — averaging $25,000 per month for quite a period of time.

However, after my friend went through all his capital and stopped trading, he lost touch with this ATM of an ex-clerk. But serendipitously, ran into him the other day when he hopped into a cab. However, the ex-clerk was not another passenger, but the driver. Of course, there are quite a few lessons to take away from this story- not the least of which are:

- markets change and if a trader doesn't adapt, he'll be driving a cab
- becoming a successful trader is not easy, even if you're experienced
- core competency in one endeavor, does not guarantee competency in another
- working for a living sucks
- always be prepared to trade
- markets aren't the only thing that reverts to the mean
- not every cab driver in Chicago is from Pakistan or the Middle East

- never turn down an edge, no matter where you are, or what you have in your hand
- always wash your hands after making a bathroom trade

- success is fleeting, losing is forever

Leo Jia writes: 

Thanks Gary, for the interesting post.

I found your title (or the last lesson on your list) quite intriguing: "success is fleeting, losing is forever". Seems apparent in a lot of cases. But why and how is that true? Especially when we consider your other lesson: "markets aren't the only thing that reverts to the mean".

Anatoly Veltman writes: 

Isn't it true: even having made 5,000% on your money, once you lose only 100% - you got no money left. That is more like self-sabotage.

Leo Jia writes: 

Normally, if one wins/loses in percentage terms, one nearly never loses 100% - sure one may lose so much as to have not enough fund to continue trading.

Let's assume that he wins/loses 5% on each bet. To make 5000% in the fastest way, he needs 175 consecutive wins. From here, to lose all he has made and get back to his original amount (which is still enough for him to continue trading), he needs to go through 166 consecutive loses. If his wins/loses do not happen consecutively, which is normally the case, it might have taken him over thousands of trades on each way.

So in this process, even though losing takes fewer times than winning (166 vs. 175), winning and losing both take a long time. So the other lesson "markets aren't the only thing that reverts to the mean" could apply here: after losing some, one starts to win. I am not sure how one can conclude "success is fleeting, losing is forever".

In the worst god-given case where he has no edge at all and trades simply based on flips of a fair coin, he has equal chances of winning and losing.

The only case where "success is fleeting, losing is forever" is possible is when he always strives so hard to create a very large negative edge for himself.

J. Hughes comments:

 Interesting, but the distinction needs to be made, "he was a floorbroker", quite a different occupation than that of floor trader. It's easy to trade against an order deck.

Having done both job's, cabdriver, and trader, though for different reasons, I can state unequivocally, yes markets change and if traders don't adapt, they perish. But the bigger insights lie in how much cab driving is similar to trading. Both position risk capital upfront, the 3 G's, gates, gas and graft. Then there is risk control, it takes skill to size up an individual when one is traveling at 35 MPH and trying to cover the costs of the 3 G's. Then there is return on capital, I can say first hand, my return on capital as a cabbie, on a nightly basis, was far superior on a percentage basis and more consistent as a hack, than a trader. Although I am back to driving a computer once again, and there are times I wish I was back pushing a hack. Both positions are very much traders. It's a natural fit. The lesson is, "life is replete with vicissitudes."

Ed Stewart writes: 

The problem with making $ 1,000-2,000 a day is it is enough to provide a salve and decent quality of life that makes one feel like a professional, but this is not dentistry or a job at a federal regulator. IMHO the correct target is to get rich and become a real capitalist. How one does that, via trading, a service business, or a money manger (combining the two) does not matter so much as actually doing it by any means that is legal and ethical. Going for crumbs doesn't cut it.



 A 69 year-old, geochemist/geologist is challenging the current paradigms.

From "Ancient Fossils Suggest Complex Life Evolved on Land"

Evidence from Southwestern deserts suggests that oxygen-breathing organisms arose on land rather than in the seas.

'Over a wilderness campfire the night before our climb to the cave, the soft-spoken Knauth confided that he enjoys challenging the prevailing paradigms in science and plans to keep it up. "In my old age, I am so disappointed that people close their minds and jump on whatever splashy, simplistic bandwagon is in vogue," he said. "But if you start with the rocks and work upward to an interpretation, it often reveals a reality that is not the one in vogue." '


'He is also convinced that multicellular oxygen breathers — the ancestors of modern animals — may well have lived in and fed upon photosynthesizing microbes that were spewing millions of tons of oxygen into the atmosphere. In fact, rather than these Precambrian animals (called metazoans) colonizing land tens of millions of years after the Cambrian explosion of life in the seas, Knauth thinks that the reverse may have occurred; land-based animals crawled into the sea, spawning marine metazoans with shells.'



 Averages are interesting and ubiquitous. I use averages every day and they are a part of my trading research. However, they are often misapplied in a social context. Find the average man, for example, and he does not exist, except in films like Idiocracy (highly recommended for a laugh). Thomas Sowell has written about this when statistics refer to average wealth, income, etc. In the sense that these are real flesh and blood people, the statistics deceive. For example, if there were just two earners, one making $50,000 and one making $1,000,000, the average is $525,000, surely not reflective of the underlying population.

The market on average has an equity of premium of 6% per year and a nominal increase of around 9%, but very few years actually are near this. Just look at the last 10 years starting in 2004 for the SPY etf. (10.7, 4.83, 15.85, 5.14, -36.81, 26.37, 15.06, 1.89, 15.99, 32. 31) avg=9.1. Certainly there's nothing "average" about this decade.

This is not news to anyone reading this site, but it is interesting to think about. In practice, in life, and as traders we live in the variation. If I can be philosophical, we live in the journey not the destination. The journey being the many deviations from what we expect might occur. The variation around the expectation, in more interesting, positive and negative extremes, and how we will deal with them when they occur. This is what defines us as individuals.



 Today, at 10 AM Israeli time (noon on the US West Coast), throughout Israel, the air raid sirens sounded. There was no air raid, though. On highways, drivers pulled over to the side of the road and got out of their cars; any passengers did too. In offices, work stopped at the sounding of the sirens. In schools, even on the playgrounds, play stopped (or at least as best as parents might make out of the situation). For two minutes, all activity throughout Israel stopped as silence overtook the country in memory of the Shoah—the Holocaust.

Whether the number of Jews killed was 6 million or 7 million we will never know. And the Jewish communities of Europe were not the only ones marked for genocide. Roma, gays, lesbians, among others. Nor was the Shoah the first such effort in the 20th century, as the Armenian Holocaust preceded it by two decades. There were 1 million or so Jewish children among those murdered by the Nazis.

In some ways, one might argue that the power of today's moment of silence is no longer one of sadness nor of simple memory, never mind the calls of "Never again!" I heard in my youth at Yom Hashoah ceremonies. The power is that a nation built in part to assure that Jews always have a homeland to go to is not merely surviving but is thriving. While thousands or tens of thousands throughout Europe and North America contend that Israel is an illegitimate state–some going so far as to label it a "cancer" on the Middle East, Israel is the emerging superpower in cybersecurity/cryptowarfare.

Friends at place such as Palantir tell me that the only place with companies comparable to those in the US in this area are in Israel. A few have said that working for an Israeli company would be the only step up from where they are today. While I find it hard to accept the proposition that the US is falling behind Israel in cypersecurity/cyberwarfare capabilities, Israel is clearly holding its own in the cyber world. At one time, Every Israeli would time every year on army reserve duty. Some have suggested that Start-Up Nation derives from that annual commitment and the quasi-talmudic state that accompanies it—questioning constantly, asking for justification, and so on. (Shai Agassi's demise and the collapse of A Better Place doesn't much undercut the thesis.)

 When I was growing up, the Shoah cast a shadow over many of the activities in the Jewish community. When my late brother was born in 1948, he was named for the first king of Israel, Saul. I was named after Saul's successor, and my parents once volunteered to me that had I had a younger brother, his name would have been Solomon. In my generation, it seemed that half the Jewish boys were named "David." I think they may have been thinking of the David in David and Goliath rather than as the king of Israel. No matter, the result—a Jewish nation secure in its position within its part of the world for the former, the ability to take down one's foe regardless of size for the latter—was essentially the same with regard to Jewish survival.

It used to be that survivors of the Shoah would attend and often speak at Yom Hashoah ceremonies. But their numbers are fading, and as the temporal distance from the Shoah increases, its importance within the community seems to fade to a degree, too. When I was Treasurer of the Jewish Federation in Central Maryland, our head of programming noted repeatedly—and correctly—that the American Jewish experience has to transcend the Shoah at some point. If you focus on it as the basis for community cohesion, she predicted, the community itself will dwindle as younger members leave, looking for something more uplifting, more fulfilling more affirming of life. She was right—and while I can't attribute the decline in the Jewish population in the US to a focus on the Shoah alone, it certainly hasn't helped.

Yom Hashoah is a solemn day, to be sure. A day of remembrance. Yet it is no accident that it is after the end of Passover with its themes of redemption, rebirth, and liberation; and after the onset of spring, with its theme of renewal and life, and the return of growth. It is also a day to remember "om Yisroel chai": The Jewish people live. And thrive.



 Much of the reason many people go to college is to get away from their parents' house, meet people, drink with them, and have sex with them. I think this is true at both higher and lower quality colleges. I think only the meeting people portion is available with online education. I think this will help physical colleges endure the competition from online colleges for a long time.

Companies that produce online content (classes) may do very well. They can sell the same content to many colleges, which can cut costs of live professors, while colleges can operate a "movie theater/college campus" offering all the attractions of a traditional college but with lower professor expenses. Ditto for selling content to primary schools and high schools, especially for specialized classes for which a local expert/teacher is not available in many geographic areas.



The paper "Two Centuries of Trend Following" by Lemperiere, Derenble, Seager, et al of Capital Fund Management purports to show that trend following has been profitable, over a wide range of markets, consistently over 200 years. It deserves to be reviewed as it represents a case study of the statistical practices, and armchair explanations that are sometimes used to justify a system that in the most recent five year period has lost its mojo. Rocky has asked me to review it.

The amazing thing is that the authors seem to know how to compute hyperbolic tangent regressions, and compute the duration of a drawdown given a sharpe ratio, yet they seem completely unaware of the problem of multicollinearity, overlapping observations, and lack of independent observations.

In a nutshell, they compute hundreds of thousands of means, and they combine them and measure how far away from randomness they are. Recall that the average of two random observations is about 0.7 times as variable as one observations. The average of 100,000 observations is about 1/320 as variable as 1 observation.

They report t statistics of 5 to show that their results are non-random. But, but, but. If you have say an expectation of 1 with a standard deviation of 10, ( lets say 1% for a typical market ), and you divide 10 by 320 (i.e. sigma/sqrt of n), you come up with a t of 32… none of the markets they cover are independent. For example, they use 7 and 10 year interest markets, and 7 stock index markets, and apparently treat each observation as independent. Instead of dividing by the square root of thousands, they should be dividing by the square root of tens depending on the years they consider, and the overlap of the running 5 month values of the independent variable.

Their results, as biased as they are are not meaningful in any practical or economic sense. When they look for the effect of subsequent profits of trend following on past result, they come up with a slope of 0.04. What does that mean economically. If the profits of trend following in the last month was 1%, then the profits predicted in the next month would be 0.03%. The variability presumably is 330 times as great as the expectation.

The authors note that over all markets over the last 5 years, trend following has been flat. Considering that the market likes to give you a profit from a system on a market like lean hogs that trades 1/1000 as much as stock indexes in order to lure you in, the fact that it hasn't made money is very negative. Also, the performance of trend following funds tracked by all the services shows that in practice the trend followers have worse results than the averages.

Even though trend following doesn't work in the real world, the authors have several paragraphs on why it should work. They talk about the slow response to Fed actions, and the tendency of heuristics to follow what works in the past. These are arm chair explanations out of the bush with no statistical support, although their ideas that Fed qualitative actions show momentum is a valid one. The authors might benefit from reviewing Bacon on ever changing cycles or being behind the form. Perhaps I am missing some nuggets of gold in the above paper, and I am open to any corrections in my analysis, or areas that favor trend following that I have overlooked.

Vic Niederhoffer adds: 

To hear Mr. Simonder defending the performance of trend following funds which are apparently down 4% from 2008, versus 130% up for S&P as of May 2013.

Boris Simonder writes: 

A more objective description would be that I'm defending against sweeping comments that trend following "doesn't work in real practice" or "in practice the trend followers have worse results than the averages". Now you seem to have backtracked a bit by admitting the fact that there are advisers who have performed better and made money, now and in the past.

As for the percent performance of S&P, 130% as of May, 2013, this seems to be taken straight from the article you posted, although, I only see 86% between 2009 - May, 2013. (Cash index). For what it's worth, here are some TF's with better results than the averages (equities) and in real practice.



 This interesting anthropological study is making the internet rounds.

"From Athletes to Couch Potatoes":

"Using Shaw's study of bone rigidity among modern Cambridge University undergraduates, Macintosh suggests that male mobility among earliest farmers (around 7,300 years ago) was, on average, at a level near that of today's student cross-country runners. Within just over 3,000 years, average mobility had dropped to the level of those students rated as sedentary, after which the decline slowed."

'Indeed the hunter-gatherers of 30,000 to 150,00 years ago traveled extremely long distances while hauling all kinds of weight. "They were much stronger than the long-distance runners of today," says Shaw. In a study he published earlier this year, he concluded that "the people back then were monsters by comparison. What you see today is quite pathetic."

Here is the original study.



 I was people watching, sitting down at a local surf break cafe at dusk last night. From the rich kid expats with brand new surfboards hamming it up after a day in the surf to the tourist couples enjoying a seafood dinner, to the guys in the break getting the last waves of the day to the street hawkers sifting through their pockets for loose change for a bottle of water and doing the thirsty work of sizing up the crowd for the next sale– all participants were in the same working scene, but no one was thinking about what the other participants viewed. It made me think that there are so many variables to consider about how everyone got to be the way they were. As with life, as with markets.



 Last night was a special night at Camden Yards. Or at least it might have been. We'll have to see what happens the rest of the season. The Os won in a 10 inning game, 3-2. The score doesn't capture, though, the victory happening with a base hit and the bases loaded. It's the sort of victory that teams in the hunt have to win. Every team of note has at least one game where the team energized and stayed energized for the remainder of the season. For Os fans, you need to go back to at least 1996 for such a game. That one was the de-energizer one, actually (10th Yankee, Jeffrey Maier).

But there are such games, ones that define a team's season. There are a few I can think of immediately when it comes to the Os. Doug Decinces' home run blast on June 22, 1979. It was 3 years before America would record "You can do magic" (I've always wondered if the opening image came from Pippin)—a song played just before the start of every Orioles game in September 1982 (it was played loud enough on the final day of the season, Earl Weaver's last game, that you could hear it over at the VA a quarter mile down the road)—and I think that carried over into 1983, but I'm not sure)—and there was the incessant talk about the reappearance of "Orioles Magic."

Everyone in town knew the reference. It was impossible not to; whether at Bo Brooks, Obryki's, or even Phillip's out in Ocean City, so the buzz went (I went to OC only a couple of times that year, so I'm not sure; down in Annapolis, though, by the marina near downtown it was a constant topic of conversation throughout the summer). But it was in 1979 that the Magic made its visitation at Memorial Stadium. When it came and found a home for 100+ games. When Flanagan (who won the Cy Young and never figured in the voting again, never win winning it), McGregor and Three are from 1966, one from May 8 when Frank Robinson hit the only ball to ever go outside Memorial Stadium (the point of departure marked by the "Here" pennant that perplexed visitors to Baltimore until the move to Camden Yards) 450+ yards on the fly and the other at Yankee Stadium when Frank Robinson hauled in the two outstanding catches, arguably the two best acts of defense of the year (remember that this is the team with Brooks Robinson—two years after he was MVP and four years before he gave a clinic on how to play 3rd base during the World Series—never mind his general daily play for the Os.

Last night may have been one of those games. It felt like one of those games. It's early in the year (as Tim Melvin keeps reminding me) and the Os bullpen bears more resemblance to the stability of jello than an iron wall, but that game last night was something to behold. Not a work of art. Gritty. Spirited. The memories of the 1979 Birds came to mind last night. 1979 featured only one standout pitcher—Flanagan. The rest of the staff (well, maybe excepting Tippy Martinez) was just, well, blah. Even Cakes. But blah enough to get to the series, but still blah all the same.

  I remember the night the Os clinched in 1979. I was a student at JHU, on the Homewood campus. My apartment was on Calvert Street, so it was a short walk to the stadium. 1979 was only two years since Brooks retired (some still think he was pushed out—and maybe he was, maybe he wasn't, the stats are pretty mixed), and his absence still cast a bit of a shadow over the team. It had poured that day, there was autumnal chill in the air (I think it was in the low 60s at game time), and the stadium still had a lot of water in the stands (who knew that within 5 weeks, the playoffs would be take place in weather more appropriate for football than baseball). The stadium was pretty empty that evening. You'd never guess that this was a team that had captured the hearts and minds of a city. With the rain that day, I'm sure many decided it would be better to stay indoors. But it was a grand game. I think the Os lost, but it didn't matter much. They were going to the playoffs. Make that returning to the playoffs. And in a year when no one thought they would much of anything. Take that, Yankees. Take that, Boson (the nemesis of the Os in the 1970s—moreso than the Yanks as I recall it).

Harborplace was still under construction downtown, and there was lots of skepticism about pouring so much money into downtown. It was the era of the Big City Mayors—Koch in NYC, Schaffer in Charm City. Schaffer put a lot of political capital into Harborplace, and that investment paid incredible returns. But there are those of us who think that the turn-around in Baltimore's economy began on June 22, 1979. Orioles Magic indeed.

