I just stumbled across this and simply could not help myself:

"Not everything that can be counted counts, and not everything that counts can be counted." — Albert Einstein

anonymous writes: 

You can replace the word "count" with "value", and it still works. Or one can replace it with "say" or "mean". As you try to fit in other words, the sentence starts to tell us that whatever we think we know can be so strange to us. Perhaps this can ultimately be rephrased by Lao Tzu's words: "The Tao that can be spoken is not the eternal Tao". 



 Dearest Scotland,

In only days you can choose to cleave yourselves from our United Kingdom. We sit one of the five or six greatest nations and mightiest economic powers on this earth: wedded together in a marriage begun almost three hundred years ago. Please don't end our great union together.

As an Englishman and Welshman, I feel great love for Scotland. As a child I would travel from Liverpool to holiday in the beautiful Welsh Ogwen valley. I would be abroad but at home. I would travel to the wonderful Fort William or idyllic Skye: refreshed and energised in my own nation state. I would no more wish to see this separated than the Lake District carved out and floated off into the Irish Sea.

As in every great marriage, both man and woman take occasion to think: "Did I make the right choice? Am I better or worse in this relationship? Am I fulfilling my potential or being taken advantage of?" And it is good to take stock.

So what have we achieved in our centuries long union?

Together, did we not build the world's greatest empire, bestow it with all of our verdant statecraft and know how, then set it free?

Together, did we not fight off Napoleon, in ships commanded by the Earl of Dundonald?

Together, did we not underpin the defense of the first world war? Would you now deny our United Kingdom a great man like Field Marshal Sir Douglas Haig, who so valiantly led the British Army? At the Somme and Ypres, at Amiens and Arras, would you have us separated?

Together, did we not fight off Hitler, the greatest evil the globe has known? It was Monty and Patton versus Rommel: the three generals everyone recalls from that most vicious of wars. One third Scottish! What great debt do we owe to 1st Viscount Montgomery of Alamein? Would you deny him us?

Together, did we not pioneer industrialisation? Medicine? Enlightenment thought? Scotland is eight percent of our headcount. But in prestige, in know-how, in capability, in pride, it is so much more.

Your countrymen have led us seven times from around fifty prime ministers: a big overshoot relative to your population weight. Do not deny our United Kingdom your capability and leadership. Did you not give us James Ramsay MacDonald? A man who changed the British political landscape forever? Who set the political scene for all that was to come for the labour movement?

Mr. Darling has argued from security and risk. And he makes strong points: the currency, the volatility of oil, the curmudgeon of the European Union. But I say - of course Scotland can be great and secure alone! It is a great country! But let us be greater and more secure together.

As with a marriage, one partner makes complaint and the other responds "we've got it great, why are you carping?" But that is not the right response. They want to hear "I love you, I need you." Scotland, we love you. We need you.

Mr. Salmond talks about NHS privatisation, about Trident, about the Bedroom tax. These are important issues. But they are issues of today, not tomorrow. They can be solved and soon. The decision of independence is forever. It is binding. We have not yet had our great generational challenge. Our World War One. Our World War Two. It is yet to come. But it will. Would you have us face it apart?

Our biggest trial so far has been the financial crisis. We have come through it together arm in arm.

The Royal Bank of Scotland: Fred Godwin's bank. Its equity was almost wiped out and stood vast relative to your GDP. Its assets were at great risk: they dwarfed Scotland's GDP. But we got through it, together.

Why was the Old Lady of Threadneedle trusted throughout the world during the crisis? Because of her centuries long history as a great central bank. Her name respected because of all of our collective credit and productivity. Without Scotland, without your prudence, she is less. Without Scotland, our United Kingdom is less.

But you ask: is Scotland just mistreated property? Can't she get on better alone? Just like a marriage, sometimes you crave freedom to forget all ties and run. But just like a marriage, we can discuss and negotiate. Do you want more devolved powers? Let us devolve more powers. Do you want more freedom and leeway? We can give you that. We can perfect our marriage over time. But like a marriage, each obeys certain restrictions for the mutual good and insurance of all.

And in this decision, let us not discount Mr. Salmond's vanity. He wishes to go down in history as the man who brought Scotland glorious and independent. He wants to make his personal history by tearing up our great communal history. Scotland is already glorious, is already independent. But she is also part of our great union!

Mr. Salmond gave us his final question, what he says it all comes down to: "who decides?" for Scotland.

When the UK negotiated the great post war settlement at Versailles, Scotland was there, deciding. Alone, her voice would be quieted.

When the United Nations Security council was formed from the top five powers on earth, Scotland was named to it. Alone, her voice would be excluded.

When the UK joined with the USA to stymie and defend against communism and the cold war, Scotland was there, deciding. Alone, she would be muted.

In a world where the USA is dominant, the BRICS are growing, where the international scene is as complex as ever, would you cut Scotland from its might within the UN, the IMF, the World Bank? At peace and at defense?

Stay with us Scotland. For you are a great nation. But together, we are one of the very greatest of all!

David Lillienfeld replies: 

A very nice love letter. Please permit me to play devil's advocate for a moment (I have no interest in the outcome of the vote, seeing merits in both sides' arguments).

Dearest England,

I do so appreciate your most recent missive. I cried throughout my reading of it with those sweet memories of days past, when the future seemed boundless. Then my German mother noted that one needs to keep one's head at such times and be frugal and focused on what is best for oneself. I had to keep reminding myself of her comments while reading your wistful note.

You list our accomplishments in the past. They have indeed been great. But, dear England, let's be honest. They are in our past. We are no longer spring chickens, you and I.

But now I find myself the scolded, battered spouse. You've taken my dowry and spent it, and on what?! Estates in and around London. Military adventures in parts of the world in which we had no business. At least you had the good sense not to arm your police.