 Some have opined that this year feels like 1966. I remember 1966. I lived through it. All way through the back to back HRs by the Robinson boys in the 1st inning of the 1st game in the World Series and the picture of Brooks jumping into the air after the Os won game 4 and the series. This isn't one of those years. From 1966 through the mid 1970s (maybe with the exception of 1967, when the pitching staff was worse than this season's), the Orioles dominated the American League East. Jim Palmer won 2 of his 3 Cy Youngs in 1974 and 1975 (and would have won in 1982 if he had pitched to form on the last game of the season). From 1969-71, they just dominated the American League.

The 2014 Os do not resemble any of those teams. There's no Frank Robinson, no Brooks, no Jim Palmer, no one of that ilk. That doesn't mean they can't go all the way. Maybe for the first time in 22 years, Orioles Magic makes an appearance at Camden Yards. For the whole season and not just one game.There's still September to be played. And May. And June, and July. Tim's right—it is early in the season. Still time enough to dream. To recall. To relive the joys of one's youth.
We'll see.

Play ball!



 This blog post gives some very stunning data on "coronary heart disease", which I assume means "heart attacks". Supposedly the rate of death per year per 100,000 people has gone from over 500 in the 1970s to 20 now. People just stopped dying from heart attacks.

What's up with that? Is the data misleading in some way? Has coronary heart disease started getting re-classified as something else? (And for that matter, isn't "coronary heart disease" redundant?)

Seems like a good topic for Dr. Lillienfeld.

Dr Lillienfeld responds: 

A few thoughts:

First, the commentator in the link should not be confused with the UNC ob-gyn epidemiologist David Grimes.

Second, coronary heart disease, in which atherosclerosis is present in the coronary arteries supplying blood to the heart musculature, differs from valvular heart disease (in which one or more valves malfunctions and needs to be replaced) and other manifestations of heart disease. Syphilitic heart disease referred to in the blog is, I think, a reference to dissecting thoracic aortic aneurysms, which used to be a major problem in the US, but with control of syphilis, it's declined in occurrence.

Third, as for the main issue, there has been a substantial decline in CHD mortality in the US and in the UK. The peak in the US was in 1968 and in the UK, 1970. Stroke mortality has similarly declined. There are lots of questions as to what is actually taking place in the population—is it better treatment? is it reduction in exposure to risk factors? We know that there's been a significant reduction in risk factor prevalence—smoking rates have declined from 60% or so in the US to 20%. (The impact of the e-cig boom isn't clear as yet). There have been significant reductions in air pollution, especially in the small particulate portion, and the consumption of a fat/cholesterol-based/laced diet has also declined.

Hypertension has come under control (though in the early 1980s, with budget cuts in public health clinics, hypertension control lessened, and for a period of about 8 years, stroke incidence went up). Oral contraceptive use—a significant factor in heart attacks in younger women and also strokes—have reduced their estrogen content (we're now on the 3rd generation), and with that reduction, the associated risk of a heart attack or a pulmonary embolism has declined, too. (There's parts of this story in Foundations of Epidemiology 2nd edition and 3rd edition), but we didn't include it in the first edition—that was much of a lung cancer-cigarette smoking focus.

So far, so good. Except that the decline began in the US in 1968, just after the role of oral contraceptives in heart disease in young women was discovered (and before any reductions in estrogen content had been undertaken). (By the early 1970s, something like 60% of American women under the age of 50 had used oral contraceptives for at least 18 months; it was a widely used medication-especially among women who smoked—and smoking acted synergistically with oral conceptive use in increasing the risk of a heart attack. Hypertension control was introduced into the US during the 1960s. It would be difficult to say that it was widely prevalent by the end of the 1960s. During my residency in Minnesota in the mid1980s, we undertook many different ways to get everyone in the population screened for hypertension, and we know we didn't succeed nearly enough to suggest that there was effective control of high blood pressure in the population. In any case, control of high blood pressure really took hold only after the decline began. (It has had an impact—on chronic kidney disease; it has reduced hypertensive renal failure significantly. And since Medicare covers the expense of dialysis, the use of those anti-hypertensives has saved a lot of money. Whether Medicare should have ever covered the cost of chronic renal failure, much as whether it should have covered coronary bypass surgery, is a matter of contestation.)

Similarly with blood lipids. Cholesterol levels have declined, but the impact of the statins (the effects of which have been shown in a number of randomized trials) would have been felt only since the mid 1990s; lovastatin wasn't even introduced in the US until the late 1970s, and atorvastatin (Lipitor) wasn't until 1997. In other words, the big three risk factors for heart disease—blood lipids, smoking, and high blood pressure—have declined, though lagging the decline in mortality. Then there's Europe. Smoking in Europe did not decline nearly as much, nor as fast, as in the US. I don't know about the extent to which high blood pressure control occurred in Europe, but I doubt if it was any faster than in the US. Yet the decline took place to the same degree as in the US.

Ah, I hear you say, that's because it's the result of better treatment. All that money wasted on disease prevention programs. Except that the data supporting that contestation are as out of sync with the decline as were the risk factors. Many cardiologists have declared that the decline is a demonstration of the impact of all the coronary care units built during the 1960s and 1970s. CCUs were the crowning jewel in many academic medical centers. There were high tech and they were effectively black holes for money. Despite many efforts by epidemiologists to subject CCUs to randomized trials, cardiologists insisted (much as psychiatrists were doing at the same time) that to deny access to the CCU to any patient meeting criteria for admission to the CCU was unethical. But CCUs were an American creation. The UK and much of the rest of Europe didn't build them until the decline was well underway. That build-out wasn't completed until much of the decline had happened. The same is true for coronary bypass surgery and the use of stents.

 Bill Rothstein looked at this issue (to a degree) in his book (http://www.amazon.com/Public-Health-Risk-Factor-Revolution/dp/1580461271). Bill got into quite a heated discussion when he presented his first paper on the subject at the 2012 American Association for the History of Medicine meeting in Baltimore (esp with Bruce Fye, who I think is still at Mayo), and more recently at the 2013 meeting in Atlanta with Henry Blackburn (from U Minnesota). Henry's compiled his own online history of cardiovascular epidemiology (http://www.epi.umn.edu/cvdepi/people_list.asp), but at least when I last spoke with him late last year, he had no response to Rothstein.

Frankly put, no one understands the decline, and to suggest that statins and the like had little contribution to it doesn't make sense given the extensive clinical trial data showing significant effects. Lipitor can reduce the blood lipid level by a third, for instance. The only thing everyone agrees on is that there was indeed a decline. Maybe it's lots of little contributions, except that the lag times don't concord with that explanation, either.

I hope that helps.

Charles Pennington writes: 

Yes, that was masterful, seriously. I am still digesting it. Thanks!

If you still have energy left, I would also like to know about the left hand side of the curve–the enormous accelerating increase that took place from 1910 (when the rate was very close to zero) through the 70s. Was that at least partly a reporting/diagnostic issue — that they just didn't recognize this mechanism of death in 1910?

David Lillienfeld replies: 

Let's start with what we know and work from there. We know that by the 1960s, there were many heart attacks occurring in the US male population—women would catch up in a couple of decades (yes, Benson and Hedges had it right, just in the additional context of disease as well as social conventions, occupational opportunities, and so on). The phrase "He had a coronary" was part of everyday discussions. For a middle-aged American male, having a heart attack was almost a part of life's passages, much like one's first love, marriage, children, and so on. Heart attacks were diagnosed by EKG until the 1960s, when wide-scale availability of serum chemistry analyzers in medical laboratories facilitated the development and use of elevations in different enzymes as indicative of a heart attack. At the same time, the idea of a "silent MI," as it was called, was developed, in which some myocardial tissue died from a mini-heart attack that did not cause sufficient pain or shortness of breath to cause the individual to present to a physician. That's how we came to know that there were a lot of heart attacks in men during the 1960s (which is not to suggest there wasn't lots of heart disease in women, too).

How did we get to the point of having so much heart disease in the first place? Heart attacks have been known as a distinct clinical entity for a long time. In Major's Classic Descriptions of Disease (I think I have the second edition, but I can't find it immediately), the credit for the first observation of a heart attack is given to Adam Hammer, a physician in St. Louis, who published the description during the late 1870s. Angina pectoris, as a distinct entity, would await William Osler, but I don't remember the date. It was later than Hammer.

During the first part of the 20th century, there's general agreement that the majority of cases of heart disease were rheumatic, ie, sequelae to a case of rheumatic fever; specifically, there was damage to the heart valves. (While there was some controversy about the diagnosis of rheumatic fever and what might be its cause up until the 1940s, when T. Duckett Jones put forth a standardized set of criteria that have served since as the basis for making the diagnosis, the cardiovascular effects were accepted as such back by the turn of the century.) While there are some controversies outstanding about how exactly rheumatic heart disease develops, its clinical diagnosis can be made with assurance using the medical technology and skills available in the early part of the 20th century. It seems unlikely, then, that there were many heart attacks misdiagnosed, unless one posited that there were lots of silent heart attacks. I don't know of anyone putting forth that idea, though.

Two big factors weighed on the population's health during the turn of the century—better nutrition and, for reasons not well understood, a declining frequency of active tuberculosis. The two may be coupled, but again, that's controversial. Suffice it to say that American diets included many dairy products, providing a source of animal-based fats. This was the "anti-tuberculosis diet" of the early 20th century. It provided sufficient calories that even in the presence of an active case of tuberculosis, the patient was not literally consumed by the infection (this is why TB was known as consumption). The problem was that that same diet was also fantastic at creating fatty plaques the lumens of the coronary arteries (other arteries too). As the population became wealthier, consumption of meat and processed dairy goods increased. Concurrent with that was an increase in the prevalence of smoking. Prior to 1900, there wasn't nearly as much smoking as there was in the mid-20th century. And the vast majority of that smoking was among men. The incubation period for smoking on heart attacks is much shorter than dietary fat or hypertension. WW2 didn't help matters—the cig cos gave the cigs out free to soldiers—a whole generation hooked on smoking.

Hypertension is a little more challenging. No one's really sure when it really did first appear. Until the 1950s/60s, increasing BP with age was considered OK.

The bottom line is that there was a confluence of factors, all of which were increasing at the same time—a trifecta if you will. Or a perfect storm.



Apparently the death throw is a peri mortal stage.

Anatoly Veltman writes: 

"The opisthotonic posture tells us more about the circumstances surrounding death than about what happened after death."

This is the key, and that's why huge players have been known to run their own stops. The ensuing reversals are a sight to behold

anonymous writes: 

It would seem asian session euro fx product range extremes on euro open in particular….



 Thomas Piketty's new book Capital in the Twenty-First Century named to seem similar to Das Kapital supposedly proves that capital is bad for everyone, and some people owning a lot of it is REALLY bad.

The solution? Tax the heck out of their wealth, and globally because destroying wealth will create more of it. All data-driven, because in France economists are not respected and need to prove their case. Since Marx Sr. had such a pleasant impact, who knows what this book destined to be "something big" and much appreciated in a thorough Harvard Business Review review will bring?



It is always interesting to see a day where Japan goes straight down when NYSE was way up on apple news.

Jordan Low writes: 

And what are the odds of the Dow Jones closing +0.00 on such a wild day?



 If one were to order a custom cane to use during market panics, that cane would have a handle/top fashioned like a honey badger's head–with teeth bared. The bottom, the point of the cane, its claw like foot for digging up bargains, and the shaft of the cane from the bottom up like a baby leopard's spots mixed with the black and silver wood of the Badger's fur like colorations. Since the bottom of the market is at its weakest, like a defenseless cub, yet its colored to scare one off, like a Honey badger does at first glance, you must be willing to go into the coop and take what you can, because that is what a spec is designed to do. You must remind yourself to be fearless and aggressive so a look to the cane's snarl in your fist should remind you to attack–without delay.



 This article tells a story of the positive consequences of banning video games in the household.

It rings true to me.

They're addictive, and any skill that a kid might pick up can't be generalized to much of anything else. A lot of unpleasantness occurs daily when you tell your kid that it's time to stop playing–and so putting "limits" on their time is not a great solution.

Of course the games can be of practical use to a parent if he wants to de-activate his child for some period of time, but maybe they will turn to books if the games are out of their lives.

Agree, disagree, or is this too obvious to even discuss?



 Time is unidirectional and relentless. We can never go back. There are no Mulligans. Music performance is good training to understand time. Music has a beat or a framework and the notes have to fit in in time. Beginners have difficulty with tempo and keeping up with the framework. When they make a mistake they try to stop and go back and redo the part. It doesn't work. The show goes on.

A curious thing about real time is that it fluctuates in tempo. In markets opens, closes, night all have different tempos. When you're in a trade, time seems different. When you're relaxed time is different than when stressed. When you sleep, time disappears to you. Time, in reality according to theory, is relative to speed. Delay or lag in a correlated system is very difficult for people to make proper adjustments to achieve a steady state. This is the thermostat problem. This is the FED's Problem as well. This is a portfolio balancing issue too.

Jeff Watson adds: 

And time only has a circular definition.

anonymous adds: 

"Nature does not hurry, yet everything is accomplished." — Lao Tzu



Does Prigogine's principle have any predictive market implications?

Well if you move from thermodynamics to information theory entropy, and consider the information content of market prices, then there are two clear analogies:

1. There should be local, transient edges (Prigogine, market prices self-organizing to minimize the rate of information loss).

2. Those edges are decaying (Second Principle, "Changing cycles").



 Just 52 cards (weeks) with 4 suits (seasons) with 13 cards (weeks) in each season can be shuffled into 400000000000000000000000000000000000000000000000000000000000000000000 combinations. That's 4 and 69 0's.

The Pips (spots on a card) = the number of days in the year for trivia buffs (jacks count 11, Queens 12 and Kings 13).

Oh and here is a mind-fuddling bit of math that I perform with all the time and I'm still shocked that it always works: The Gilbreath Shuffle.

Easan Katir writes: 

Years ago one learned from professional card men how to shuffle overhand, riffle, even spread cards on a table and mess them up — and end up with every card in the exact place as before. Market application? There are those who know how to shuffle the news, analysts' ratings, technical patterns, so their capital increases — while the audience of investors looks on, amazed.



 I was sent this video about a honey badger taking on 6 lions. I noted a similarity between the way the honey badger reacts to attack. He retreats bitten, backing up with face towards adversary, then counterattacks, retreats for a little, then attacks again and retreat attack again.  Is it general or random?

Ken Drees shares from wikipedia: 

Honey badgers are very intelligent and are known to be capable of using tools. In the 1997 documentary series Land of the Tiger, a honey badger in India was filmed making use of a tool; the animal rolled a log and stood on it to reach a kingfisher fledgling stuck up in the roots coming from the ceiling in an underground cave.

As with other mustelids of relatively large size, such as wolverines and badgers, honey badgers are notorious for their strength, ferocity and toughness. They have been known to savagely and fearlessly attack almost any kind of animal when escape is impossible, reportedly even repelling much larger predators such as lions. Bee stings, porcupine quills, and animal bites rarely penetrate their skin. If horses, cattle, or Cape buffalos intrude upon a ratel's burrow, it will attack them. They are virtually tireless in combat and can wear out much larger animals in physical confrontations. The aversion of most predators toward hunting honey badgers has led to the theory that the countershaded coats of cheetah kittens evolved in imitation of the honey badger's colouration to ward off predators.

Pitt T. Maner III writes: 

 Honey badgers have a very interesting collaborative endeavor with the honey guide bird. It's an amazing partnership. Here is a vid about it: The honey guide bird leads the honey badger.

UPDATE: It's evidently a myth started by an early Swedish naturalist who heard of the behavior from a 2nd-hand source! Similar to the cliff-diving Norwegian lemming movie meme in some respects.

But at least the birds appear to interact at some level with humans on the honey trail and probably are not far behind a marauding honey badger to pick up the crumbs:

"Lies, Damned Lies, and Honey Badgers"

'Claire Spottiswoode, author of the recent honeyguide paper, set me straight. Even though the bird certainly teams up with humans, Spottiswoode said, "There is no persuasive evidence that honeyguides ever guide honey badgers". Cue baffled noises from me, and the faint whimper of broken childhood memories. Spottiswoode continued: "You might have seen the YouTube clip of a honeyguide seemingly guiding a honey badger - I'm afraid that was a set-up with a stuffed honeyguide and tame badger!"'


'The myth of the badger-guiding honeyguide began in 1785 with a man called Anders Sparrman, who had heard the story from local people. He never saw the actual behaviour first-hand. Neither had anyone else. In 1990, three ornithologists – Dean, Siegfried and Macdonald – wrote a paper debunking the honeyguide/honey badger story. In it, they wrote, "Naturalists and biologists have been active in Africa for more than 200 years. During this period, to the best of our knowledge, no biologist or naturalist, amateur or professional, has observed a Greater Honeyguide leading a Honey Badger to a beehive." '

Ken Drees writes:

My sister was in a party hiking in Sumatra, Indonesia some time back that was ambushed by the honey badger. He lay in wait and as soon as the local guide of the group appeared from under a fallen tree at the bottom of a ravine on an established path he swooped. Luckily the guide was quick enough to swing his machete, which had a chunk out of the blade after he caught mr. honey badger's shoulder. My sister was number two behind the guide, ducking under the log at the time of the attack and felt his furry coat on his retreat. The guide was very quick to start hacking a new path through the jungle and organizing the troops to flea since he was certain the honey bear would be back. After a few skipped heartbeats all worked out ok on that day. But it appears from this he's a thinker and from the guide's reaction and concern, the attack retreat attack is possibly not random. 

Jim Sogi writes: 

In The Book of Five Rings one of Musashi Miyamoto's three main strategies is to retreat …attack …retreat…. attack…retreat. It throws the pursuers off balance and separates multiple attackers and allows you the choice of your terrain and setting.



 People generally cannot understand or have difficulty understanding or picturing exponential growth. There is a story about the inventor of chess when the King condescendingly asked him what he wanted for a reward, the inventor replied that he would like the number of grains of rice, which when starting with only one grain, doubled in amount for each square on the chess board. The King laughed and thought he got off so easy. This same inability to picture compounding growth interferes with a long compounding hold of financial assets.
The same lack of ability to see compounding growth applies to study of past growth. People understand linear growth more easily.