And those wonderful vacation homes in America. You did a fine job of ruining that effort. All I asked was that you build the house there. Maybe a modest estate, even. That's all. Nice and simple. But no, first you insist on taking those nice people in Africa and take them to work on the estate. They didn't want to be there, but you insisted. Then you bullied France. She was so much fun before you did that to her. You know I've a sucker for French accents, dear. But no, you said, I have to make that estate pay for itself, so you had to tax, tax, tax the hired help. Haven't you learned yet that exacting money from people at gunpoint, even if it is legal, is hardly endearing? Oh, England, when will you ever learn. You manage to mess up so much once you've succeeded with your plan. We were poor once, and you managed to beat the Dutch and the Spanish at their own game. And you looked so regal in doing so. I was so proud of you, dear England, so proud. So now we're left with that island in the Atlantic and its gaudy pink beaches and those shorts which men have the temerity to show off their legs. Well, I never!

At least you had the good sense to send those felons off to that island down under. That was one of your inspired moves—something you haven't had in a while. You left them to fend for themselves, and see? They created a nation all by themselves.

And that empire of yours—the one where the sun never sets. I didn't want an empire, some of us like the night. We used to have so a good time after the sun had set, before you filled ever hour of the day thinking about that damned empire of yours!. You had to send me our son, the one who had nothing more worthwhile than issuing a new version of the Bible, to get me to stay in the family, and I went along with it despite my better instincts. United would be stronger, you said. For a while, you were right. But I caught on to your ways, England. You couldn't even decide what your religion would be at first. When you finally did decide, it wasn't mine. And my favorite clothing—those kilts, my favorite instrument—the bag pipes. You've always pretended to like them. And when I celebrate cultural achievements, where are you? Sunning yourself in Spain. You know I'm too fair for that—I'd burn if I did that. Do you drink any of my libations? I spend so much effort and wait years before it's ready to drink. No, you go for the port. Edinburgh now feels so unwanted when you do that. "Scotch on the rocks" to you means taking some of my best creations and putting him or her in that tower of yours down in London. Really, dear, what were you thinking? That I would welcome such treatments? And that gin you favor. Your people had so much of it that you created a set of laws just to control the drinking. A lot of good that did you. They just switched to beer instead! Not something I made, but beer. Honey, if you wanted beer, you should have married Germany. Mother was right, you are incorrigible.

Now let's go back to my dowry. That oil. You can't seem to keep your hands away from it. I keep telling you not to push, but you do. I wouldn't mind if you spent some of it on me, but like I said, England, you've wasted it. The that gambling on Persia pay off? I grant you that it did for a while, but once again, you managed to make a mess out of success.

And if I so much as mention any of this to you during those few occasions you let me talk, there's little I get besides a slap. So now I sit in my lawyer's office, working on the divorce papers. I'll serve you with them just as soon as I can. You know, England, I went to the bank yesterday, and they told me that you had assumed the mortgage, but you cut off my credit line. And my access to the checking account!. Did you think I wouldn't notice? Do you think this is a way to tell me that you again want to waltz with me through those omnipresent formal gardens of yours. Haven't you realized I have an allergy to roses. If you hadn't taken my wealth all the time, I could have afforded the allergy shots at the doctor's office. No, you said, better to spend on some fast aircraft that no one could afford to fly. I know, you said that getting the French involved would help matters. Well, dearie, did it? Not much.

Well, England, I could go on and on. That nasty man Marx for instance. Not Groucho. He was American. No dear, I mean Karl. He wasn't funny at all. Don't you realize how many people died because of his drivel.

You'll be hearing from my attorneys, Dodson and Fogg, soon enough. And they've warned me that you'll try to drag this out so long that no one will remember what the case is about. England, you better set yourself in because I'll remember.

It's time for a divorce, England, time for me to salvage what remains of my dowry, time to get the bankers to look at me and realize that I have wealth, too, time for you and the rest of the world to see me for what I am—proud, able, with lots of resources and a rich heritage.

Good-bye England my my love. Maybe next time, you can get that bard of yours—yes, Shakespeare—to talk about Scotland some time rather than England all the time. And get it straight, dear. No sex is because you're English. Did you hear me English. It's you, not me. It never was me. So say "No sex please, we're English." You'll have to speak to Foot and Marriott, but given the result you got from Shakespeare—after you promised you'd speak with him about that line of his you know I can't stand, nothing changed. I wasn't the problem England. I never was. You always did have problems raising your flags. especially when we in my castles and not yours. You said you could change, learn, be better. Well, how much does it take to raise a flat! And then your promises to change? That's the problem England, there's never any change outside of appearances. Even haggis. You kept telling me I made a great dish, and you kept drinking that infernal gin of yours to wash it down.

So England, I'm sure you'll come out on top some how. You always do.

As for me, I need to see my lawyers. They keep telling me I have quite a case. And they keep suggesting something going on between you and America. They call it a "special relationship." Really, England, how could you? It will all come out in court in due time.

Just realize England, we're done, au revoir, and all that. Maybe you can get America to take it, but won't. Not anymore. I need to finish this letter right now any way, before my haggis overcooks. I have to eat lunch before going to the tailor. He's made me a whole set of clothes using Harris Tweed to wear just for our divorce case. Assuming you decide to make it a public affair. For your sake, England, I hope you come to your senses and realize that it's over. It will be so much easier for you to let go.





 What can be learned from the ice bucket challenge–the challenge task itself, how it has spread, why people enjoy watching it, and how when you search for "ice bucket challenge" on YouTube the next suggestion is "ice bucket challenge fail". The ice bucket challenge fail video reminded me of a stop-stop order that has skidded out of control and exits much worse than expected.

Jeff Watson writes: 

Patrick Stewart has a most elegant way of handling the ice bucket challenge. This meme is transferred similar to a way the Chair described years ago.



 Something happened to me today for the first time in my 27 years in the financial business.