Vince Fulco writes: 

The inability to see compounding growth interferes with the study of nearly everything I might add. We tend to think that evolution is responsible for much if not all of the world that we see, a function of random mutations that have a selective advantage. Consider, after all, the universe is about 18 billion years old. In seconds, this is 60 x 60 x 24 x 365.2425 x 18 x 1,000,000,000 = 5.68e17.

"Random mutations with a selective advantage." Yes indeed. A thousand monkeys wailing away on typewriters will eventually happen upon Hamlet.

So let's examine that (it provides an insight into the astounding character of exponential growth James writes about here). Only considering the line "To be or not to be," which comprise 18 characters. We will consider the space a character, and make no distinction between upper case and lower case, require no punctuation, but rather a keyboard for the little apes having only 27 keys. The probability of any one monkey typing only this line is 27 ^ 18 = 5.81e25

To put the relative differences into perspective, if I could take a thousand monkeys, 18 billion years ago, and permit them 5,000 keystrokes per second, we would have about an even money bet that, without regard to case or punctuation they might, with a probability of about .5, come up with something like "to be or not to be" and much less all of Hamlet.

Natural selection, whereas I do not contest its existence, does not explain a whole lot as clearly not enough time has elapsed since the big bang.

I'm wrestling constantly these days with allocation structures based on similar matters, where a copula of discrete outcomes (say, the copula of rolling a pair of dice) posses 21 possible, distinct outcomes such that the branch out across elapsed consecutive trials gets unfathomably large quite rapidly. Even with parallel processing (more monkeys, more typewriters) the problem reduces, but the scale remains too enormous still as a result of astounding nature exponential growth.

Henry Gifford writes: 

The relatively new field of epigenetics has some very interesting answers to the astute observation that random mutation alone would have taken too long.

Stefan Jovanovich writes:

So, one starts with a "known" fact that is not a fact at all — monkeys sitting at a typewriter writing Hamlet. Then, one proves mathematically that the fact is not probable; and that, in turn, raises a question about the validity of the current best hypothesis for explaining the organic world around us — namely, that through natural competition fortunate mutations win.

It seems to me that we are all saddled with two very stupid terms and our minds wear them like blinders - Marx's word for the results of enterprise ("capitalism") and the Darwin's unfortunate choice of the word "selection" for his title. "Evolution", especially in the eyes of its admirers who try to turn its theory into a fact, somehow takes on the certainty of religious moral authority; it "explains" everything just as Marxism does. No, it doesn't; but Darwin's theory does withstand the Shakespeare test. For one thing, there is no evidence that any monkey of sense would go near a typewriter.

If Marx fudged the data wherever possible to make history say what did not, in fact, happen, Darwin did the very opposite. He thought there could never be enough data to "prove" his hypothesis; but he did take heart that there was, at least not yet, no data that proved it wrong. He does seem to have realized that he had been proven wrong in his choice for the title for his first edition. But he deserves a pass for that.

In choosing On the Origin of Species by Means of Natural Selection, or the Preservation of Favoured Races in the Struggle for Life, he was not endorsing the Southern way of life or Dickens, Carlisle, Kingsley and Ruskin's defense of Governor Eyre. Hardly. Darwin was one of the very few people who had the courage to speak up, along with Huxley, John Bright, and John Stuart Mill. In using the words "race" and "species" Darwin was using the biologist's definition - could male and females produce offspring. In the rare times when he was asked about human "races" Darwin was genuinely bewildered by the question; there was, in his view, demonstrably only one human species/race.

That leaves the point HG notes. Useful mutations may have had their randomness accelerated.

"Timescales of Genetic and Epigenetic Inheritance":

"According to classical evolutionary theory, phenotypic variation originates from random mutations that are independent of selective pressure. However, recent findings suggest that organisms have evolved mechanisms to influence the timing or genomic location of heritable variability. Hypervariable contingency loci and epigenetic switches increase the variability of specific phenotypes; error-prone DNA replicases produce bursts of variability in times of stress. Interestingly, these mechanisms seem to tune the variability of a given phenotype to match the variability of the acting selective pressure. Although these observations do not undermine Darwin's theory, they suggest that selection and variability are less independent than once thought." 

Jeff Watson writes: 

We should revisit the Second Law of Thermodynamics, and how some scientists speculate that it enables the formation of life itself. There is some very good peer reviewed literature regarding the second law and life.

Anyways, there are some very interesting challenges to Stanley Miller's glass jar filled with water, methane, ammonia, and hydrogen.(I believe he got his PhD from the same place as the Chair). In Miller's experiment, he blasted it with an electric arc for a long time, and out of this primordial soup arose half the amino acids required for life.

Fifty years later and biochemists and physicists today are on the verge of creating an artificial organism that meets all the criteria of life.

Mr. Krisrock asks:

In evolution it's the survival of the fittest, so how come so many species still exist?

Gary Rogan writes:

There are multiple niches in the environment, so species specialize.  The famous Darwin finches were shown to adapt their overall size and beak size to different sub-environment both geographically and on the same island.  It's the same reason why Toyota doesn't operate supermarkets or Procter and Gamble doesn't own any airlines.  It's easier with conglomerates: at least they can get specialized departments, but imagine a lion competing with heat-loving microorganisms in under-water vulcanoes.

Now the jumps: just because not all species that died out left any identifiable remains, doesn't mean they didn't exist.  The absence of evidence is not evidence of absence.

Bruno Ombreux writes:

Why is it hard to believe that matter will organize itself into a more
complex form when a very high temperature source of energy is in the

Matter will organize itself when it is in an open system subjected to an energy gradient. See Prigogine's principle.



 Dear Chair,

Choosing the right hardwood floor to cover different sub surfaces is akin to picking the right stock to fit individual portfolios.

Doing research on flooring is like choosing the right stock that will last for long term use and hold up in your holdings.

Just thinking outside the box (for me).





When it seems that the trading day can't finish soon enough, take heart that you weren't one of the pilots of this El Al plane trying to land without its landing gear deployed. Not a good situation—but at least caught by the automated alarms on board, averting what would have been a disastrous landing (I think the engines hang lower than the fuselage).

anonymous writes:

As the Chair has noted, the importance of checklists.



 12 insights about markets and life from reading Ken Roman's The King of Madison Avenue and The Unpublished David Ogilvy.

1. Be unorthodox and imaginative in your hiring. Ready to hire people with unusual backgrounds. Would you hire this man for an advertising executive? "He is 38 and unemployed. He dropped out of college. Has been a cook, a salesman, a diplomat and a farmer. Knows nothing about marketing. And has never written any copy. Is interested in advertising as a career at the age of 38, and is ready to go to work cheap." It was Ogilvy himself who 3 years later became the most famous copywriter in the world and built the eighth biggest ad agency.

2. Treat women as if they are as knowledgeable as your wife when you advertise to them. They don't like to be talked down to or treated as robots. Peter Lynch and Jim Cramer are not the only investors who got 10 baggers from their wives.

3. The purpose of advertising is to sell a product. Make sure you go for the sale. Forget about aesthetics. Learn from the mail order ads where everything is tested, and no ad continues unless it pays it way. Forget about the 3rd and 4th moments in your quantitative measures and concentrate on making a profit on your trades.

4. Don't show off or try to be funny. It doesn't go well in print. It demeans the readers' intelligence. If you show off in a trade or competition, it will defuse your energy, and take you away from the bottom line.

5. Always hire a secretary of the same sex as you to make appointments. It will show you're interested in business and not in romance. And it will prevent you from being too expansive if the romance doesn't work out, or too soporific if it does. You have to be alert to be successful in markets.

 6. You never know someone's character until the chips are down. Everyone's a good winner. Choose side men of unquestioned integrity, preferably eagle scouts, or those who follow the code of the west. Roman himself was not gifted by an excess of loyalty from his mentor when the chips are down. Don't expect your clearing firm to give you the benefit of the doubt in a tight situation. They have to worry about their stockholders and when you are down, there is ample opportunity for them to make a profit against you, the same way a poker player can when he knows you can't withstand a big bet.

7. Always be reading good biographies. Ogilvy was an incessant bio reader and used the lives of the greats as examplars for building his international operation. The best bio of a market person I have read is MFM Osborne's biography by Melitta Osborne and Tom Wiswell's proverbs. Both are available on the DailySpec.

8. Write 100 headlines and read everything about your competitors and your product before you write your ad. Be ready to test 100 systems until you find one that really works and is not subject to ever changing cycles.

9. Surround yourself with people that have talents that are different from yours. Ogilvy knew nothing about finance or tv or computers, and hired good people to fill in the gaps. If you're a macro guy, hire a micro guy to get you on the right track. The palindrome hired me because I could get him a tick or two, and that was enough to start the steam roller going.

10. Work hard. Oglivy supposedly worked 120 hour weeks, and drove his wives crazy by working all through the night. The little bit extra is the difference between success and failure. I won countless matches in squash by diving for shots while my opponents were apologizing for hitting it off the wood.

11. Be prepared with a good defense. Ogilvy wrote what Fortune described as the best sales manual ever for the aga cooker. In it he enumerates 10 common reasons for not buying the product and shows how to turn each objection into a sale. Are you ready on your trades to turn your losses into profits, to survive if it goes against? Prepare a manual of defense and stick to it.

12. Be ready to learn from and compliment your competitors. Ogilvy often walked out of a meeting and told the prospect to go with his competitor because the other side was better. Practical investment people can learn much from the academics, and the fundamentalists and the technicians should be friends.

Andrew Goodwin writes: 

I was thinking about what you said about how you shouldn't expect your clearing firm to give you the benefit of the doubt in a tight situation.

That doesn't make sense unless one gets preferable margin callings or the like due to status as a .01% large player. There is a mathematical sweep or a reg T margin from most brokers one can find who run a tight ship.

For my part, I'd like to see how the clearing firm traders use the customer position data. If you know someone is levered up the gills and has to post more money at certain levels, then of course they will take the other side if there are no Chinese Walls.

Long ago, I saw an indicator in print which showed the margin purchases versus the cash purchases of Merrill Lynch customers. When optimized it had reversion results that were nearly perfect for the many years preceding the printout.

If you know the margin call levels for the largest number of the public customers on Reg-T, then one should fade the mandatory liquidation levels once crossed with little caution. That's why you buy stock in brokers and hope they don't pay themselves all the trading profits in bonuses.



all the charlatans, poseurs, and gurus

no skin-in-the-game, never paid any dues

with all their gimmick driven prophecies

they cant see the forest through the trees…

as a 92 yo legend patiently waits for 2100



 I have been thinking about what could be a good set of criteria to measure trading (strategy) performance for individual traders.

The criterion of average return divided by the variance of the returns seems to have its shortcomings. One reason is that some large positive returns can cause the variance to go up resulting in an indication by the criterion that the performance deteriorates. But some large positive returns are good to have.

Other criteria like Sharpe ratio seem more suitable for institutions.

I think using properties of the linear regression line of the cumulative return curve might be a better choice.

Two useful properties are the slope and the "width" of the linear regression line. By "width" I mean the deviation of the cumulative return curve around the linear regression line.

A good performance should have high slope on the one hand. And if we do not consider reinvesting profits, it should have narrow "width" around the linear line.

So then the value of slope/width seems meaningful.

If we take the linear regression line as a risk free benchmark, then this value may be very similar to the definition of Sharpe ratio, but practical for individuals.

Would anyone please comment on the pros and cons of this, or any other better ways to measure performance.

Alexander Good writes: 

Great post!

I think it makes sense to measure linearity of PNL and convexity separately so I agree with you that R sq is a good one to employ. I am curious how width differs from the strategy's std though…

One thing that you can do as a cheap proxy is median return * sqrt(252)/std return and then for skew then have a (rolling max peak to trough draw down)/(rolling max peak to trough draw up).

You can benchmark your strategy vs. bonds, the S&P and a traditional 60-40 mix or your other strategies. It's very hard to beat a vol weighted portfolio of stocks and bonds so it's a good benchmark in my humble opinion assuming you're trading your PA and you don't have large retirement holdings. I assign different weights to skew and median return depending on my portfolio construction.

In portfolio construction you'll often find things with strongly positive skew have good inverse correlation to market PNL series and are typically 'long vol' (idea ripped off AQR's value and momentum everywhere).

Trending strategies frequently have very positive skew (momentum) whereas mean reversion tend to have skew that looks like the S&P (value). So if I'm net long beta my marginal utility of doing trending models is higher whereas if I'm net short I tend to size up mean reversion strategies.

Would be curious to know what other people are using/ how other people think about this/ if they have good papers on the subject. 

Leo Jia writes: 

Aren't they different?

std of returns has this term: (Ri - mu)^2, where mu is the same for all i's.

The width has this term instead: (CRi - Vi)^2 where Vi is the value on the linear regression line at time i and is all different across all i's.

Alex Castaldo writes: 

Personally I just like to look at the equity curve visually, and it is not difficult to store large numbers of graphic files in a folder and quickly "flip" through them by hitting a key on the computer.

But for automated evaluation Leo's two criteria (slope of regression, and "width around the regression" (which is also called the SEE or standard error of estimate.in regression textbooks) make sense to me.

However I know there are many other criteria that have been proposed. There is one with a foreign name that I think starts with "v" but that I can't remember. I am sure some people here know what I am talking about, it was much blogged about 2 or 3 years ago.

In looking for it I accidentally googled another measure of equity quality, the k-ratio , that believe it or not has 3 different versions.

Any other ways to measure equity curve "quality"?

anonymous writes: 

As with many things involving non linear information, my experience suggests that one must mix, blend or combine different 'quantities' to form a unique and proprietary time series.

For example, some form of 3D 'curve' that combined the three quantities return, AUM & volatility that gets thicker as AUM in the strategy grows and changes colour as volatility of returns increases perhaps… 

Ralph Vince writes: 

percent of 6 month periods underwater
percent of 1 year periods underwater
percent of 2 year periods underwater

percent of time at equity highs
percent of time within 1% of equity highs
percent of time within 5% of equity highs
percent of time within 10% of equity highs
percent of time within 20% of equity highs

I have all of these programmed up in javascript which you can peruse at lspindexes.com and click the "compare" tab. 



 We need to analyze this. She is unconventional, chatty, attractive. Does she throw the competitors off?

"Victoria Coren Mitchell makes poker history with San Remo victory"

Now Victoria Coren Mitchell has made history by becoming the first two-time winner of one of poker's most prestigious tournaments.

"I think I'm quite quirky in poker because there still aren't many women playing big tournaments," she said.

"I have another job and I sit at the table drinking wine and chatting. Poker's a strange game because it's face-to-face combat and we're trying to knock each other out and take each other's money but at the same time we're all friends."

Ross Jarvis, editor of PokerPlayer magazine, said Coren Mitchell's win came at a time when professional poker veterans are fighting it out with a new generation of online whizzkids, many of whom have won millions before they turn 20.

"You have players who are the best in the world who are well-known in poker, then there are so many young players who you won't have heard of until they burst on the scene. Within the hardcore, there are people as famous as Victoria but when it comes to the mainstream she's in a league of her own," Jarvis said.

Jeff Watson opines:

In my opinion, a good poker player that happens to be a woman will beat up most men. Women scare me at the table and I generally play around them. If they're semi hot, flirty, and charming, they have an significant edge provided they have solid poker chops. Their edge exists because they are in control just because of what and who they are and by virtue of this, can manipulate the opposite sex. It's a spectacle to see a solid woman poker player slice, dice, and chop up her victim. And many men believe that these women are just lucky since there's still that core belief out there that women aren't as good as men in poker. 

Ed Stewart writes: 

 A man's competitive instincts start to shut down around a beautiful woman. Competition goes against the natural order that furthers the species in a beneficial direction. Chivalrous notions emerge, good business sense quickly erodes. One can't fight that instinct for long, in my opinion. It is a lost cause.

In the old days when the workday was more segregated men were protected from this weakness. Now it is open season on us and the other side knows it. If a brokerage salesperson with a very sensual and attractive voice asks to make a face-to-face presentation, just say no, as difficult as it is to do, summon the will to do it and you will be thankful.

It could be that this is why men practiced some forms of workplace sexism. It kept us from becoming fools on a consistent basis. When our main work conflicts are with men we are energized. It feels natural. Not so much the other way. A women might read this and be extremely disturbed and think, "think with the big head" but it is easier said then done. Modern mores are constructs, conditioning, overwhelmed by the most simple flirtation, and every good looking professional woman knows this.

If we try to avoid the attractive woman we might be in violation of laws, so self-preservation is now illegal too. 



 I was fascinated by this amazing video showing the extreme intelligence of Honey Badgers. The video shows the badger, Stoffell, outwitting his "owner" and escaping from his enclosures in about 10 different ingenious way.

The Hobo comments: 

I had no idea honey badgers beat up on cobras. I've seen one badger near where I live and another while hiking in Mexico and they just lumber along like a champion wrestlers as if they own the world. I met Jane Goodall one year at the Bitish Embassy in Nairobi where she hooted at me like a monkey. But badgers are probably more interesting to everyone.



 The fun spec party trip to the Meadowlands racetrack highlighted many Dailyspec themes. Bacon talked about changing cycles. A system tends to draw down as cycles change. In The Logic of Failure Dorner discusses identifying the dependency of variables in a complex system Some variables regularities may be conditional. A fixed system could be filtered by a variable such as a rising TED spread to avoid degradation in a changing cycle.

The second theme of the trip to the races was that you don't really know about your theories until you have some skin in the game. Also it may not matter so much what your system or theory is as long as you have a theory you can stick with that isn't a sure loser.

The fascinating spec party easter bonnet parade down 5th Ave on a beautiful spring New York day is best recapped by the Heisenberg Uncertainty Principal.
 Just the act of observation changes the outcome. No one is just an observer. By your presence you create and are part of the event and change its reality. Some folks had outrageous bonnets, some watched. All were part of the event.

Wandering around New York on a random fashion highlighted the benefits of randomness, chance and observation. Strolling back from the parade we chanced into the broadway play of Of Mice and Men by Steinbeck starring James Franco and Chris Dowd who gave a great performance.

As Yogi Berra once said it's amazing what you can learn by observing. Many thanks to the Chair and Susan for a wonderful weekend and for the generous hospitality.



 I have been very much enjoying this lecture series on Ancient Greek history.

CLCV 205: Introduction to Ancient Greek History:

This is an introductory course in Greek history tracing the development of Greek civilization as manifested in political, intellectual, and creative achievements from the Bronze Age to the end of the classical period. Students read original sources in translation as well as the works of modern scholars.

Donald Kagan is Sterling Professor of Classics and History at Yale University. A former dean of Yale College, he received his Ph.D. in 1958 from The Ohio State University. His publications include The Archidamian War, The Peace of Nicias and the Sicilian Expedition, Pericles and the Birth of the Athenian Empire, On the Origins of War and the Preservation of Peace, and The Peloponnesian War. In 2002 he was the recipient of the National Humanities Medal and in 2005 was named the National Endowment for the Humanities Jefferson Lecturer.

(It's also available on iTunes.)



 It always struck me that trading was a lot like a video game with the world's worst user interface (perhaps deliberately so according to some, who think that knowing obscure Bloomberg functions leads to job security). With the advent of Robinhood.io and potentially commission free equity trading, one of the major hurdles to gamification is removed (i.e. you bleed to death if you don't know what you're doing).

I wonder what would happen if you hired some very strong video game developers off Bioware or Nintendo (or even outright did a merger). Then mixed it with a trading platform.

I feel like you might hit an unexpected audience in Asia - see: Activision's Starcraft had near permanent cultural impact on South Korea.

Interactive Brokers is an awesome trading platform if you know what you're doing but the UI feels like it was made in 1995. In the meanwhile Nintendo is not adapting to the times. Totally impractical and probably would happen more as a start up than M&A but just a thought that could bring speculation to the masses.

Hernan Avella writes: 

Your idea seems an iteration of an old process, the transition of markets from the pit to the screen and from manual to automated trading. A certain trading firm I know used to hire young man with video game skills, namely being fast with the mouse and being able to do fast basic arithmetic. The fittest players also had a deeper understanding of deception…"fainting", a sequence based process for looking X amount of moves ahead.

The last 8 years could be described as the industrialization of gaming, fast computers, fragmented markets, cheaper commissions, explosion of quotes. It would be interesting to know what new games are being played now, or will be played in the future. Will they be just iterations of the old games (running stops, spoofing, layering) like the so called "momentum ignition"? Or as you hypothesize, will there be new games driven by new technologies and different ways to interact with data.



 One of the most astute economists I know who often speaks at the Junto, has described the humorous grandmother as an agrarian reformer without the agriculture. Even worse than the crook that was her chief competitor for the job. One wonders if this is bullish for bank stocks and gold?

Orson Terrill writes: 

She just may be the grandmother not wanting to put the son, who has been living in her basement for possibly too long, out on his own two feet. For this person to remain consistent, inflation should be less of a concern than creating a recession to avoid it, and there has been weight in some academic circles that inflation rates need a much higher target (4%). After the attention they've received in the last few years, it's easy to believe they wouldn't want the appearance of interfering with elections. In that light of all that, it would be more or less of a surprise if there was any substantive action, after the tapering is over, until elections were finished. That would give them a year after tapering was completed to have talked about increases in rates, tri-party reverse repos, permanent MBS positions, and maybe how the only bank prop trading allowed, thanks to the new rules, will be in government debt, which carries a 0% risk weighting, therefore, does not reduce capital adequacy…. and how all of this somehow may curtail the effects of reducing their large positions on the most volatile end of yield curve.



 Thank you very much for the great Spec gathering. It was very good seeing old and new faces, and always good to see you.

Below is a submission for the DailySpec if you deem it worthy. It's a very good example of the benevolent influence you talked about to the group:

The highlight of touring the orchid exhibit at the New York Botanical Garden was the commentary of friend and mentor Victor Niederhoffer. At one point he made a wry comment about one of the exhibits, which described how plants were used in folk medicine. He opined that Ayn Rand wouldn't have liked the exhibit, as it glorified practices that were filled with mysticism, subjectivity, and overall mumbo-jumbo.

My reflection, however, was that Ms. Rand–in epistemological benevolence–would have distinguished between pre-science and anti-science. The ancient astronomers lacked the tools of their modern counterparts and yet attempted to ground their work in the observable and measurable. Anti-scientific mystics, on the other hand, posit realities that by their very nature are non-measurable and unverifiable.

Earlier in our tour, Vic had mentioned the early technical analysts, who hand-posted charts and used compasses and protractors to measure angles and trends. Much of this was pre-scientific work, not necessarily anti-science. Lacking computers and algorithms, the early pioneers of market analysis resorted to the tools and techniques available during their era. That many of their conclusions did not stand the test of time does not alter the fact that they were engaged in efforts at objective observation and measurement.

This is quite different from astrological and numerological theories of market behavior that were so imprecise–and so able to cover all possible circumstances–that they could not possibly add to scientific understanding.

There are "moneyball" opportunities in the pre-scientific observations and measurements of dedicated traders who make sincere efforts to "count". One can find their work in the better blogs and tweets across the web. Such work is fertile ground for promising hypotheses, even as it must face the rigors of scientific scrutiny to be accepted as conclusions.

Technical analysis is the folk medicine of financial markets. The rational folk doctors of past eras found plants that truly had healing power. Indeed, 30% of all current prescription drugs come from such plants, according to the NYBG exhibit. Some of today's market folk doctors–those truly devoted to observation and measurement–may find equivalent remedies for ailing speculators seeking market truths.

P.S. I have spent the better part of this morning quantifying a blog's informal observations about support and resistance and have found interesting patterns worthy of further study. Such is the benevolent influence of a garden walk with the Chair.



Proverbs by Tom Wiswell.

Do or die: "Drawing is not a dirty word and neither is defeat. Play to win, but take a draw, or even a defeat, and wait for another day. That's the name of the game."

A Doubting Thomas: "If you want to be certain of your position, you must begin by doubting it."

Confidence Game: "in order to win, you must have plenty of confidence, and that's fine unless it becomes conceit."

Your Manuscript: "You will need a blank book: plus a pen or pencil. And something just as important: an eraser."

Defeat: "In many losses, especially among masters, it is the one fatal move that breaks the camel's back."

Stroke of Luck: "With luck, students may win a game or two. But with knowledge and work, they may win many games, and even become masters. Stick to your last."

Ambition: "You have to burn the midnight oil if you want to set the world on fire."



After 25 years lost, I found the original cache of 5,000 Wiswell proverbs about life, markets, and checkers. These were presented each week faithfully for 20 years. It's like discovering the diary of an Einstein, who was amazed when Wiswell gave a simultaneous 10 game blindfold exhibition at Princeton. Tom thought this would be his best of 28 books. Here's a typical sampling from page 1. All of them will improve your life and markets. "I am often asked why I play 11-15 (c3-d4) and I reply, "that's where the wins are". (Perhaps the wins come after weakness?)



 One always appreciates the wisdom of Tom Wiswell. For 20 years, once or twice a week he'd write down proverbs from checkers that were applicable to markets and life. He'd say, "Victor, this is going to be my last book, and the best book. I'm ready to take off my hat". Today, the boys in the office look at the numbers and say, "it's getting quite bullish in SPU". Whenever Tom put you in an untenable position after you made a hasty move, and you started thinking, Tom would say, "now you're thinking" and shake his head sentorially and sadly. I had an opportunity to say that to my colleagues today: "Now you're becoming bullish".

Tom would also add after looking at Susan's legs, and her natural grace, (she never wore a drop of makeup or tried in any way to enhance her natural state), "Victor, the one thing I regret the most in my life is that I never married a girl like Susan." Then he'd sadly shake his head again and say, "but then again if I had, I might not have written 28 books."



 Cicero made some of his speeches as prosecutor in the extortion court of Rome. In Verrem is a set of speeches made against Verres, a man accused of many crimes committed during his governorship of Sicily. Cicero's initial oratory was not about the facts of the case itself, but rather about the state of the judicial system in Rome:

That he [Verres] was not taking money for himself alone, but had his three-year governorship of Sicily parcelled out in such a way that, he said, he would be doing very nicely if he kept his gains from the first year for his own use, handed over those of the second to his advocates and supporters, and reserved those of the third year - the richest and most lucrative of the three - entirely for his jurors.

This prompts me to tell you of a remark which I recently made before Manius Glabrio when the rejection of jurors was being held, and which I noticed made a profound impression on the people of Rome. I said that I thought there would come a time when foreign peoples would send delegations to Rome to request that the extortion law and this court be abolished. For if there were no courts, they believe that each governor would only carry off enough for himself and his children. With the courts as they are now, on the other hand, they reckon that each governor carries away enough for himself, his advocates, his supporters, the president of the court, and the jurors - in other words, an infinite amount. Their conclusion is that they are capable of satisfying the avarice of one greedy individual, but incapable of subsidizing a guilty man's acquittal.

Cicero, Political Speeches, pp 25-26 trans D. H. Berry Oxford's World Classics



 Mark Steyn explains the first amendment.

"The Slow Death of Free Speech":

"Young Erin Ching at Swarthmore College has grasped the essential idea: it is not merely that, as the Big Climate enforcers say, 'the science is settled', but so is everything else, from abortion to gay marriage. So what's to talk about? Universities are no longer institutions of inquiry but 'safe spaces' where delicate flowers of diversity of race, sex, orientation, 'gender fluidity' and everything else except diversity of thought have to be protected from exposure to any unsafe ideas.

As it happens, the biggest 'safe space' on the planet is the Muslim world. For a millennium, Islamic scholars have insisted, as firmly as a climate scientist or an American sophomore, that there's nothing to debate. And what happened? As the United Nations Human Development Programme's famous 2002 report blandly noted, more books are translated in Spain in a single year than have been translated into Arabic in the last 1,000 years. Free speech and a dynamic, innovative society are intimately connected: a culture that can't bear a dissenting word on race or religion or gender fluidity or carbon offsets is a society that will cease to innovate, and then stagnate, and then decline, very fast. As American universities, British playwrights and Australian judges once understood, the 'safe space' is where cultures go to die."



 There are a number of texts on single handed sailing, which speak to the effects on being becalmed on a sailors nerves. It may surprise some to know that long periods of being becalmed are more dreaded than fierce storms by experienced offshore sailors.

Since many traders work for themselves, I wonder how many are able to handle a lack of action without unintentionally selling volatility.

Many a lake sailor has learned this lesson and got caught with too much sail up when the weather changed abruptly.

I'd observe the Chair's courts provide such an outlet.

Chris Tucker writes: 

 When I sailed from Honolulu to Berkley in the late eighties we suffered from exactly this problem. There is a semi-permanent high pressure system that usually sits between Hawaii and California  and in order to sail back to the mainland you have to go around it. This means sailing northward from Hawaii for some time and then turning east towards the mainland once you've gotten around the northern edge of the high. The temptation is always there to make the turn. You are, after all, not sailing in your intended direction and there is a tremendous amount of psychological pressure to make the turn. After a while we found ourselves behaving like a bunch of kids in the backseat: "Can we turn yet? Can we turn yet? Can we turn yet?" And of course, we turned too soon and were becalmed for 17 days of our 27 day voyage. I saw the Pacific Ocean flatter than any pond. You had to put your face right down against the water and look along its surface to see the 1/2 inch tall swell.

We also dealt with some fierce weather and parted several sheets and lines — all of which had to be replaced to prevent the sails from being ripped to shreds. The top of the pilot house was fourteen feet above the water line and we were taking green breakers right over it. I had to replace the outhaul on the main, riding the boom like a rodeo cowboy in the middle of this. Exciting to say the least. I have to admit that shinnying up the forestay to gasket the jib, with the stay rotating in huge arcs and trying to fling me bodily into the sea while the bottom dropped away from below us and then screaming down the face of the wave to bury the bow in the trough - this - this was exhilarating and I've rarely felt more alive. The doldrums on the other hand, they were their own kind of hell. But I did find some of the most solidifying inner peace I've ever known during that time. So completely different sides of a coin. Looking back it seems that a tremendous number of miracles chained together have kept me here still breathing on the face of this rock. It is a wonder, an absolute wonder that I'm still here.

We were in a 56' ferrocement (yes - a concrete boat) 86 ton ketch. She was a very slow beast of a tub but quite roomy and comfy with a stable helm. There is nothing like the sea (except perhaps a bare rock face several hundred feet up) for pure clarity. 

Craig Mee writes: 

Work out your plan and the surrounding environment early, then plan to reassess in x hours or if the wind conditions change. Shut out any thoughts by fixing the radio or doing onboard work. Just like with trading, shut the monitors down, set call levels and work on some project management. Don't give the gremlins and hoodoos freedom to run wild.

Calm markets are worst after you take a hit and have lost ground and the agitation is there to move p and l to previous highs. The fact that markets delivered opportunity previously is directly correlated to the loss of opportunity currently. So vigilance and attention to detail should be at their highest. I wouldn't argue at this point to downsize positions until you play back into form.



Archie Boyd married Ursula Steven in July 1940. He later observed: "We didn't know how long I would survive, so we thought we had better get on with it." They were married for 71 years, and he is survived by their two sons and one daughter.

"Wing Commander Archie Boyd - obituary"



Congress enacted Aid to Families with Dependent Children (AFDC), and various housing programs in 1935; the Food Stamp Act in 1964; Medicare and Medicaid in 1965; the EITC in 1975 (and subsequent expansions of the credit in 1987, 1990, 1993, and 2001, among others); the Child Care Development Block Grant in 1990; welfare reform in 1996 (which replaced AFDC with TANF); the State Children's Health Insurance Program (SCHIP) in 1997; and the child tax credit in 1997 (expanded and made refundable in 2001).

With each subsidy for the poor, the marginal tax rate for anyone "at the bottom" trying to earn a living went up. Gene Steuerle estimated in 2012 that the marginal tax rate for a single parent with two children receiving the universally available benefits from our present system was over 54.5%; for that same parent who managed to get the maximum legally-allowable benefits, the marginal rate on earnings was 81.2%.

And people still wonder why the poor stopped getting and staying married, and the endless war on drugs became the perfect social solution (government jobs for "conservatives" as cops, prosecutors, prison guards, government jobs for "liberals" as social workers, legal aid lawyers, and teachers, cash income for the poor and places for the men to get food, shelter and gym memberships when they were between women.)



 In thinking about the struggle to catch ducks, I have concluded that almost all the strengths and weakness we show in our market lives are manifested by duck hunters in their elusive search to bag the ducks. Obviously the ducks are as hard to catch as the markets are. And we miss them by just a hair the same way we do in the market. When you take a break from them for a minute, that's exactly when you should have been there to bag a trade or duck. Worse yet, is when you gloat about a good shot, or a perfect camouflage or a perfect retrieval from your Lab—-you're bound to go to the Bad One at that time. Gloating always leads to complacency and the adversary, whether it's the known factor that sees your book or the infinite wisdom of the market that is ready to do you in.

On further reflection, it's not just duck hunting that's exactly like market hunting with all the characters, all the different styles of trading. It's anywhere there's a struggle for prey and growth with limited resources and competition. It's like the struggle for life— I think.



i must confess, i’d rather just guess
than be duped and fooled, by randomness
i rather think twice, than just roll the dice
these random studies, do not drive price

rather think like a fox, not be put in a box
as the markets are, a recursive paradox
if not arc sine laws, then ever-changing-cycles
if you are in denial, it can be almost suicidal

these damning effects, must be circumvented
but not with the invented, nor the misrepresented
not with tools that are myopic, or simply synoptic,
lest the retail hypnotic, not benefit the agnostic

a causal understanding, is certainly demanding
but in-or-out of sample, it sets the best example
there’s so much more, than just trade and win
like adding to profits, when others are cashing in

immune to the tout, trading without any doubt
entering trades, where others are stopped-out
not stepping out-on-the ledge, with an illusory edge
there’s no need to hedge, this is my solemn pledge



"Run Strong":

Run for my Money, run
towards my fears,
Run when I’m Hungry,
run from my tears.
Run with me Honey, run
with the years.
Run for my Living, run
towards the cheers.
Run On! Run Strong!
Just for the Day.
Just for the Way.
Run On! Run Strong!
For who knows some day
the Miles may just take you away.
Run for the Feeling,
run towards the pain,
Run when I’m Dreaming,
run from my cane,
Run with the Loving,
run with the sane.
Run for the Moving,
run to victory lane.
 Run On! Run Strong!
Just for the Day.
Just for the Way.
Run On! Run Strong!
For who knows some day
the Miles may just take you away.



Taking a look at the BDI over the past year, is there now a head and shoulders? I ask out of pure ignorance—just trying to learn.

Gary Phillips writes: 

Back in the day, before the day…

I am loathe to admit it, but I first read Technical Analysis of Stock Trends by Edwards and Magee in 1971 when I was 18 y.o. (Btw: the acknowledged bible on technical analysis was written in 1948). There weren't any computers back then, so we had to keep the charts by hand. Along with reading and studying the book, Leo Melamed and Barry Lind mentored me in the application of TA to trading. I used to keep charts back then for Tom Dittmer, who ran Refco. In return, he taught me how to scalp in the pit when I first became a member of the CME in 1976. Bob O'Brien sr. taught me about the livestock markets, and when I migrated to the CBOT, I leased my membership from Bill Eckhardt, and was lucky enough to receive his tutelage. I stood next to the largest independent futures trader in the world (Tom Baldwin) for 10 out of my 25 years in the bond pit, and after + 40 years of trading, at the age of 61, I am still learning the craft from Vic and others on the list. Ghere are a couple of points to be gleaned here:

1. as Rocky H. once said, I am smart enough to know I'm dumb enough, that I don't know everything; which is the reason why I have always surrounded myself with individuals who are smarter and more experienced than myself. Unless you are playing poker, you never want to be the smartest person in the room– you won't learn anything, and you should never stop learning! and 2. the bible on technical analysis was written when Truman was president. I think they were still communicating by telegraph back then! Does anyone in their right mind really think that today's machine driven markets even remotely resemble the markets of that era? 