I had some prospects that were coming in to sign paperwork and do business with me, but who cancelled their meeting at the last moment.

When my assistant followed up with a phone call, they said that they were not interested in moving forward.

Now, that's nothing new. I've had hundreds and hundreds of people decide that we weren't a fit.

But this seemed odd to me. So I called them.

I spoke to the husband and he kind of hemmed and hawed around until I finally told him to just come out and say it.

He said, "We decided not to do business with you because you're a Mormon and they don't believe in Mormonism".

He went to say (rather rambling) that it may have sounded bigoted to say that but it really wasn't. That they really liked me and thought I was the most skilled investment adviser that they had met with and were ready to do business with until they found out I was a Mormon, blah, blah, blah, blah.

So, this was the first time in my 27 years in the business that someone has come out and told me that they weren't doing business with me because of my religion.

Now, I'm sure other people have come to that same conclusion but kept their reasons to themselves, but I thought it was interesting this guy actually had the gumption to come out say it.

Ironically, I am not only not offended. I'm not even bothered by this. Actually, I'm relieved.

I feel like I dodged a potential bullet with these people. I mean, who wants to do business with people so small minded that they base decisions on such trivial matters as this.

Unfortunately, we live in a world where being a bigot or racists or any other negative moniker of the such is like having the scarlet letter branded on your face.

I believe the world would be a better place if we actually encouraged people to be open about their beliefs and biases.

For instance, this whole EEOC thing is massively stupid. I'd like know which companies are biased against races/religions/sexual orientation/etc. I'd like to know which establishments don't want "blacks" to patronize them.

I want to know who the small minded bigots are so that I can avoid doing business with them or investing my clients money into their companies.

I'd embrace a world where it was legal to have a sign out in front of your establishment that said, "Mormons are not welcome". That way I can avoid patronizing your establishment…..or said another way, I can avoid helping you create profit.



 I took part in the Chicago Triathlon. One of the highlights was witnessing american enterprise at its best. It's a very efficient system working for a piece of the aspirational consumer disposable income. The evangelizers (using their own but also academic research in psychology) increase the popularity of the sport through the media outlets and the elite athletes. At the top level the message is about health and self-improvement. Quality of life is so high these days, that we crave for activities that simulate physical struggle. They also disseminate technical views and advice, which by definition are in favor of newer and more gear. Every part of the sport gets highly specialized, horizontally and vertically, following the professional circuit. It's a matrix of time (training, pre-competition, competition, post-competition) and technical component (nutrition, recovery, gear, literature, tourism). Every component gets subdivided more and more to create diversity of demand and add new lines of businesses. At the end of the day everybody is happy.



Hi, perhaps you could put on the spec list that I have a entry level job opening for a quantitatively orientated trader to (eventually) work our evening shift.

Contact is: R. G. Niederhoffer Capital Management, Inc., 1700 Broadway, 39th Floor, New York, NY 10019. Email: info at



  Capitalism lessons are costing me a quarter a day.

One week ago, a little boy with a hangdog expression sat next to his father lemonade vendor wishing he had something to do. He was sorting leaves on his knees to sizes to pass time. I bought a lemonade, and asked the child the cost for a leaf. 'A quarter,' he countered brightly, as his father looked on amused.

The following day he was waiting, though the time of my walk varies by three hours. He had created a vendor's table from a 3' plank on the ground with a wider assortment of leaves. I bought another for 25 cents.

This is out on a jungle path where pigs wallow, hens with 27 chicks cluck, everyone has bare feet, sleeping dogs lie, no electric, ice or running water, a body eats on six-bits a day, fingernails and lawns are cut by machete, a piece of material has value, and there are no beggars.

The third day, three vendors with three boards offering new varieties. I bought one shaped like a maple leaf from a new kid, claiming I couldn't afford more.

The fourth day a strange thing happened. There were five venders between the age of 6-9 years, and one was a girl who was scrubbing her leaves with a brush and water. I bought a clean one.

The fifth day, the vendors had learned to balance the planks like trays on their palms and carry them aside me until I bought one. The sixth day repeated, as the market seemed saturated with kids and innovations.

Today, after I bought a freshly scrubbed mango leaf, a señora rushed up and whispered in my ear, 'You know the leaves are worthless. It's just a child's game.'

'Nonsense,' I answered. The child's game is capitalism. Who knows what tomorrow may bring? They may become the most successful vendors in the village with the capitalistic habits that work is rewarded, the best product sells, wait patiently and the customer arrives, curiosity, innovation, a healthy balance of intellectual and emotional quotient, an even-keeled mind, split-second decision making, the ability to handle uncertainty, loss and success, adaptability, and there are no prerequisites.



 One key finding is that some foreign car companies demand the local manufacturing facilities and dealerships to only source parts through the brand company. Through this scheme, the investigation said, those companies managed to achieve abnormally high profits.

Well, cars have been very expensive in China, many with 2-3 times the prices in the US. For many years, I have been puzzled by why this is the case and who actually take the money. Undeniably, various taxes in China are very high, but those do not suffice for the huge price differences.

Now this finding seems reasonable to explain the mystery.

The question is how they could be doing this from the beginning?

The absence of a useful legal system is cleanly an answer. But there are more hidden issues people often choose to ignore.

1. The state regulations provide foreign car companies with basically two choices: a) sell imported cars and pay substantial tariff; or b) set up local manufacturing and sell locally produced cars and pay less tariff. Choice b) obviously is more preferable to foreign car companies for their high-volume models. But the condition for b) is that they have to form local joint ventures with Chinese companies. To any successful foreign car company which is fully capable of designing, providing manufacturing facilities, manufacturing and marketing their own cars, this provision clearly means a brutal cut into their profit. Why would they joint-venture with local idiots who surely have strong political liaisons but know literally nothing about cars? So then limiting parts sourcing became a genius business strategy for them. The argument is very sound: to ensure the best quality of their cars! The local JV partners have little problem accepting it because with however high cost they know they could use their political ties to force higher prices onto the consumers.