David Lillienfeld writes: 

Ok, but I don’t think the BDI is an object of HFT. So wouldn’t older approaches (i.e, from 1948) still be applicable? Or from a technical perspective, is it the tenor of the market (a butterfly in Africa flapping its wings sort of thing) which matters?

Gary Phillips writes: 

It's still an index and algo-driven professional trade, and I can't envision the palindrome putting on a massive short position predicated on a h&s top formation.

What is timeless in reference to traditional TA, is the tendency for traders to isolate the one data point (formation) that supports their directional bias while ignoring data points that contradict with their forward looking view of the market.

Charts in and of themselves are invaluable. They provide a point of reference for money management, capital flows, correlations, relative strength, etc, but, traditional TA (cliched patterns, trendlines, etc) seem anachronistic as a stand-alone predictive tool.

Craig Mee writes: 

Hi Gary,

I think its a mistake to put all TA in one basket. For example, trendlines are very different than patterns. If you can quantify the edge your setups possess, you may have something to work with. The problem that I see is with most technicians, they are running so many parameters and indicators that this is unachievable. I think market volatility and news is a function of whether markets behave similarly now to 60 years ago and am constantly amazed at often they do.

Gary Phillips writes: 

Perhaps in a very generalized manner, i.e., markets go up and they go down, they back and fill, and uncertainty is still a fundamental reality in trading, and, just as in the past, the best we can hope to achieve, is an incomplete, but probabilistic knowledge of that environment. However, the tools we use have changed and so has the perspective needed to understand the context of the contemporary market. It requires an approach built on an analytical framework that is relevant to current drivers of price. While traditional TA may provide a comfortable resolution and a summary shortcut to order amongst all the chaos, it doesn't yield any insight into market structure. What dramatically distinguishes today's trade from yesterday's is market structure and Fed policy. To a very large extent, price action is no longer controlled by humans, and to an even larger extent, price action has been contaminated by qe/zirp. This is the fork-in-the road where the past deviates from the future. This means resisting the sirens' call to assign causality to traditional ta patterns, trend-lines, fibs, and other hackneyed tools that were created for highly auto-correlated markets, driven by human decisions and real risk/reward considerations. It means using the right tools with proper perspective and incorporating relevant informational signals from a wide range of deterministic processes. The new-normal approach begins with recognizing the current dynamics of liquidity provision and developing an informational framework with signals that reflect the machine driven reality of HFT, along with an understanding of the impact of qe/zirp and risk-on/risk-off.

Craig Mee writes: 

Agreed there are some larger drivers at play, and something like a magnetic or invisible hand keeping the pull to one side. But the boom and bust nature of the markets of the last 19-20 years is far from at an end so any extension will still be reverted. There may be periods and instruments where opportunities at times are limited, (for example, I would say its probably easier playing the curve now in rates then trading outrights) however fear and greed under the right volatility conditions is, in my humble opinion, still a force to be reckoned with. Separating the house of TA from price action and behavioral sciences is probably a good start so as not to give a illusion of believing in hocus pocus and mad methods while not understanding the underlying. The major returns and opportunities will still run with fundamentals, whether forced or established, but being able to have a value entry via the opportunities that humans create through their ever present qualities such as running with the herd on news and perceived threats which don't eventuate can allow for outperformance. I believe that the question of whether to weigh the opportunities that human behavior presents has to be sized up under the right volatility to ascertain whether risk has been compromised. 



 I found this and thought of the Hobo.

Churchill on Chaplin:

Even poverty wore a different face in America. It was not the bitter, grinding destitution Charlie had encountered in the London slums and which has now, thanks to the extension of social services, largely disappeared. In many cases it was a poverty deliberately chosen, rather than imposed from without.

Every cinema goer is familiar with the Chaplin tramps, but I wonder how many of them have reflected how characteristically American are these homeless wanderers. In the dwindling ranks of the English tramps one finds all sorts of people - from the varsity graduate whose career has ended in ruin and disgrace, to he half imbecile illiterate who has been unemployable since boyhood. But they all have one thing in common - they belong to the great army of the defeated. They still maintain the pretence of looking for work - but they do not expect to find it. They are spiritless and hopeless.

The American hobo of twenty-five years ago was of an entirely different type. Often he was not so much an outcast from society as a rebel against it. He could not settle down, either in a home or a job. He hated the routine of regular employment and loved the changes and chances of the road. Behind his wanderings was something of the old adventurous urge that sent the covered wagons lumbering across the prairie towards the sunset.

There were also upon the highways of America, in the old days of prosperity, many men who were not tramps at all in the ordinary sense of the term. They were traveling craftsmen, who would work in one place for a few weeks or months, and then move on to look for another job elsewhere. Even today, when work is no longer easy to secure, the American wanderer still refuses to acknowledge defeat.

That indomitable spirit is part of the make-up of the screen Charlie Chaplin. His portrayal of the underdog is definitely American rather than British. The English workingman has courage in plenty, but those whom prolonged unemployment has forced on the road are nowadays usually broken and despairing. The Chaplin tramp has a quality of defiance and disdain.

The hobo responds: 

There is a better ground than choosing poverty or riches for us. That is the Prince & the Pauper condition that's available to nearly anyone reading this. Skid row is a vast experimental laboratory and nowhere else have I discovered & set limits than in those rows across America. An American hobo is defined as a worker who wanders from job to job. The USA allows this with grand territory and a thick network of railroads to enter it. England is cramped; USA is wide open. So it is that the hobos who today in spring are hitting the flatcars and boxcars by the thousands are rebels against tight living and a diurnal job. Almost all are forced by hunger to climb aboard Dirty Face but some of us do it for the adventure, and for self-discovery.

Charlie Chaplin, though British, is convincing as an spirited American tramp because he grew up in the poor district laboratory that I pass through by choice. Charlie's childhood in London was hemmed by poverty and hardship. His father absent and mother struggling financially, he was sent to a workhouse twice before the age of nine. It puts me in mind of my friend George Meegan who climbed a ship's mast on River Thames at a similar age, saw the horizon, and sailed at it for seven years on tramp steamers at sea. Then he jumped down and found his land legs in walking from Tierra del Fuego to the arctic circle via NYC. You cannot hide the backdrop of such talent on screen or in print. When Chaplin was 14 his mother was committed to a mental asylum. I've worked those also as another laboratory of experience, and old folks homes, jails, and even sold Nut Cracker Sweets on 57th street of Manhattan outside Niederhoffer, Cross & Co. after working a day upstairs as a technical analyst. To point, Chaplin toured as a tramp comedian before attracting notice and coming to America to become the premiere tramp. In his floppy footsteps followed Weary (Emmett Kelly) Willie and Happy (Red Skelton) Hobo. Emmet was literally born into a circus while Red beginning at age 10 was part of a traveling medicine show.

They had the spirit, all right, from experience & passed it on to their audiences. For the real deal on the skid rows read anything by Nels Anderson.

And so that brings me to today's choice after paying the IRS. I can use the leftovers to go on an African safari or a walk in Baja, Mexico. Life is a series of T-mazes, if one takes it seriously, and I think I'll take a walk.

anonymous asks the hobo: 

Have you spent any time on Skid Row in Los Angeles?

The hobo responds: 

 LA was my first skid row. I checked into the Midnight mission and sat in a pew next to a black man with 6's tattooed across his knuckles as we listened to an ass-whopping sermon. That's where I 'fell in love' with mission preaching. Then we ate a hearty meal of meat loaf, potatoes & gravy. Then we lined up for bug check. What's that? I didn't know but everyone had to do it before getting a bed. The housekeep must have spotted me as a virgin tramp for I was called first to wind down the stairs into the bowel of the mission where a man I couldn't see waited with a blue light. He told me to drop my drawers and proceeded to shine the light to fluoresce pubic lice. 'Clean! Next!' he yelled. That night i was grateful for being dead tired from catching a freight into town the previous ones. The dorm room of fifty soon filled with snores & flatulence while gunshots outside on skid row shook the broken windows. The next day I caught a freight to the next skid road. That's a hellofa education.



Bloomberg news picked up this article. I am not endorsing the paper, its methodology nor its conclusions. But counters should heed the underlying message. Especially Kora. I find it surprising that he doesn't look at the multiple comparison issue nor cite Bonferroni etc, but rather prefers to ask the question, "what is chance that a backtest generates a great result by chance." He argues that if you use 10 backtests, you are very likely to find a strategy with a Sharpe Ratio of 1.6 which is over-fitting: "Pseudo-Mathematics and Financial Charlatinism: The Effects of Backtest Overfitting on out–of-sample Performance" by David H. Bailey, Jonathan M. Borwein y Marcos Lopez de Prado z Qiji Jim Zhux, April 1, 2014

What good is a hypothesis that cannot be disproven? A Cautionary Tale (In Memory of Ross Miller)

1. Kora observes: Y = Fn(X) with a significance of T.

2. Kora raises a small amount of investment capital based on the expectation of this stochastic function alone. She gives no consideration to dynamic or causal or other exogenous relationships or intellectual or information edge.

3. Kora produces excellent performance as Y= Fn(X) as predicted.

4. Kora raises a massive amount of investment preformance after establishing a track record.

5. After raising a large amount of capital and collecting substantial management and incentive fees, something happens and Y <> Fn(X), and the clients suffer horrendous drawdowns. The fund shuts down and the total net amount of loss dwarfs the net amount of gains.6. The SpecListers say, "The probability of this was extremely small. But it is an example of Bacon's Ever Changing Cycles." Rocky says, "This is a example of bad science because any utility of the observation Y = Fn(X) without a casual understanding is limited to and qualified by, the ability to anticipate the onset of a changing cycle. And if the scientist can correctly anticipate the onset of a changing cycle, then this meta-hypothesis is vastly more important than the functional hypothesis.

Unfortunately, this is a recursive paradox, because the ability to anticipate the onset of a changing requires the ability to anticipate the onset of a changing cycle of a changing cycle, and then the onset of a changing cycle of a changing cycle of a changing cycle … and this continues ad infinitum OR UNTIL spec partiers go home to bed — whichever comes first."

Jordan Neumann writes: 

I admit not to have fully read the paper — I searched for the word transaction cost but did not find it, yet it makes finding a profitable strategy much harder than it seems.

Isn't this a problem with statistics in general? How does this differ from using thousands of drug candidates to find a drug? We still don't know why Advil works, but I take it anyway based on the statistical evidence. When quants believe that earnings or margins or insider trading affect prices, I would say that the economic justification is far from random.

There is a recent series of news articles that disparage quantitative analysis, just as several quant funds suffer for a few bad years. I would think that everything moves in cycles, and this might be the bottom.

Hernan Avella writes:

Mr. Rocky offers some valid questions to the counting battalion. However, I'm afraid his argument suffers severely from the straw man problem. It assumes that one can't have an approach that incorporates: logic, an economic framework, money management rules and counting. Even more. As you move up in the frequency spectrum, the economic framework becomes optional (useless).

The real question is (for med/long term speculators). If you incorporate all the said components in your approach, can you quantify your success per component?

Ralph Vince writes: 


Yes, in my humble opinion, more money is to be made on the assumption of EMH (the cost of being wrong in this regard is less).

Stefan Jovanovich writes:

The test of the reality of a market is whether or not there are prices for quantities exchanged in actual transactions; and the market itself is sufficiently profitable that dealers are willing to pay for the rent and other costs of keeping the lights on. Market failure happens all the time; a trade disappears because other markets have swallowed the action or the inter-mediation itself is no longer handled by bid-ask. Even now more than a century and more after they disappeared you can find the remnants of "corn exchange" buildings throughout Britain; dealing in grain continues but it is no longer handled by open outcry involving dealers and farmers within half a day's train travel of a regional hub.

Markets are efficient in the way that engines are efficient in that they work. They are inefficient in the sense that there is wasted energy, some or much of which can be the result of insider manipulation and general fraud. The debate is over numbers matter - the economics of the companies and the world of money as a whole, the prices themselves and their patterns, the numerical indices of sentiment; for that question there is no absolute answer, nor should there be. Larry Williams, the R-Man, the Watsurf, RPH and many, many others can all be right - and wrong. And, in that sense, markets are permanently inefficient because, even among people to whom Morgan would have assigned a perfect grade for their financial character, the only final word comes when the market itself disappears. 



 Sports emotions can range from satisfaction to exhilaration to inspiration or less favorably to frustration to anger to fear to panic, and emotions often change in just seconds when in training or competition.

The Sports Pyramid

Emotions is at the Top of the Sport Performance Pyramid with physical and mental the other two. Emotions dictate your ability to perform at a consistently high level under challenging conditions. Why do you want consistency from your emotions? As your emotions go, so goes your performance. The ideal: respond positively to challenges. How you master your emotions empowers you to use them as tools to perform better rather than as weapons to hurt your game.

Emotional Styles:

There are seven emotional styles among athletes: Bubbler, Actor Outer, Mr. Negative, Positive Thinker, Manipulator, Superior One, and THE GOAL, Grand Master. These are how athletes respond emotionally to their sport. Athletes with a certain style often react in a predictable way when they find themselves in a demanding situation. The emotional styles are defined as …

The Bubbler

A Bubbler feels frustration AND anger build slowly. A Bubbler often appears in emotional control because negative emotions haven't surfaced, YET! The Bubbler keeps frustration and anger bottled up or in check when performing well and the competition is mostly going their way. If competition turns or they make a crucial error, a Bubbler may bubble and boil over and they implode and lose emotional control. Often, when not able to reestablish control, a Bubbler ends up sabotaging for themselves the competition or others (doubles partner, spectators, fans). Bummer. They self-destruct.

The Actor Outer

An Actor Outer feels anger and frustration strongly, but expresses those emotions immediately and openly. No internalizing here -heart on sleeve. Showing strong emotions relieves (or so they think). Emotions arise, are expressed, and then are released. By doing this an Actor Outer maintains a kind of emotional equilibrium in balance. Up to a point, the ongoing emotional vent helps his performance by increasing motivation and intensity and keeps emotions in check; they think. The Actor Outer lets negative emotions out, but do they really let them go? When competition turns, rage builds up until it finally engulfs and consumes and then controls them. At this point, emotions become enemies and performance deteriorates to losing a run of points or repeating unforced errors over and over and over. They self-explode. They're ugly to watch detonate. They act out.

The Mr. Negative

The Mr. Negative feels strong negative emotions. Most common emotions are despair and helplessness. Mr. Negative dwells often on negative experiences and dwells on his feelings. The Mr. Negative may pout. He looks miserable. Mr. Negative is very sensitive to highs and lows of competition and emotions tend to mirror these natural ups and downs of play. When performing well and winning, Mr. Negative is fine; but if he plays poorly and is losing "down" emotions emerge and hurt his performance. Mr. Negative often has an absorbing defeatist attitude and may give up under pressure. Many players and most Mr. Negatives have some brooding qualities, and those qualities can prevent their getting to the top of their sport, or station in life.

The Manipulator

The Manipulator is driven by emotions to become a puppeteer. Psychologically he targets his competitor, the referee, the crowd or all three. He tries through intimidation, confrontation, and gamesmanship to cleverly control the situation to do as he pleases. He raises the ire of his competitor. He may look to get the ref to do a make-up call for a prior that went against him. The Manipulator may decide to turn the crowd against him just to fire himself up. Or, he may get the crowd to cheer for him by showing off and belittling his competitor's mistakes. The fatal flaw for the Manipulator is that without the ability to be a puppeteer or "drama queen" he falls apart and shrinks down to true size when he is unable to pull the strings.

The Positive Thinker

An extremely common style is the Positive Thinker. He believes when there is no basis for belief. When the parachute doesn't open and the reserve chute fails to deploy, Positive Thinker still says, "So far so good". The Positive Thinker mindset is based on 'all things are doable', when he believes. Why is the Positive Thinker a winner at the State level but a loser at the National level? The state championships brim with Positive Thinkers who use positivism as their training wheels. Then they run into a wall of talent at the national level. They fall apart at the ultimate level because any amount of thinking positively that doesn't address reality evaporates.

The Superior One

The Superior One is seen by his competitors as believing he is all knowing. He's so vain he probably thinks this paragraph defines him. He is also bent on giving post-points lectures, detailing rules nuances, and explaining his reality. The Superior One must pontificate. If he's slips from the top, the superior one may vent his anger, play mad at the world, and direct wrath at his partner or competitor. The flaw in his crown comes in the long run that he must continually correct and be correct to remain effective. If he is once wrong he loses the audience and there goes his grip. The Empower has no clothes.

The Grand Master

The Grand Master is the rarest of emotional styles. He seems to play sans emotion. He is all about executing his form and tactics. He seems to play in the zone or return back there on demand. He lets emotions ride through him that jolt most, and he continues with barely a grin or grimace all the way through match point. When losing or struggling, the Grand Master reinvests his energy into getting better. The Grand Master is unaffected by threat and negative emotions. Errors, a poor performance, and losing seem to slide off the Grand Master, as if he were made of Teflon. He owns the ability to NOT let pressure affect him. He is able to let go past mistakes and failure, like he has convenient short term memory loss. A Grand Master is a comeback king. He rarely shows his emotions, either negative or positive, and he maintains a consistent, calm, even demeanor, even during the BIG POINTS. He may be expressionless or don a cryptic Mona Lisa smile. This equanimity (calm, composure, and even temperedness) results in consistently high performances and positive reactions to the normal roller coaster ride of the game. Generally, the Grand Master is a winner or in worst case a happy, "I'm learning something", loser. He seems to learn, adapt, improve and figure it out. He usually reaches his potential and then he defines a NEW potential to shoot for.

What Is Your Style?

What emotional style best describes you? Think back to your competitions. What has owned you when it did not go as well as you would have liked (or as designed by you). And then, think of matches where you felt in total control, cool, energized, and confident. How did you respond emotionally? Were you a Bubbler, Actor Outer, Mr. Negative, Positive Thinker, Manipulator, Superior One, or Grand Master? It's likely that a pattern of emotional reaction will emerge in your sport that places you into one of the seven emotional styles.

Change Is Doable

Emotional styles are not so hard to change. Though some contend that you were born with a particular temperament, or in other words that we may be "hard-wired", if you define yourself and then practice a new 'self' then rewiring your emotion is possible. A real challenge but doable.

Step 1 & 2 To Emotional Control

Goal One: gain control of your emotional style (understand it). Now it will help rather than hurt your sports performance. Goal two: the more long-term goal is to alter your emotional style to one of the seven to naturally facilitate rather than interfere with your positive efforts.

Emotional Master or Victim?

Many believe they are the way they are. They feel they've little control over their emotions and nothing can be done to gain control. If emotions hurt them, they just accept it because they feel they can't do anything about it. They're emotional victims. Their emotions control them. Emotionally they hinder their ability to perform well and achieve their goals.

Become Your Emotional Master

Gain control of your emotions. Develop healthy and productive emotional habits. Emotions CAN facilitate your ability to perform and achieve your goals.

Emotional Mastery

The process of emotional mastery: recognize negative emotional reactions. When starting to feel negative emotions, know what they are, for instance, frustration (argh!), anger (rrrr), despair (woe is me) or bagging it and mailing it in (oh, well). Then identify what situation is causing them. Then let them go or shrink um down to controllable size or feed off them and suck their energy and redirect them toward powerful good.

Review Competitions

After competition, consider underlying causes. You might examine emotional baggage. If emotions are strong and present in other parts of your life, you might seek professional help. Focus on clearing emotional obstacles or hurdles. Understand emotional habits, how they may interfere with performance when less than constructive, and how to learn new emotional responses in sport and life.

Have Responses

Specify alternative emotional reactions to the situations that trigger negative emotions. For example, instead of yelling, "I am terrible," slap your thigh and say cooly, "Come on, play better." Or, instead of screaming at the ref after a disputed call, turn and take several deep breaths. Positive emotional responses help you let go of past mistakes, motivate yourself to perform better next time, generate positive emotions giving you more confidence, and allowing you to focus on what will raise your level of performance.

Practice Emotional Mastery

Emotional mastery skills and positive reactions may not be easy at first because negative emotional habits are ingrained. Realize how difficult it is to change a bad technical habit. You practice technique over and over with a pro or an XK Feeder moving you about and testing your game. Then, with commitment, awareness, control, and practice you're feeling better and your performance improves with positive responses. Boost yourself. Believe. And you're giving your all. In time, retrain your emotions into positive emotional habits. Result: transition from being an emotional victim to an emotional master with tools to not only perform better, but be a whole lot happier. A Grand Master.



"Modern Exodus: the Sarajevo Haggadah's musical journey" from The Times of Israel:

Like all Sarajevans, Ključo, 39, was already aware of the Sarajevo Haggadah. A prized national treasure that Jews, Christians and Muslims alike have endangered themselves to keep from destruction, the book is seen as the ultimate survivor and a potent symbol of the non-sectarian unity of the people of the Bosnian capital.

Ključo, a concert accordionist who performs with chamber and philharmonic orchestras around the world, decided that she, too, must retell the story of the famed Jewish manuscript—but through the language of music. The result is "The Sarajevo Haggadah: Music of the Book," a multimedia work, which is the 2013-2014 New Jewish Culture Network's music commission.

"The Sarajevo Haggadah: Music of the Book" premiered in late March at Yellow Barn, an international center for chamber music in Putney, Vermont, where it was developed in residence. From there, the performance, which has digital art by Bart Woodstrup accompanying and interpreting Ključo's music, began a North American tour that will take it to Watertown, Mass., Dallas, Sa

Stefan Jovanovich writes: 

One of the unhappy aspects of watching the present efforts to rewrite the history of the Jews in Europe is how often, for reasons of present interest, Israel has to pretend that Muslims and Catholics were just as tolerant as Communists gypsies and Greek and Serbian Orthodox. The Sarajevo Haggadah is another work of that peculiar fiction that makes the people killed at Jasenovac and starved and killed in their villages into the spiritual equals of those who did the killing but are now — a generation or two later — gracious enough to want to join hands in the name of one world solidarity. One can hardly blame the Israelis; they are, on a very good day, far more vulnerable than the Florentines facing the Duke of Milan, the King of France and Philip II while trying to keep the Pisans in line. For them Machiavelli will always be no more than light reading.



 The Duck Hunters Book: Classic Waterfowl Stories edited by Lamar Underwood is a collection of 48 stories by the greatest waterfowl writers of the first half of the 20th century. The book is divided into sections: celebrations, the myth of mysteries, hunting around, the hope and the tools, mallards and other divers, and fireside stories. Each is preceded by a one page summary of the writer's accomplishments and epitaph. The stories originally appeared in such magazines as Field and Stream, Audobon, Gray's Sporting Journal, Outdoorsman Magazine, and numerous books published by Winchester Press. Together the book gives a beautiful picture of the ecology of ducks. How they go about their living, who preys on them, what they eat, how they fly, where they migrate to and from, how their numbers have increased and decreased, and their interactions with humans, who along with raccoons, mosquitoes, crows, and eagles are their main predators.

The writing in the book is of a very high standard. There is humour, pathos, and education in each chapter. Almost all are written by experienced hunter writers who love nature, and have the wisdom of the old, and spirit of the young. The writer Ed Zern, for example, is described as a composite of Mark Twain, Ring Lardner, and Irwin Cobb. I would agree. Other great and famous writers include Nash Buckingham, Ted Trueblood, Gene Hill, and Gordon MacQuarrie, the author of The Stories of the Old Duck Hunters.

Macquarrie is the founder of the the Old Duck Hunters Club, which has two members the President and himself. We borrowed the idea and installed Tierney as the president of the Old Speculators Club with proper reverence. Regrettably, Macquarrie passed away at the age of 50 after spending three beautiful weeks in a duck hunting cabin with nothing to do but enjoy nature and ducks. As he says, "nothing to do you say? Where did I get those rough and callused hands? The windburned face, the slack in my pants. I looked out at the the lakeshore for a bit and watched the ducks, with enough variety to make tomorrow promise new interest. Surely I was among the most favored of all mankind. Where could there be a world as fine as this."

The theme of being one with nature, throwing away the mundane cares of the struggle that is life, watching the amazing ecology of the swamps and wetlands where ducks abound runs through the book. In "What Rarer Day" by Nash Buckinham, for example, he concludes, "we sack the shadows. I am thinking while we backtrack and board our mules, that another rare day has been vouchsafed me. Fire-log and impending grub call are vanguard dreams. To rig decoys, tune one's call, to mush fair going or foul, to gauge wind or lead, is to reach as fine a skirmish line as Gods' outdoors affords."

 The number of duck hunters apparently reached its zenith in the 1970s when 2.5 million duck hunters purchased migratory duck stamps a year. It's down to 700,000 now from a zenith in the last quarter of the 20th century that a much greater % of the population participated in. Commercial duck hunting has been prohibited for 90 years, and the clubs, blinds, guides, calls, decoys, ropes, tools, paints, duck boats are a thing of the past. It recalls an era when life was more in tune with nature, when men enjoyed nothing more than a good outing in freezing weather with their colleagues, when wives thrived on the spark of the little boy in their husbands, and when good food and drink at home and reading a good book, and teaching your kid to be one with nature (as opposed to video games) were the great joys of life.

The book has many erudite sections by experts in geology, aeronautics, biology, and ecology and teaches you many technical things indirectly through their stories. However, they leave out the well known ecology that the number of ducks is increased by a proper ratio of predation by humans as without the increase there would be destructive competition for food and reproduction. A proper ratio is a standard worked out empirically and theoretically in the Lotka Verrhust equations which are well covered in all books on ecology. Based on this work, duck hunting is allowed in only four months of the year, there are limits on each kind of duck based on their rate of population increase, and only old ducks are allowed to be hunted.

 I cried and laughed in almost each chapter and found myself by the end of the 48 chapters a much wiser and happier man. I was introduced to a new field, and it is beautiful and edifying. However, as I read about the ducks and the hunters, I realized that duck hunting was very much like market hunting. That the skill of the ducks was very similar to the skill of the market operators, that the calls of the duck hunters were similar to the calls in the pits, that the laws of misses, risks, and rewards of the hunters were similar to what we go through each day. That I could learn more about markets from the sagacity of Zurn, Roy Holland, Robert Ellman, and Buckinham than I could from Magee, Buffett, Gross, or Graham. In the next installment of this review I will go through some of the great insights of the duck hunters and what it teaches us about markets.

Ken Drees writes: 

In stark contrast, a chapter from Poachers Were My Prey steered itself into the undercover bust of a hubris minded clicque of Lake Erie Island duck poachers who bragged about how great they were as duck hunters. Their leader had a tricked out boat–a hat that said #1 gun or some such other super ego label. They would go on these junkets to the islands, cross into Canada, deal with customs and always come back with a haul of iced down duck breasts harvested from the birds shot willy nilly and illegally. The duck meat was secreted back via a hidden cooler compartment in the custom boat. These guys were so brazen and flashy that they were usually considered legal and upstanding. The insider undercover agent had befriended the leader was there on the hunt getting evidence, ultimately busting them.



 1. If an agrarian reformer without the agriculture is in the driver's seat, does that mean you should steer the car for bullish highways for gold and bank stocks.

2. Who would have thought that ducks are as smart as the floor traders, and at the slightest movement of voice, smell, or reflection will veer away from your blind at the speed of light or the speed of a HFQ slipping ahead of you.

3. All books by the former intern at the Brothers will be engendered by a foundation of hatred of the rich and envy. How would this affect in reflection his book on the statistics on baseball.

4. The continuously adjusted corn contract hit a low of $1.80 in June 2010 and reached a high of $7.00 inSpe 2012 and went down again to 4.2 in Feb 2014, and is now playing footsie with $5.00

5. The kudos being handed to Smith for breaking the 3 point record is a horse from the same garage of ephemeral moves always being harmful to shortsighted people.

6. What are the transformations of markets like the Laplace transform in math that make it easy to unravel their basic structure and path?

 7. The best restaurant in the US is Brushstroke on Duane street, but it takes the life of a Methusala to finish the meal there.

8. The SPU is very high relative to the Nikkei and this is presumably bullish for Nikkei as was the recent leading movements in the Tel Aviv 25 bullish for SPU.

9. What are the most recent humorous remarks by the Chairwoman that should be added to the 1.4 million adulatory references on Google of her past humorous remarks.

10. If there was one person from history that I would like to sit on a log with and learn from, it would be Francis Galton. One wonders if he was as good with the buying and selling of stocks as his cousin Darwin who filled out a questionnaire in 1869 saying that the timely buying of stocks was his greatest talent.

David Lillienfeld writes: 

I’d go for Richard Feynman. My father told me that in addition to the intellect, Feynman had a wicked sense of humor in high school (and he apparently ran circles around the Columbia math PhDs then teaching at Far Rockaway High). 

anonymous writes:

 Speaking to both HFT and Laplacian transforms, some of the bid/ask action from HFT algos look spot on for the triangular wave, square wave, sawtooth, and step functions. Catching the price with a sawtooth and moving it with step function.

Steve Ellison writes: 

A propos of your third point, there is a hint on the book jacket of the library-owned copy of Moneyball in front of me at this moment. The last sentence on the flap goes: "He also sets up a sly and hilarious morality tale: Big Money, like Goliath, is always supposed to win … how can we not cheer for David?".

Gary Rogan adds: 

The full title of the book is Moneyball: The Art of Winning an Unfair Game. The man himself is a son of a community activist and lives in Berkeley. The richer he gets, the more he hates his own kind and the side represented by his other parent, a corporate lawyer.



 About 52 years ago literally, one developed an audited method for predicting the movements in the Dow. One thing led to another and it led to my meeting the Palindrome which led to my learning from him over our 10 years of great proximity such things as always to use two cans of tennis balls when playing a practice match. In any case, I note today that while gold is up 8buck the gold ETF GDX is unchanged. Of course a reason for this could be that I am long GDX. However, on a more scholarly, and meal for a life time note, I wonder if the gold stocks, lead the price of gold. It used to be 50 to 75 years ago that Homestake mines and Asa both led inversely the Dow. From shirtsleeves to shirtsleeves in 3 generations. Which reminds one that one was once playing tennis with the palindrome at Tennis Port where you needed to be a billionaire to play there, and we met one of the most successful tech investors of the 80s and he called out to me "what are you doing these days Vic. Haven't seen you in years?" And the Palindrome answered before I could say a word, "don't worry, exactly the same." Regrettably he was right then and now.



 Will there be 7 inning baseball next year?

"MLB Exec Thinks Games Should Be Shortened to 7 Innings, Is Wrong"

To which I say that it costs $100-150 for a family of four to go to a baseball game, the players don't have a lot of interaction with the kids (at least not that I've seen), there's no longer much meaning to the idea of a league (never mind the weird uniforms sometimes used for inter-league play), every pitcher is pulled after 90 pitches and there's now instant replay appeals. Yessir, the problem with baseball and the reason it's losing little kids' interest is the 9 innings. It's all that attention-deficit disorder among the kids (now at 25% prevalence among those under 18), so it must be the 9 innings. I wonder what would have happened if the same marketing person had been at the PGA when Nicklaus ruled the fairways. 14 hole golf?

MLB needs to find someone who knows something about marketing. "The fault, dear Brutus, is not in our stars but in ourselves." The problem is within the MLB. Baseball–all of it, including 9 innings–is just fine as it is. But fix the above, and the kids will flock to the game—just as they have for more than a century.



hey janet yellen

what do you say
you must be learning
ya saved the bulls today

you made it done,
a fait accompli
a jew from brooklyn
just set us free

it was just a flash thought
a fact i did contemplate
what the struggling market
had been missing to date

conspicuously absent
was any help from zion
although I'm sure it's not
for any lack of gods' tryin

but, u know what they say
& it  just might be true
they're good with money
know business and fair value

so, like Moses before ya
his people he led
u didn't pass us over, &
got the spx out of the red



Victor has always said, "don't get in over your head" and it may be interesting to note you can do this in more ways than one. The following is not the most obvious way to get unstuck. I'd classify it as rotting from the inside.

Recently while putting on a trade with suitable parameters, I executed a sell order and initiated the correct size for risk, however as the market ran, seeing an opportunity, I hit it again for some size with a very close protective stop which I immediately moved to scratch. The market kept moving my way over the next several days. Lovely. However at this stage my mind was busy executing other trades and unwittingly focused on mark to market net profit across the board. So when the market jammed without reaching my profit target for said trade, this caused undue attention to this trade and bad trading habits to creep in, like trying to manage a position which should never of been as mark to market open profits tumbled.

I learned my lesson: keep away from trades that could take away from your model focus (or at least keep them and the attached numbers very separate). It's a bit like a hoodoo/ gremlin entering your book. It initially promotes great things but then seizes on the opportunity once you're off guard and tries to destroy you. The focus has to be in "holding the line" and allowing for no errors or anything that promotes them.



 I applaud the tradeworx fellow Manoj for standing up.

"A Much Needed HFT Primer for 'Flash Boys' Author Michael Lewis"
by Manoj Narang

From the first time I read Liars Poker as a teenager, I have felt Lewis was a snake. Making satire of former colleagues one worked elbow to elbow with and painting them in the worst possible light rubbed me the wrong way. He is an entertaining writer, but a tabloid writer, the type one is lucky to avoid in life.

Moneyball was a decent read but his missteps with his HFT book makes me wonder how badly he got the baseball story wrong.

One thing I have considered after reading about the HFT approach is the benefit of operational leverage and scale/turnover. These are factors I would like to take better advantage of.



 If you are responsible for the care of an elderly family member, beware of a new development. Medicare is increasing pressure on hospitals to admit patients under "observation status." It appears their goal is to shift hospital costs onto patients and third parties. According to AARP, when a patient is classified under "observation status," the hospital may provide similar services. However, they are not compensated under Medicare Part A; they are compensated under Part B.

Compensation under Part B means the patient's family could be in for a surprise. Unless they pre-purchased additional insurance, the patient assumes financial responsibilities for hospital charges. Those charges could be significant.

There is more. The decision to admit under "observation status" reaches beyond the hospital. It means the patient will be denied Medicare coverage for any subsequent skilled nursing facility expenses, even if those services were ordered by the the hospital or the patient's doctor. Under these circumstances, patients become financially liable for most of facility's daily rates and charges.

Most thought they thought they were insured for these expenses. They are surprised by by the hospital's admission decisions. They are also surprised by consequential financial obligations.

To learn more, read AARP's bulletin. In addition, google "Observation Status" (keep the quotes).

David Lillienfeld writes:

Back in the early 1990s, 25 percent of all health care expenditures in the US occurred during the last year of life. It is now up to 30 percent.

Medicare and Medicaid was 36% of health care spending in 2011, though the same fact sheet lists government expenditures as 28 percent of spending. Not included in these data are the health care expense coverage for uniformed military personnel, their dependents, those in the VA system, and those in the federal government. If those were included, I'm sure the proportion of health care funded by the federal government would increase.