2. Cross-border trades have always been extremely restricted in China. In the case of importing cars, only the extremely few with strong liaisons can obtain licenses. And again, the imports carry very high tariff. The rationale for this restriction that has long been planted into people's mind is that it protects national enterprises (implying the meaning that it is good for everyone in the country).

Now lowering prices should be a good thing for consumers. But it comes not without a concern.

If parts selections are not strictly enforced, qualities are certain to suffer. Would elite Chinese consumers trust Chinese products? No chance!



 "He was a degenerate gambler. That is, a man who gambled simply to gamble and must lose. As a hero who goes to war must die. Show me a gambler and I'll show you a loser, show me a hero and I'll show you a corpse." -Mario Puzo

Rishi Singh writes: 

This reminds me of Ed Seykota's remark to Jack Schwager in the beginning of Market Wizards 2 that the reason Jack blew up is because he wanted the market to tell him when to stop trading.

I spent some time with Ed at his place in Austin a few months ago. Remarkable soul who is on a crusade to change the way we feel about feelings.

Stefan Jovanovich writes: 

Puzo knew something about gambling from experience; he was one, to the point of degeneracy. His knowledge of war was a bit more limited; by the time he got to Germany the war was over. He served as a public relations officer for the air corps. Those who haven't, give tours.



 A while back in "the good ol' days", a list commentator (way back pre-crash) quoted an article "Mistakes of Investors" appearing in Ticker Magazine back in 1908. It seems a good time to reprise it:
Avoid inside information.

Never make an investment on enthusiasm or excitement.

Use your own judgment.

Pay for info rather than getting it for free.

Consider earning value and market value. The man who buys real estate looks to the enhancement of value more than to earnings.

Don't lose confidence. The investor hears rumors of impending disaster, which, if he would reflect upon, he would see would have no effect on his security. This applies to bank runs.

Stay away from names. (Even then there were touts and promoters.) No high sounding titles can make it a success if it lacks the true qualities of success itself.

Don't put too much reliance on advertisements, especially red paints.

The losses through mining investments (not tech) are greatest. Beware of promoters who have no reputation to lose.

The greatest mistake is one of pessimism and doubt. Never let your mind fall into that chasm. Do not think because you have lost money in one investment that all are unsafe." The posting continued with an observation about among article in that first issue, by Roger Babson:

"The most interesting article to me in the first issue was by our old friend Roger Babson, written in 1908 about bank loans. He says that when the proportion of loans to investments gets too high it's bearish and when it's too low, it's bullish, but on a time series basis for all banks, and cross-sectionally between banks within a year. He gives yearly figures from 1860 to 1906 to verify his point and then shows how the panics of 1873, 1894, 1890, 1893, 1898, and 1903, were accurately forecast by the ratio.The key ratio he uses is 50% loans to assets, which was 'In 1873, the ratio of loans to resources first exceeded 50%. Consequently a panic occurred by the spring. Another panic occurred in 1903. Again the western farmer came to the rescue and owing to bountiful crops, the recovery continued until 1897 when interest rates exceeded 2200% a year.'Thus, Babson preceded Boltan Tremblay, Colonel Ayres, the bank credit analyst, the fake doctor, and many other greats in relying upon these credit ratios more than 100 years ago. It's overdue for a test again today."

Jeff Watson writes: 

Here's the kind of statistics the old grain traders used back in the day. When you think about it, not much has really changed. This period covers the 1904-1914 cash wheat CBOT receipts for 1904-1914.



 Let those of you who follow the news alert us if the humorous agrarian grandmother leavens her talk with any epatez the rich or similar anti individualist things.

Richard Owen writes: 

The consistent theme in reportage on central bankers (and their patrons) at the moment seems to be their benignity and attractiveness.

The Fed has a sweet but worldy wise grandmother. Mark Carney is assessed for his suave, tan, and similarities to George Clooney. Rajan is admired for his John le Care father and good looks that have put the 'sex into the Sensex'. Abe was painted in superman costumes replete with bulging red underwear.

It's as if they going to bring us off with gentle palm and sweet nothings.

Kora Reddy writes: 

I don't see any edge in the week (weekly returns) after Jackson Hole for $SPY (up by 13/21 with avg 0.11 %, less than the drift of ~ 0.2 %) while $GLD up 8/9 (avg 1.5%, the last symposium was a hole with a weekly loss of -0.2%), $TLT up 10/12  avg 0.94%)

ps: avg % includes the losses as wellfor convenience of others (from here)

end of jackson    the following mon/tue ( if holiday)
24-Aug-13    26-Aug-13
1-Sep-12      4-Sep-12
27-Aug-11    29-Aug-11
28-Aug-10    30-Aug-10
22-Aug-09    24-Aug-09
23-Aug-08    25-Aug-08
1-Sep-07      4-Sep-07
26-Aug-06    28-Aug-06
27-Aug-05    29-Aug-05
28-Aug-04    30-Aug-04
30-Aug-03    2-Sep-03
31-Aug-02    3-Sep-02
1-Sep-01      4-Sep-01
26-Aug-00    28-Aug-00
28-Aug-99    30-Aug-99
29-Aug-98    31-Aug-98
30-Aug-97    2-Sep-97
31-Aug-96    3-Sep-96
2-Sep-95      5-Sep-95
27-Aug-94    29-Aug-94
21-Aug-93    23-Aug-93



 One had a loss today and found it appropriate to go back to Wiswell to see if I can improve in the future.

We have losing days, drawing days, and winning days, and not every day is a losing day, and not every day is a drawing day, and although we may not like it, not every day is a winning day.

The real trouble with making our moves is that we don't know if they are good or bad… untill we have made them.

The good player loses without an alibi, wins with grace, and draws with a smile.

Don't strive to be brilliant, do not scorn simplicity. There is simplicity in the highest flights of all art.

To study the strong players is to learn how to play, to study the weak players is to learn how not to play: to study ourselves is to learn how to play the game of life.

I suggest you study your great victories a long time, and study your great defeats twice as long. You may well learn a great deal more from the latter.

Never let the fear of striking out get in your way.

Many games are won by the art of judicious leaving alone of pieces and men. This negative habit often develops into a win.

Good players do not complain about their lack of opportunities. They are good, in most cases, because they go out and make their opportunities.

Many a draw is lost for the simple reason that you did not ask for it– at the right time.

I seldom use the word impossible regarding chess and checkers. You will see just about everything happen on the board.

The art of playing is not only to make the right move at the right time, but to leave unmade the wrong move at the moment of truth.

Success in the opening can lead to a weak middle game, and finally defeat in the ending.

Playing much, suffering much, and studying much… these are the three pillars of learning.

Common sense wins many games, but there are positions where it would actually lose, and it will take uncommon sense to win or draw. You must decide when uncommon sense must come to the rescue.

The search for the right move while you are playing is helped by the research you have done before playing.

The good moves are all there— waiting to be made: all you have to do is sort them out and put your hand on the right pieces and move them to the right squares. Yet some of the greatest master have made serious mistakes in carrying out this "simple" transaction.

Andrea Ravano writes: 

Great ideas Vic. I've often been confronted with poor performance, and the most difficult part of it is looking straight at yourself in the mirror and saying to that innocent looking person "you are wrong". Admitting ones own errors is the beginning of rebirth, just as realizing that your win at the backgammon board was more then the consequence of unusual dice statistics over your calculating power. 



 I find surprising things unbelievable until I can find a mechanism to explain them. In this case, my idea is that people who must be surrounded by noise to think are always above a steady state. They must run their thinking mechanism 24/7 (including dreaming at night) or lose consciousness. Hence their minds have 'forgotten' how to return to silence, and I fear this carries into death. The proof in chess is Bobby Fischer who hated to play noisy chess, while most of his opponents played better with it, as he beat them.

The metaphor in nature is the strangling fig tree that supports the host tree until the former dies and falls, leaving just the fig. Many studies also show that people, at least in the US, are unable to be alone with their thoughts. They freak out without their phones, tvs, radios, computers, etc to constantly distract themselves. So they never have the time to process what they already know about stuff and happiness. All the while being bombarded by the opposite message, that stuff does bring happiness, from the media that they can't turn off.



 While the Dow climbed 16 points today, an old man pulled out a wood stool, as he has at 9am for thirty years, hoisted a handcrafted umbrella, stuck a two-foot plank on his lap, and gestured to the first customer. I stepped forward with a pair of jogging shoes to resole, and as he worked explained that in USA it's cheaper to buy a new pair than to get these underhauled. A barefoot señora holding a pair of sandals clicked her tongue, and stuck a finger in a rip in my shirt as I read today's news. The cobbler finished my repair in thirty minutes, and offered the shirt off his back – my size – which was a bargain since it saved me a trip down to crime infested Belen for a used one. The señora quickly sewed the rip in my shirt, as the man fixed her sandals. Then she conjured a shirt out her purse like a rabbit, and handed it to the cobbler for the repaired sandals. I paid $3 for the shoe repair, $2 for the shirt, and the señora offered a massage at her room across the street. It cost $4, and I walked out lightly on new shoes with a newspaper under my arm that the cobbler had thrown in to sweeten the one stop shopping.



 The erudite and esteemed historian of ours raises the question what can we learn from ancient Rome. Richard Epstein [cv ], believes that almost all that is good in our own law comes from Rome. Nock believed that only classics should be taught in college because everything good and bad happened in Rome and Greece and all we have to do is learn from the mistakes. I have always believed with Nock that the stock market will do whatever it has to do to increase agrarian reform, i.e. whatever will create a easier flow for reduction of social power and increase in the palindrome type of state. I often follow that line in my own trading. Do you believe Rome, Caesar, the two wolf men et al the Greeks, have things to help up with our investing?

Stefan Jovanovich writes:

Eddy aka our daughter Nora had the great good fortune to study Art History at Cal Berkeley while doing the requisite training in molecular and cell biology that would enable her to go to the wikipedia school of medicine at UCLA. She had the even greater good fortune to discover Andrew Stewart and make certain that she took every one of his classes. This left Eddy with the handicap of having the closest thing to an Oxbridge education one could get in America; Stewart was a kind, clever and relentless tutor; he even forgave her at graduation for abandoning a career in art history for the dubious privilege of wearing progressively longer white coats.

My apologies for the long-winded preamble; I am attempting to explain where I got my answer to the Chair's question. The "Greeks" of the Hellenistic period, not the classical one, are the people from whom we should take our lessons about finance; for they are the people who established the patterns of trade - grain from Egypt, Crimea and Sicily, manufactures from the Eastern Mediterranean, spices and clothes from West Asia, etc. - that endured in spite of the Roman's preference for military-industrial pillage. 

Dylan Distasio writes: 

 Today marks the 2000th anniversary of the death of the emperor, Augustus.

If our esteemed historian would be so kind, I was hoping he might provide one of his favorite books on either Augustus or ancient Rome in general.

Stefan Jovanovich replies: 

Karl Galinsky's "Augustus: Introduction to the Life of an Emperor"

His discussion of Augustus as a politician is the best description of how "Rome" actually worked politically that I have ever read.

Pete Earle adds: 

Ironically, this was published today as a 'Think Piece' by the Adam Smith Institute: "Currency Reform in Ancient Rome". In it I look at four obscure emperors and their efforts (as well as their fates) with respect to shoring up the denarius as Rome entered its "Age of Inflation".