Of note is that not all of Medicare is spending on the elderly. Medicare also covers those persons with end stage renal disease (ESRD). There are already at 950,000 of such patients in the US, and while the incidence rate has leveled out (probably reflective of better blood pressure control, reduced rates of renal arterial atherogenesis, and better control of early and mid-stage Type II diabetes mellitus (most commonly secondary to obesity but not exclusively so)), the prevalence of the disease will likely continue to increase.

Individuals with ESRD receive regular dialysis treatments. These are time-consuming, sapping of energy, and expensive. The only way to stop dialysis is with a kidney transplant. Medicare will cover the costs of a transplant, but it will not cover the cost of the immunosuppressive medications afterwards. A not uncommon experience is for the patient to receive the transplant but not be able to afford the immunosuppressant drugs, and the transplant is consequently rejected. The patient then returns to dialysis which is—you guessed it—still covered by Medicare, until the next transplant. (If you wonder why DeVita is a low risk stock, at least in terms of demand for its product, this description provides an answer.)

One of the complications of ESRD is anemia, correctable by erythropoietin. Amgen sells this biological and has, courtesy of Medicare coverage, built a $4+ billion product. Unless the FDA allows generic biologicals, that franchise is pretty safe. It's worth remembering that generic biologicals are not as easily produced as pharmaceutical ones, so some caution is in order.

I don't know what proportion of Medicare expenditures are for ESRD care, particularly for those under 65 years of age, but I can't imagine it to be trivial, and it is growing. As with coronary bypass surgery (which at one time Medicare did not cover), however, the projections of likely expenditures has been eclipsed by the actual amounts spent.

One would like to see efforts at identifying best practices funded, but that idea has been repeatedly shot down.

With health care spending at 17-18 percent of the economy, it is a substantial industry. Trying to restrain its continued growth will be challenging on many levels. There is little political will/leadership to do so.



 Kenneth Roman is the former Chairman and CEO of Ogilvy & Mather Worldwide. He is author of a book about his firm's buccaneering founder, David Ogilvy. The following eighteen lessons in leadership are inspired by Ken's book The King of Madison Avenue: David Ogilvy and the Making of Modern Advertising.

1. On principles (borrowed from J.P. Morgan): "Our policy is only first-class business, and that in a first-class way."

2. On professional standards: "Top men must not tolerate sloppy plans or mediocre work."

3. On setting lofty goals: "Raise your sights. Blaze new trails. Compete with the immortals."

4. On knowledge: "Suppose, your gall-bladder has to be removed this evening. Will you choose a surgeon who has read some books on anatomy and knows where to find your gallbladder, or a surgeon who relies on his intuition?"

5. On focus in an organization: "If we are to prevent the eventual disintegration of our world-wide church into a Tower of Babel, we must continue our evangelism, make sure that every office is headed by a member of the True Church, and not by a stranger and, never again entrust the supervision of offices to outsiders or lay brothers. This errors leads to schism, balkanization, apostasy, bankruptcy and ultimate disintegration."

6. On size in an organization: "If God is on the side of the big battalions, and that seems to be the case, the path of wisdom lies in becoming one of the big battalions."

7. On committees: "Search the parks in all your cities, You'll find no statues of committees."

8. On mergers: "Clients never like mergers. They hate them. They don't like their accounts being sold. I don't blame them. If my doctor said he had sold his patients to another doctor, whom I had never met and must consult for all future health care, I wouldn't jump up and down with joy."

9. On acquisitions: "Finance aside, I have always thought [acquisitions] a rickety way to grow. Good agencies are never for sale."

10. On hiring: "If you hire people who are smaller than you are, we shall become a company of dwarfs. If you hire people who are bigger than you, we shall become a company of giants. Hire Big People, people who are better than you. Pay them more than you pay yourself, if necessary."

11. On meritocracy: "No spouses. No nepots"

12. On corporate culture: "We treat our people like human beings. We help them when they are in trouble. We help our people make the best of their talents. Our system of management is singularly democratic. We abhor ruthlessness. We like people with gentle manners. We admire people who work hard. We despise and detest office politicians, toadies, bullies and pompous asses. The way up the ladder is open to everybody. In promoting people to top jobs, we are as influenced as much by their character as by anything else."

13. On minimizing office politics: "Sack incurable politicians. Crusade against paper warfare."

14. On compensation: "Pay peanuts and you get monkeys.

15. On checking expense accounts: "Even the Pope has a Confessor."

16. On firing people: "I think the most cruel thing you can do to people, especially I am sad to say, to men, is to fire them, to put them in a situation where they don't work. Always do your damndest to avoid condemning people to the hell of unemployment."

17. On losing clients: "Clients come, they go, they come back, we'll get a new one. The only thing that can affect who we are as a company is if [the Chairman] feels any less committed."

18. On clear and honest writing: "People who think well, write well. Woolly-minded people write woolly memos, woolly letters and woolly speeches. I believe in the dogmatism of brevity."

Stefan Jovanovich writes: 

I hate to argue yet again with an Eddy Top 10 but the central fact of David Ogilvy and his successor's careers is that they allowed two kids from Stanford to swallow their entire business. The Mad Men were terrible snobs– even worse than their publisher and broadcaster vendors. As a result they lost out on an opportunity that the inventors of their business– Wanamaker and Stewart– would have jumped at the chance to develop. Ogilvy is also wrong about canning people; it is usually the kindest thing you can do to people if they cannot do the job. We all fail; the illusion of schooling is that somehow that law of nature can be repealed.

Richard Owen writes: 

Interesting analysis Stefan! Indeed one of the anecdotes from Ken Roman is

Following a hostile takeover of his agency, Ogilvy was in the audience when the chairman of the acquiring company was asked what was next after buying J. Walter Thompson and Ogilvy 3: Mather. He had completed his goals, was the answer, and planned no further acquisitions. From the middle of the audience came a stage-whispered comment from the founder: "Just like bloody Hitler after Czechoslovakia."

Ogilvy states various things about firing people: I guess it was something along the lines of striking a balance, having long term vision, and being humane. Indeed, he encouraged one colleague who's passion wasn't advertising to pursue wildlife matters, and as a result became one of the pioneers of the WWF.

Gary Rogan writes: 

In a significant percentage of cases "cannot do the job" is too definitive of a conclusion. Also, obviously people are often let go not because they cannot do the job, but a lot of other factors. It seems like not being too random in getting rid of people even if you can easily get away with it is a mark of a humane person.



 I would love to buy a little car like the Tata Nano that costs two times as much as a samsung washing machine to get around town and run errands in. As it is I bet the federally mandated airbags in my car cost more than this entire car, heck, even the headlight assemblies, which have become exorbitantly complex, likely cost more.

The problem with the fiat and mini is that they are still very heavy for their size, and have huge blind spots due to the various air bags. I wonder how many uncounted people have been killed by the huge airbag created blind spots? Another uncounted number resulting from federal regs.

The only change I would make to the nano car is that I would take the doors off. Then it would be fun to drive. I would order mine in silver.



 One has been wrestling with the question of whether there have been excessive numbers of migrations in markets, and whether they are predictable, and what consequences they have for other markets. The book Great Migrations by the National Geographic Society, which I visited in Washington recently has been very helpful in generating ideas for me in this regard. What do you think is relevant and useful here, and what is the purpose? One of the purposes of migrations and markets is movement. Yes, there must be movement to generate the friction and losses and excessive trading that provides the wherewithal to pay for the massive infrastructure and costs of keeping the system going. But why back and forth, if it exists above randomness, as it is instinctual and so necessary for survival in so many species.

Anatoly Veltman writes: 

In the 80s-90s futures markets that I dabbled in, one peculiarity was a seeming pre-cursor of a big daily move in one commodity by another, oftentimes fundamentally non-correlated! The trading floor at 4 World Trade Center, depicted in D. Amiche's Orange Juice debacle "Trading Places", was shared by pits as varied as Coffee and Platinum. A number of prolific personages owned a Gold-colored Badge, allowing them to step into any and every pit and trade. It happened quite often that guided by noise-level alone, such local speculators would migrate to Sugar albeit for one day - while their decades-long specialty was Gold! That wasn't a surprising move by a trader; surprising was the next-day jump by that trader's own market! There was a lot of psychological, herd and greed factor involved; but also there was an interesting exchange-finance angle to this pattern, where even a collapse in one pit might provoke a melt-up in another. You see, all locals and their sponsoring firms were in a financial leverage melting pot. Thus, cross-margin liquidation might be a rule of one random big day. Winding down someone's Long stock-index position could also mean blowing him out of his Short Cotton position!

The reason I specified this took place in pre-electronic era is that exchange individual position limits were much looser then. Today such cross-margin liquidation would more likely ensue from over-the-counter derivative portfolio losses.

Ed Stewart writes: 

 1. Prior highs and lows and the edges or recent trading ranges are often feeding grounds.

2. Climate change is real (beyond simple cyclical patterns) so at times overshoots are required as the migrants must reset their bearings to balance their need for energy with what exists in the environment.

3. During a warming period the migrants must travel further north, during cooling period they find nourishment at a lower latitude.

4. Sometimes the migratory species gets confused and ends up at unusual locations, which can then become a ritual do to simple mimicry and the chance identification of a favorable stopping point.

5. Migratory movements are related to survival (feeding, reproducing, not freezing) not for their own sake as they are risky and require substantial resources.

Gary Rogan writes:

Some Northern European migratory warblers have dramatically adjusted their migration patterns from wintering in Africa to wintering in the UK (they breed in Germany and other Central European countries). This provides a great example of adjusting to every-changing cycles. It's interesting to consider the fate of many other warblers who tried to winter in various other places or too early in the UK vs. the tremendous benefit to the first pair that made it back from wintering in the UK alive. It's also interesting that once warblers started doing this 10-15 years ago, this has lead to what seems like a separate evolutionary path, where now the warblers that winter in Africa don't readily mix with their UK-wintering counterparts.



1) First, some thoughts on the question "what would happen if everyone lived off capital?"

If people saved, rather than spent, every dollar they earned, it would initially slow down the velocity of money. Likewise if no one ever spent savings, it would initially slow down the velocity of money. Rather than maximizing immediate consumption, people would be savers first, then very frugal consumers.

However, in both these cases the slack would be picked up in either the business sector, or the government sector, since there is now have an over supply of savers looking to invest capital. This would, of course, lower the risk, as the companies would not have to jump too high a hurdle to make interest payments. When do you think government would likewise only spend capital?

The recent financial crisis could be thought of as the opposite case where everyone thought they could leverage and overspent. This increased the risk as savers willing to lend disappeared. The money given to the flexions' banks to save them, could be thought of as printed money put in a lock box called deleveraging. Hence an increase in the quantity but a slowing of velocity of money and a risk of deflation.

2) Now for some strategies for preserving capital. The idea is to be a saver first, a consumer second.

Lets assume we invested $1,000,000 in Vanguard's index fund in April 1987. And any week we ended up with more than $1,000,000.00 we withdrew the excess. Below I list the 52 week amounts withdrawn (assuming 364 day years, 364 = 7*52). While the average $138,000 seems generous, about top 5% of earners, it would still give you many years in a row of $0 withdrawn in the 2000's. But if you think these booms and bust are systematic, then a better strategy would be to only withdraw in any one year a set amount, and save the rest for those lean $0 years. The next 2 columns shows how much you would have withdrawn if that set amount was $125000 annually. The withdrawals come from from $1 million invested in stocks excess earned, first, and then, if needed, from the amount stuffed under the mattress (not literally, of course, but previously set aside as neither consumed nor invested in stocks) . The amount invested in stock is kept at $1 million, the excess not spent in any year is mattress padding for future years.

You can see that during the bounteous years of the 1990s, you could have set aside over $1 million without compounding to cushion those upcoming lean years.

(Note: fiscal years ending in April)

Rocky Humbert writes: 

Mr. Sears' approach towards capital withdrawals is nominal, not real. So in an environment of 10% inflation and a risk free rate of 10%, he would be shrinking the real value of his corpus as he withdrew 10% on average. Conversely, in a deflationary environment, with rates at zero, he would not be consuming at all even though the corpus of his portfolio would be growing in real terms. The reality is that inflation has been averaging between 2 and 3% for the last decades and that destroys the corpus over a lifetime.

This wealth illusion associated with inflation/money printing is prevalent among both retirees and working folks. It is an insidious behavioral bias and I believe affects both consumption and economic activity. The bias is one reason that deflation is a drag on medium term growth.

Ralph Vince adds: 

I believe inevitably governments, a century or several hence, will live off of their own capital, part of a social-evolutionary process.

A structured dismantling of future liabilities (undoing the mega-Ponzi Social Security in the US, for example, in an orderly manner through generational taper with newcomers to the job market putting 100% in self-directed, those leaving the job market, 0% self-directed) and would other future liabilities to a sustainable level, and some time later, to a level of easy sustainability would allow an ultimate sinking fund of future government liabilities, eventually reaching a level of self-sustainability.

At which point, one would HOPE taxes would end, unless the Catholic Church model is employed.

Stefan Jovanovich writes: 

Everyone does live off of investment (I think this is what Russ means by "capital"). The one correlation that seems dismally robust is that, in spite of all efforts to "distribute" (sic) wealth, only the ratio of private investment to people working determines how high someone's pay can go. If there is low "capital" investment, people make very little; if there is high "capital" investment, they make much more. People instinctively know this; it is the reason we all have our eyes drawn to to displays of physical grandeur and, in the days of the gold standard, bank lobbies always had marble. But, since we live in the age of alchemy (the nominal wealth illusion the R-Man notes), "income" becomes more important than savings.

Ed Stewart writes: 

Stefan doesn't it matter how savings are deployed. Savings productively deployed in a way that increases output of goods and services increases total wealth (and if such capital is up per head, wages) but not all savings are equal in this regards. Savings deployed to fund a make-work project via government debt represents consumption. I question if in general, savings used to help another party pull forward consumption on net represents consumption and not savings, just redistributing wealth from shortsighted to farsighted — if that makes sense (??).

Russ Sears writes: 

Once again my e-mail's brevity and my poor writing causes some confusion. The "mattress" strategy was meant to be humorous, not literal. Implying you have many options as to how you use the "savings" to hedge inflation. This strategy was meant to illustrate how to take equity risk while still withdrawing a decent amount for consumption. $125000 is a decent amount in today's dollars to live off, but in 1988's dollars that was very high living, perhaps near top 1%. In the example, the amount withdrawn could easily be slowly increased for inflation, with interest earned on the savings or less savings. The bigger problem I have with my own example is what do you do if you retire/need money at the start of long term $0 return to $1,000,000 capital amount. But let us go over some inflation options:

1. Put savings back into equities…I believe, (only my opinion), this may be a good option if money keeps being put into the system due to low or negative inflation and hence likely low interest rates as we currently see. But, this also leaves you more open to risk of inflation killing the equity markets or long term bear markets in general. However, looking back long term equities returns should beat inflation if next 100 years is like last 100 years.

2. Put saved money into a long term bond fund. This could handle mild inflation, as long as it stays mild.

3. Put money initially into short term fund then as inflation gets "high" switch over to long term bond fund as inflation kicks up. But this leads to when is inflation "high" (10% seems to be Rocky's boggy). Perhaps the answer is when it starts killing equities returns because the market is worried about it. Then if you think this is the case start putting "more" of the savings into long term funds. You'll have to decide what "more" speed is and if inflation is "the cause" for poor equity returns.

4. A combination strategy.

How to invest for inflation is a tough subject which such a simple "living off capital" strategy was not meant to answer. I hope the above shows sufficiently that a disciple approach to withdrawals. even if adjust for some inflation is better than simply going with the wealth effect and spending as earned from equities. But in the end you are going to have to decide for yourself, what you think inflation will do and when it will do it. And then execute it. But at least a disciplined approach to withdrawals give you much more flexibility and with it a chance to meet this challenge.

Finally the reason "capital" was chosen instead of "investment" was to signify an investment that is somewhat dependent on a stable "monetary" base for entry and exit. As opposed to a more direct investment in human capital or even property which may out last a government and may more likely be inverse related to inflation.



Thought I'd share some things I'd developed over the years. I would love feedback or new ideas.

1. Signal strength is correlated with forward looking profitability. If you bucket your signal strength into 10 buckets, bucket 10 should have a higher sharpe ratio than bucket 1 out of sample.

2. Strategy PNL is sufficiently autocorrelated that introducing stop losses does not destroy the overall Sharpe ratio.

3. Choosing a rolling optimum window on a lagged basis does not damage strategy returns (or even improves them).

As a corollary, if there is alpha in the short term (10-21 day) rolling worst window it is a bad sign because it means that other people are implementing your strategy, stopping out and providing liquidity.

4. The data necessary to execute the strategy is hard to collect. Assuming Bridgewater hiring machine learning arbs all easily detectable statistical anomalies in medium term.

5. The data predicts other things that could signal equity improvements. Example: if you're predicting shipment volume using letter of credit issuance and that has a feedback effect into shipping stocks, you also want to see your LC data predict shipping volumes not just stock prices.

6. There can be a clear 'liquidity provider' identified. Whether retail, central banks, taxpayers, hedgers, distressed companies etc. Insofar as you're not accessing beta, probably 0 sum.

7. Long term signals are uncorrelated with 13-F holdings. If you're running a price/book model and realize that 8/10 hedge funds have holdings sized by price/book then you're in a crowded trade.

8. Volume is uncorrelated with signal entry and exit. Another way to detect crowded strategies.

9. Thesis scales to another asset market price action. i.e. you have something working that trades energy stocks, hopefully it works on oil as well. For equity fundamental factors, if there's no particular reason they shouldn't work in Japan, they should work in Japan.

10. Predicting a stationary timeseries is more valuable than predicting a trending one. Predicting the relationship between gold and gold miner stocks is more valuable than predicting the gold price. Predicting NOKSEK is more valuable than predicting EURUSD because it has shorter directional stretches.