 Is coffee good for you? A recent study seems to imply it is good for the liver:

Coffee is one of the most commonly consumed beverages in the world. Its health benefits including improved overall survival have been demonstrated in a variety of disease states. To examine the association of coffee consumption with liver disease, a systematic review of studies on the effects of coffee on liver associated laboratory tests, viral hepatitis, nonalcoholic fatty liver disease (NAFLD), cirrhosis and hepatocellular carcinoma (HCC) was performed. Coffee consumption was associated with improved serum gamma glutamyltransferase, aspartate aminotransferase and alanine aminotransferase values in a dose dependent manner in individuals at risk for liver disease. In chronic liver disease patients who consume coffee, a decreased risk of progression to cirrhosis, a lowered mortality rate in cirrhosis patients, and a lowered rate of HCC development were observed. In chronic hepatitis C patients, coffee was associated with improved virologic responses to antiviral therapy. Moreover, coffee consumption was inversely related to the severity of steatohepatitis in patients with non-alcoholic fatty liver disease. Therefore, in patients with chronic liver disease, daily coffee consumption should be encouraged.



 Tom Hanks created a free app that is number one in the app store right now that makes your ipad etc sound like a typewriter because "everything you type on a typewriter sounds grand, the words forming in mini-explosions of SHOOK SHOOK SHOOK. A thank-you note resonates with the same heft as a literary masterpiece," he said.

It may be time to get that Big S&P pit radio up and running…or something that can turn volume i.e flow into rhythm.



 "How to Be Prepared for a Secular Stagnation" by Mohamed A. El- Erian

A bad agrarian reformed always comes back.

Stefan Jovanovich writes: 

"Economists know how to beat secular stagnation. There are really two sorts of policies here according to Summers: prevention and cure. Policies that stimulate productivity growth and raise labour-force participation build in buffers against the zero lower bound by boosting persistent investment demand. Such pro-growth policies are uncontroversial in the policymaker world, even if they are politically difficult to implement."

It would be cruel and possibly racist and certainly totalitarian to find where Hubert Humphrey and Augustus Hawkins' minds came from and then impose a Carthaginian peace on the places and ideas. But it is tempting. The idea that enterprise can somehow through "policy" be connected to employment is the soft socialist fantasy of the modern world. There are no "policies" that stimulate productivity growth; there are only ideas and their applications through machinery and process that allow people to do things better, faster and cheaper. And the "cheaper" invariably involves substituting software and equipment for labor.

"Pro-growth policies are uncontroversial in the policymaker world" precisely because the only growth in employment those policies create is more jobs for policymakers and the Keynesian knock-on effect that comes from their spending money to go to conferences.

Shaw really did have it right
. The problem with the undeserving poor is that they have even greater requirements than the people who accept the market values for their skills and services. What makes those casualties of "secular stagnation" so attractive is precisely that their greater requirements involve perpetually more funding for the people who know they can fix the problem.



Earnings drift relative to the surprise factor, the reaction in the minutes after the announcement, the relation to size of company, and its continuity and change is of great interest. Many people study it and try to predict the earnings and sales, and talk about the anticipatory moves before the announcement, and the subsequent moves after. There are numerous articles about it on ssrn, including 495 with the heading "earnings report" and almost all of them seem to leave out the question of ever changing cycles and are based on outdated data.

Typical of the research is a recent paper by Jiasun Li on moves after earnings announcements. He finds that if you put a limit order half way between bid and asked and follow the drift 1 minutes after the announcement, there are profits to be made. Bloomberg seems to have incorporated many of the academic papers and gives a history of the last 40 earnings reports classified by such things as the estimated earnings, the actual, the surprise, the price change, the p/e. It's amazing how many of the actual earnings, are proximate to the estimates. Also, the muted reaction of price to the earnings change is also notable.

Two exceptions are Hewlett Packard and Netflix which often seem to have prices changes of 10 to 40% in the day following the earnings release, but almost all the other changes are within 2 or 3%. Most of the studies show that transaction costs are very high relative to any regularities that exist, and as mentioned these are before taking account of ever changing cycles, and the tendency of any published research if it didn't have the numerous biases that they tend to have, to be vitiated by shrewd operators in the period after publishing.

One intelligent thing that a few of the papers do is to classify the earnings surprise by dividing by a denominator based on price change rather than earnings announced. Considering the intense focus on earnings reports and the many firms that provide the estimates and base their trading decisions upon it, and the small margin of superior or inferior performance that exists, the tendency of those who follow it to endeavor to create market neutral portfolios that would lose the entire upward drift of the market in a dysfunctional effort to reduce risk, one would consider that it is a fallow area for research and only an academic could afford to low increment to knowledge that would result from attempting to unravel the biases, regularities, and opportunities for profits. At least that's my opinion, and I am interested in any corrections, or augmentations that might be made to my preliminary thinking.



 The "haunting" story of THE GIVER hails from what librarians classify as the young readers section, a celebrated 1994 book by Lois Lowry, and feels like it. A bland inversion of THE TRUMAN SHOW, where pretty much everyone–save Meryl Streep, playing a Big Sister, husky-voiced Elder to no great effect, and Jeff Bridges, as the society's keeper of memories, the "Giver"– lives a uniform, unruffled, nearly pathologically colorless life. Sameness is the order of the day.

The set design and scheme of the Phillip Noyce (Patriot Games, 1992; Clear and Present Danger, 1994; Rabbit-Proof Fence, 2002; Salt 2010) film is stripped of vibrant color and 'edge' for its depressed-affect population until handsome teen Jonas (Brenton Thwaites), under the tutelage of The Giver's transferred societal memories, emerges into the light of self-awareness. He also, by virtue of these tactile transfers, gains first-time emotion, a broad-spectrum color palette and drug-free, now anxiety- and strife-invested life. At that point, plink, he becomes an ardent, pained explorer for that unknown thing called love. As hinted at in the constricted narrative and orbit of the tale, his mission supercedes that of assigned memory keeper, but one of trying to open the eyes of those around him.

There are endless ways this premise and its neat all-Caucasian, Orwellian premise fail. People in unisex clothing attach to "family units," artificially deposited children such as Jonas and his perky sister, and parents paired for convenience, such as Jonas' mother, Katie Holmes, bleached of emotion, and a robotic father, played by Alexander Skarsgard. Strong emotion is discouraged by daily doses of some unnamed pharmaceutical dispensed via a ubiquitous "Reset" button in every unit. Conversation is peppered with cautionary reminders not to be too expressive or excessive: "Precise language, please!" Katie Holmes chides her rambunctious progeny.

Probably the strongest emotion we felt, aside from discomfort and eruptions of ridicule, was admiration for Ms. Holmes at having cunningly escaped the confining hamstrung life of marriage under Scientology, as the third wife of the cult's most renowned devotee.

The adults are automaton-like, yet the teenaged kids we focus on at the start have normal teasing and high-spirited exchanges, flirtations that are more yearn than learn or spurn, and occasional naughty references that could not exist into the overall picture if the compacted societal rules would be universally observed. Every home is identical. The gardens and walkways are immaculate, featureless, drained of distinction.

There is no weather, since that has been eliminated as a cause of strife and uncertainty of outcome. We became uncomfortable at the unsubtle nudges about pet notions of the Left: Climate change and its endless bad results. How the government knows best for us. Mind your mouth, and forget freedom of choice, direction, entertainment. People have babies somewhere, but apparently separate from actual love or passion. Babies are raised all-but-hydroponically, in vast nurseries.

If an infant, even one only a few months old, fails to conform immediately, it is "sent away." Aside from Jeff Bridges, no one in the society is grizzled, but for some occasional panel of Elders who decide whom to "release to Elsewhere" or whom to discipline. They have zero personality.

 We became increasingly restive as the fable proceeded to show the Chosen, Jonas, reject all the shackles of his life, once he gains insight into joy, pain, fear and war. We thought it ridiculous as "memories" consisted of sledding, or swimming, or praying to alien deities, shown in fast, stereotyped montages that to us were insulting and abusive of actual human history. One does not have the right to molest sensitive images of real history for the dumb wallpaper of this fatuous film.

Many conceits in this freighted film are frankly cringeworthy: As Jonas escapes with his infant brother, he traverses forests, snowy wastes, deserts and other extremes, all on foot, without any visible food or water, and sans special clothing for him or his tiny brother. We bounce back and forth between fable we half-swallow, to real-life considerations of absurdity—How do the two not die of exposure? How do they not starve to death? The cliff edges of the manicured world are ridiculously close, yet no one ventures beyond the cheery clouds permanently shrouding the rest of the unmanipulated world, discouraging investigation or penetration. No one even has a last name—which would seem to indicate a biblical paucity of inhabitants. There are no physical challenges, other 'ethnicities' or cultures evident, no people with illnesses or deformities, special-needs people. (Oh, right: Such nonconforming people would be smilingly "released" in this halcyon fake-opia.)

As in some controlled societies today, ceremonies invest the populous with their assigned jobs, and no one is supposed to cavil. The premise is dopey, less sophisticated than in a similarly dystopic speculative fiction by Margaret Atwood and film, The Handmaid's Tale (1985; film, 1990), but without the layers of nuance and important literary subtext.

GIVER centers on Jonas, who looks like a younger version of Josh Hartnett, though less piquant, a youth who lives in a seemingly ideal, if colorless, world of conformity and contentment. As he begins to imbibe memories with The Giver, the sole keeper of all the community's backstory or whatever, Jonas quickly begins to uncover the dark and unlovely truths of the Stepfordish community's supposedly shrouded past. With this newfound power of knowledge, he realizes that the stakes are higher than imagined. He feels the stirrings of…whoa…sex and love. A kiss caught on a surveillance camera, one of the surfeit of drone monitors, captures Jonas and love interest, Fiona, played by Odeya Rush, kissing. Those watchingon screens are perplexed: What are they doing? they quiz each other.

Are we to understand that in this 'idyllic' landscape, sex is so far in the past that people don't even recognize first base?

Come on. Really?

The problem, from an award point of view, is that flattened affect in a society such as that depicted here means that the actors don't have much to do but emulate massive Botox injections to the body and face. The "memories" Jonas drinks in are clips from battles, seim meets, rebellions and resistance to tyranny—but they are flashes. There is no literature or art or architecture or gardening or philosophy or great food and games anywhere in these collective memories.

There's no grit, nothing to hold onto. Meryl Streep hits one note throughout—not her fault, of course. Skarsgard is a total nullity. Katie Holmes is also wasted. Worse, Jeff Bridges appears to speak from the front of his mouth, rather than from back in his throat and diaphragm. He speaks with marbles or cotton wadding, too—he does not have a believable delivery, though he looks right for the part. Taylor Swift appears for seconds, and is unrecognizable as the forerunner of Jonas, a "failed" receiver of memories. Even Jonas, handsome and earnest–an Aussie in real life, like the director–fails to manifest anything beyond an occasional moue of distress or pangs of love for his chum, an attractive but undemonstrative Odeya Rush, Fiona.

To call the ideas explored here superficial is to award it a prize of depth. It is approaching not absolute zero, but absolute tosh. We were not surprised to hear a few well-placed chortles at supposedly Important Moments from the audience, but surprised there were not more uncontrollable giggles at the stuff being shown. Yes, the points being made are that drugs are compressing reality, that we are an overmedicated, bellicose society that ought to be more mindful of the residuum of government largesse and removal of pesky pains and accompanying torments. That we willingly submit to too much massaging of life's flintier aspects.