It's interesting that when trading some things, although not technically correct, just make sense and are hard to ignore. For example, although you know it's best to have your edge play out on a particular model/stance, if you're running a position and happen to check the market when the price is a tick or 2 away from your exit target, then it just makes sense to book. At this moment in history it may be a 50/2 trade against, but your impulses cannot be ignored, right or wrong.



 A recent documentary on the BBC about Tim Hetherington, the war photographer, was very poignant. Tim died aged 40 in the conflict in Tripoli. Something about the mixture of humanitarian intent, film star good looks, big brotherly persona, and artistic skill made him very likeable.

It was interesting that in the run-up to his death Tim spoke at a conference where he foreshadowed his own accident and commented to the effect that: You are at more risk as you age as a war photographer. You instinctively know where the hot story is, but that is often also where the greatest danger is. When you are young, it takes you time to get the story and you approach it with caution. But when you know, you are desensitized, you go straight there and go all-in to get it.

One needs to be careful not to make glib analogies of risk in war zones to risk in finance. But does the old successful trader risk developing a sense of invincibility, go straight for the good risks, and go all-in?



 Virtually every Appalachian Trail hiker ditches stuff in the first two weeks of walking. At the end of the first month he's learned to tell ounces difference in his backpack, and has trimmed the pack itself as much as possible. His guidebook is whittled, he has thrown away his water filter, jackets, extra clothes, and arrives at all I ever take on a distance hike: 6-8 lbs including the guidebook (pages torn out), one extra pair of sox, matches, a 1.5 lb sleeping bag, 1 pound biv sack, quart water bottle, GPS, compass, and the clothes and hat on the body.

By the time they reached me on the APT in Vermont that's about what their packs contained. There's about a 90% attrition rate from the start at Springer Mt, Geo to the finish at the Canadian border. I just did the length of Vermont & Maine to the Canadian border & nearly got run over in the fog in the road a few minutes from the border. I was shivering so hard in the October cold that wouldn't have felt it, but carried on past the road for a few minutes to a signed border post, turned around, walked another few hours on frozen feet and in the middle of the night found some locals outside a town burning pallets & fell asleep by the fire.

One would think that one would intuitively evolve to ultralight backpacking everywhere by everyone but the opposite was true. Until the early 90s, I found on trails that every one of hundreds I encountered used the method of carry as much as you can to connect the short supply/water points. These were generally 15 miles away, and 8 miles apart in the mountains where the packs for both weighed 40-60 lbs. They looked as tall as basketball nets.

People on the Pacific Crest & Appalachian trails ridiculed me in the early 90s for carrying no more than a fanny pack or day pack for long distances of months to walk faster and further to connect to more distant supply/water points. I was ostracized from groups while hiking & denied access to the shelters because no one believed I was a thorough hiker using a base weight 10 lbs. pack plus little water and food. I was walking as if on clouds 25-30 miles a day.

Then something happened in about '95. I started seeing hikers with lighter packs and read in a hiking journal about the new 'ultralight' concept of hiking. Now I was ostracized again for carrying a pack too heavy. The technique has evolved, and is, to carry an extremely light pack of 6-8 lbs. and to walk upward of 40 miles a day. Hiking is big business these days around USA and I'm waiting for them to expand across the border into Mexico and South America where I've become an 'ex-pat hiker' and pioneered trails including a continuation of the Pacific Crest from the border for 1300 miles through Baja to Cabo san Lucas. 



 I've been more than pleased with my new Kindle Fire HDx for books, documentaries and in general. It's nearly everything a traveler could want.

I bought 3 collapsible keyboards to test each and two are v. good. They're the size of a tiny paperback book but unfold to nearly full size keyboard and are remote. Easy fast typing. The two are about $30 Verbatum and Basic Bluetooth. The kindle itself is as fast as most computers for net and email, much faster than latin computers.

Also I bought a couple $20 solar chargers that are half the size of a cigarette box each, and a cigarette lighter charger. The whole system weights about 2 lb. and fits in a pocket. It can theoretically go hiking and if lost write memoirs. The documents are automatically stored on the internet 'cloud' at the first wireless contact as the corpse is lowered into the ground.

It also reads stories to me, and transcribes speech pretty well into a document. There are dozens of perks including the best, nearly instant live support by email, phone or chat that I've encountered since Home Depot. I get free shipping at amazon for weeks that has saved a hundred bucks on books & stuff in the past month. I've begun watching free full length movies & documentaries at night on either the kindle or computer. The kindle has been like falling into a heaven except they don't include a user's manual with the original device. U have to think enuf to go online for a free one just to learn how to turn it on.



 I read over the weekend about Al Oerter and Lance Larson. Their stories are pretty amazing.

They were both Olympic gold medalists as young men who, after either a long break of almost a decade or professional retirement, returned to the sport.

Amazingly, Oerter after ten years got back in the Olympic team and beat all his old records. Similarly, Larson beat most of the times he produced twenty years earlier when swimming as a master.

Other examples of mature mastery are Sir Christopher Wren who built 52 churches and retired at 86, after which he spent 5 years pursuing literature and astronomy. Cato at 80 studied Greek and Plutarch, at a similar age, Latin. Verdi wrote Othello at 74 and wrote Falstaff at 80.



 I found this approach quite fascinating.

An M.I.T. professor wants his students to begin using educated guesses to come up with solutions to math problems in the real world.

"Why Math is Like Street Fighting":

Street fighting and math hardly seem like they would fit together.

But for Massachusetts Institute of Technology professor Sanjoy Mahajan, street fighting is a perfect analogy to encourage his students to use educated guesswork to solve math problems in the real world.

"In street fighting, the beautiful form of a kick doesn't matter," Mahajan said in a phone interview with the Star. "What really helps you is if you connect and get results you need and survive. You can think of problem-solving as being in a duel with nature. You want to get to the end. The beauty and the elegance of it doesn't matter."

In his course, the "Art of Approximation in Science and Engineering," Mahajan, associate director for teaching initiatives at MIT's Teaching and Learning Laboratory, wants his students to use a variety of principles or ways of reasoning - everything from analogical to pictorial - to come up with solutions.

Mahajan believes essentially the students have to lower their standards - a hard thing for any educator to utter and even harder thing for perfection-wired students to embrace.

"They have been trained that science and engineering is all about rigor and exactness. And yes, it is at the end. But at first you need a rough idea of where you are. You need to lower your standards and get something on paper."

Mahajan believes that if students focus on rigorous exact formulas of mathematics, they'll never come up with solutions. "Life comes at you with roughly stated problems," he said. And "you need rough answers."

He often encourages students to draw a picture of why something is true and then they can usually apply the answer to a harder issue. "Our brain is more developed visually than symbolically," he explains.

He also advises his students to find a simpler version of a problem they're trying to solve and try to solve that first. Once that's done, the student can apply the answer to the larger problem.

Another technique he said students can use is "the divide and conquer" form of reasoning. "If you have a hard problem, divide it into bits," said Mahajan. "Like the British ran their Empire."

Mahajan says the key to street-fighting math is to be intuitive and adept at understanding how equations work in the real world.

"You can use these techniques to explain interesting things about the physical world," said Mahajan, who was born in England, grew up in New Jersey. He went on to study physics at Stanford, then mathematics at Oxford University. He did his PhD in theoretical physics at the California Institute of Technology and post-doc work at Cambridge University in England.

"I wish everyone would learn math this way."

In an attempt to share his theories with the world, he has written a textbook for his students and anyone else who might be interested. Street Fighting Mathematics: The Art of Educated Guessing and Opportunistic Problem-Solving is published by MIT Press but is also available online, licensed under the Creative Commons Non-Commercial Share Alike. That means anyone who is interested can download it for free and distribute copies of it as long as they don't sell it.

Orson Terrill writes: 

I totally agree with this guy. Progress shouldn't be a prisoner of perfection. When I traded my first algorithmic "system" in currencies, I did not have the privileges to automate my trades with my currency "broker" (often they take the other side on paper), nor the funds to get a real intermediary (I was in college while supporting my teenage brother). Keeping two separate computers running, I had my right hand over my ten-key to an excel workbook, and my left middle finger on the key to take the bid or ask. Often, I would only get the initial figures into my excel sheet, and then "quick and dirty" my way forward for a few minutes. I was still able to put a large number of trades lasting less than a minute, and many that were only a few seconds (it depended on market volatility). The approach was to scalp after a relatively large move began to pause, and depending on the time of day, it could be unreasonable to expect scalping opportunities to remain for long (though they could before an important announcement, or as traders battle each other over the significance of whatever line in the sand has formed, or both).

It is true that much learning is sacrificed at the cost of the perfect learning of formulas that are usually only a model, or an impression, of what happens in the real world anyways. If you're hoping that a price model can be generalized, a holy grail, then it is almost certain that the conjecture will need be formulated with liberties taken.

Craig Mee replies: 

Point taken. But though you can win a scrappy dog fight, and the numbers are all quite correct in the excel spread sheet, for longevity in this game, I'm all for finding form and beauty. If you can fight day in and day out and keep your head above water and do ten years and kill it, good job, as in, job done. But to fight every day, and not suffer long term brain damage, I think, is tough to ask. 



 My dad, who's on his deathbed, when lucid last week offered some advice to my nephew (who's struggling) and my son (who's not struggling). My dad said that in order to get ahead in life, one must hustle for money all the time, always look out for a better deal and more money, work very hard and smart, marry the correct woman, not necessarily the one you currently have the hots for. He mentioned thrift, and said that although cash offers a negative return, that personal thrift in all areas will keep you comfortable in the long run. He nailed both grandsons on their $5.00 a day Starbucks habit and ran some numbers by that over 30 years. He also nailed my nephew who smokes on how smoking will not only lower his life expectancy, it will affect his net worth and retirement. He said, "I bet between your Starbucks, smoking, and fast food lifestyle, you are spending 35% of your net income on bulls**t." He told both of them to think 3 generations down the road and plan for that and save, accumulate, and save some more. His final word to my nephew was that he is only inheriting $1000, but he had the tact to not mention that my son is getting my half of their estate that I surrendered. I did a good job raising my son. My son is already figuring out how to not dip into capital, which is a lesson everyone should be required to learn. Sadly, most don't.

Rocky Humbert writes:

Economics question/thought: What would happen to the economy if everyone followed that lesson: "My son is already figuring out how to not dip into capital, which is a lesson everyone should be required to learn. Sadly, most don't." If the only consumption is from a return on capital and earned income, what effect would this have on personal income and economic growth? I haven't thought this through, but my gut reaction is that this would pose a serious problem.

Richard Owen writes:

This is a good point. And any major shift by economic actors would be destabilizing over some period. In Jeff's instance Starbucks would go bankrupt and many baristas would lose their job and the capital employed in coffee houses rendered worthless.

But a steady state situation of high capital reinvestment by everyone can be envisaged. It would eventually lead to an increased level of capital per capita and thus the dividend would eventually dwarf what could previously have been received by eating into capital. The question is, if people are then rid of an appetite for Starbucks, what capital assets should be created other than coffee bars from which to receive the enlarged dividend? Luxury houses? Personal libraries?



 The best Italian food in St. Louis is on "The Hill".

"The Hill" is a shortened nickname for the neighborhood formerly known as "Dago Hill" where the Italians all migrated too from the old country.

Both Yogi Berra and Joe Garagiolia grew up on "The Hill" so I'm sure you NY'ers (and baseball fans in general) a point of reference.

However, when it comes to pizza in STL, the best (and most popular by far) is a local franchise called "Imo's Pizza". (the "I" is pronounced as a long "E").

It's thin crust pizza, covered with whatever you order, special sauce, provel cheese, and a special italian spice. It's really good stuff.

My first job was working at Imo's in Maplewood in 1979.

Lot's of family history at that establishment…I still stop in there now and again and order some food.



 Following on the successful Thai forerunner of this film, this new iteration provides a somewhat relaxed intro to a basic horror genre manifestation.

A man, Eliot (Mark Webber), gets telephoned tasks that begin deceptively mildly, though not without a disgusting quotient all the same. For his participation, which becomes more and more non-voluntary, he is gifted with increasing sums of money to alleviate his difficult living conditions: Loss of his job, a pregnant girlfriend, a vicious father, an Asberger's-afflicted brother needing institutionalization, and a looming wedding. Cash is too much in demand for the hero to turn down the increasingly horrible (and weird) tasks–though to Eliot's credit, when his orders include bloody dismemberments and ultimately the decapitation of innocents, he takes a stand. Forfeiture and loss are baked into the cake, but the ride is supposed to ensure that we get the full Monty of bloody excess. We never do know why the tasks are so arcane and crackers, though Eliot is a good stand in for Average Joe afflicted with what he thinks is an easy answer to his many money problems.
One usually steers a wide berth around full-on horror pics. This is not as gruesome, as soon, as the vast run of the field. But it gets there, Grasshopper. It gets there. There is no sex, no scatology, nothing offensive… except the premise and the grue-index as it escalates.

The film is not uninvolving, for a time. The production values are there: Attractive enough cast members, including Ron Perlman as a detective, accommodating scenery, scripting that does not wholly disgust the discerning. At first. But halfway through, the story line becomes muddled. One cannot figure out who is ordering the protagonist to do such outlandish and uncalled-for "sins," and soon, one gives up trying. The plot commits that ultimate sin: It fails to make sense. The story falls apart, and even by the last reel, we have no idea who did what, or why. Who won, who lost. Who cares. There are a cornucopoeia of questions hanging in the air at the end. That makes for audience annoyance and dissatisfaction. Be it known that the Thai original made better and more logical sense than this version.

It is still a mystery why even teenagers would want to see gore like that slathered over viewers with such films. (NB: Boys supposedly take girls to slasher films so the girls can squeal and climb onto the lap of her escort. Or clutch him for 'safety.' That part of the plot never changes…) Isn't ordinary life nowadays frightening enough, with its disappearing Malay airliners, its Ukraine takeovers, and its insane PTSD shooters going postal for no ostensible reason?

Guess it's a narrow, male-chromosome thing.



Specs interested in the history of the Delphic Oracle may enjoy a book review of Michael Scott's Delphi on p C8 of the weekend WSJ:

Scott "cautions us against thinking of the oracle as 'an instrument simply for revealing the future' and invites us to see it as 'something of a management consultant — an adviser, but one with powerful authority.' 'What consultation at Delphi offered was a chance to air a difficult decision in fresh light [and] receive extra (divine-inspired) information and direction, which, while itself necessitating further discussion, brought with it powerful authority and thus a significant push toward consensus.'"



 Ukraine buys almost all its energy (natural gas) from Russia. Revenues from natural gas sales are a primary source of income for Russia.

Because of the recent disagreement between Ukraine and Russia, Russia is raising the price of natural gas it sells to Ukraine.

Ukraine is almost broke and can't afford the increase in the natural gas price because it would be forced into bankruptcy.

Obama(the USA) just announced the United States is giving Ukraine $1 billion to assist in paying for the higher priced natural gas it buys from Russia.

So, the United States is actually giving Russia $1 billion because the money is just passing through Ukraine.

The first question: Has Putin figured out a way to raise the price of his natural gas sales and make the U.S. pay for the increase?

Next question: Was he really in the KGB or was he a commodities trader?

If this analysis is accurate, Putin just got Obama(the USA) to pay him $1 billion by holding a press conference and trucking some troops across town from the Russian Navy base in Ukraine.

Who is the smartest guy in the room now?

Anatoly Veltman writes: 

You are absolutely correct, Kim. I thought Obama was actually scoring a PR point on this one, not Putin.

Kinda like a chess gambit, where Obama sacrificed a bishop (1bn) to buy time and check-mate (16bn) Putin.



 In one's continuing efforts to improve oneself, one read a chapter on quick ways of computing the determinant in chapter 3 of Braun's Differential Equations and Their Application. One never thought he'd have to use determinants again as they had their vogue 60 years ago. However, one came across a curious method which was totally unfamiliar to such as one: "First we pick an element A1j from the first row of the matrix. Then we multiply A1j by an element A2i from the second row of A. However j must not equal i. next we multiply these two numbers by the element in the third row of a in the remaining column". Then you must figure out whether to multiply by +1 or -1 and there you come into the computation of an inversion. An inversion occurs when two pairs in a series are out of order with respect to time and magnitude. See "Kendall's Tau for Serial Dependence".

I believe that the running total of the number of inversions in a time series might be useful for prediction purposes in markets, and I will do some counting now that I am back from California attending the notorious Uncle Howie's 75th birthday. It was a grand birthday with many great handball and paddle ball players in attendance along with a Dr. Harvey Eisenberg, inventor of the total body scan who saved a few lives of the attendees including mine. However, there was one discordant note. Howie is no longer the uncle of legend who will argue with a referee for 20 minutes over a call, and threaten to punch you in the face if you block him out. He has turned mellow in the last 15 years. Everything I wrote about him being the world's best at grabbing defeat at the jaws of victory because of his terrible temper must now be revised and gainsaid.

anonymous writes: 

I've also been coming back to determinants, although not computationally. Chapter 9 of Birkhoff & MacLane is full of food for thought. The book throughout emphasizes "universals". The authors want to show, for example, that a concept like "multiplication" (think grouping stones) is not just something your teacher taught you because her teacher taught it to her and that's how we do things. So rather than thinking about determinants as the "size change" of a linear map, the determinant is the universal, only, unique, function that's multilinear f(a*x)=a*f(x), alternating f(x,y)=-f(y,x), and f(id)=id. One then shows remarkable properties of any function passing these three tests, such as any function passing them can be used to compute eigenvalues and thus to characterize a matrix operation in any basis.

(An important bit of context is that one often assumes linear maps will be repeated so much that "linear" then becomes "what happens during an instant of time". A second important bit of context is that any group operation can be represented as a matrix.)

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