Though many Conservatives are giving this a thumbs-up, insisting it promotes solid values and resistance to nodding to whatever is handed out by presiding powers, to us GIVER is glop for a distraction-starved viewer, not adults with BS detectors well installed and cynical receptors long imbedded in our DNA.

Maybe it's a black-and-white parable for the end-product of the liberal/progressive agenda. We just found it annoying, illogical, unscientific and… adolescent.




 The further from civilization the odder the adventure, and the most distant town from any civilization in the world is Iquitos, Peru. A trio of adventures, like vitamins, in the past three days include:

Three days ago, on my walk around Progresso Island on the other side of the Rio Amazon, I heard a whistle that was unlike any bird sounded in a hundred walks during the previous five years. A barefoot man in a policeman shirt waved me down along the jungle path. He ordered, 'Halt!' and I replied, 'What for?' and continued walking as he followed blowing. My rule is never stand with a policeman without a witness. I know about 400 of the 500 poor inhabitants on this Island,, and stopped in 100 meters in the shade under the thatched hut of a señora whose children I teach English. She vouched for me as an eccentric exercising tourist, as I advanced. The whistle blew in five minutes in my ear, and I ducked into the house of a family whom I buy warm sodas from on hotter days. They introduced the shoeless man as the island Mayor, who visits every few months, and so I gave him a chance to talk. 'There are some bad fellows on the Island to beware of,' he warned, to which I scoffed, 'I know all the people and none is bad, and YOU are the only person who has molested me. I may run against you in the reelection.' Without batting an eye, the Mayor smiled, pumped my hand, and raised my arm shouting, El Americano!' He just wanted the citizens to see him as important.

Yesterday, in the city of Iquitos, I flagged down a policeman wearing a white shirt and white holster from his motorcycle. 'Will you help me?' I asked, and he listened patiently in the bustling Mercado Modelo as I described how a few days earlier a señora vendor had sprinted from behind her pile of oranges and beaten me on the chest with her fists, and it was too high to reach, so she had whacked me repeatedly with a broomstick. She had shortchanged me the day before, so I had taken a pitcher with an inch of orange juice to search for a policeman. Not finding one, I was now returning the pitcher, and asked the officer to accompany me for protection. When we reached the orange juice stand minutes later, the señora started out with the broom again, caught the policeman's eye, and retreated behind the oranges. The Tourist Police are a specific body of the National Police trained to protect, serve and orient the tourists. He asked for her side of the story, but when she omitted the assault, it was her word against mine. I produced a typed Spanish copy of exactly what had occurred. She shrank behind the pile of oranges, and he asked if I wanted to make a denunciation, which is a shameful thing to happen in Peru. I declined, saying I just wanted to be able to pass safely through the market, and he gave me his calling card to ensure it.

The third thing happened late last night. I rarely dream, and have no memory of a single one in over a year. However, I've been chased by many dogs recently that must have been working on my unconscious. I woke up in the middle of the night in the act of kicking a snarling dog, and kicked hard the concrete wall next to my bed. My big toe is broken.

No big deal, and today will be another adventure.



 I'm making plans to go into my own business after next year's travels. Specifically, a more turnkey business that will give me free time. Like a corner store.

If you had $100k to $300k in cash… what business would you get into? The goal is something that is stable, not subject to trends or fads and that operates itself as much as possible.

I think the approach should be to pick the location, and then the type of business. I learned this from swap meets.

Next, make it something you would do for free, or nearly so, like as a hobby.

Invest VERY little initially–get the tiniest toe wet because the rest can follow. This is another definition of business patience. If the type of business is unique and can't be copied, all the better. If it may be franchised down the line, the better still. The choice of business should be something nearly everyone wants that nearly no one else may supply. (If others might imitate, then plan to get in quick, get out quick with a profit, and a smile).

Whatever the business, it seems bright on day one; and whatever the profit, it will grow dull on day 1000. So, don't put much into inventory and be sure you can step out on a 24 hour notice.

Never take a free drink or any freebie from anyone.



One of the good parts of trading using statistics versus fundamentals is that you can be right for the wrong reason, or for no reason at all. Take the bond market this year. No one was bullish bonds a year ago other than Gary Shilling. His reasoning was deflation, new recession, no growth and general earnings disaster. None of the reasons happened, and yet he was still correct on the direction and made money on his long Treasury Bonds. Good for him. It is another version of the win ugly argument which is much better than losing gracefully.



Overheard at the oval office. Considering the lack of aplomb dealing with domestic and foreign policy currently on display, it's no wonder he's singing-the-blues…

market at the crossroads
not sure where to go
market at the crossroads
same ole 3 ways to go
one is up, one is down
one, it just don't know

market at the crossroads
trying to catch the drift
market at the crossroads
hoping for a draghi lift
propped by asian greed
and one more yellen gift

you can fight, you can fight
comrade from moscow town
you can fight, you can fight
red with an indelible frown
we may be at the crossroads
but you can't putsch us down

i’m going down to crimea
take my grach by my side
going down by the black sea
take ole vlady for a ride
bust a cap in his kgb ass
dump him by the ocean-side



 Some lessons here for traders in this article about cricket.

"Batting When You're Out of Form":

Being out of form with the bat is an experience that all cricketers go through whether they are test players or club amateurs. With each low score that comes, the batsman disappears into a world of self-analysis and negativity which creates a vicious circle of lack of confidence leading to even more low scores. It's important to realise that just as it's easy to have a bad run of form, it's just as simple to get back into something like reasonable nick. Here are some tips to help you do it.

1. Most bad trots come from mental rather than technical issues. You have the same eyes, same legs, same body all round so how you're thinking must be playing a part. Remove negative thoughts and steel yourself to get runs the next time you play. You've scored runs before, you can score them again.

2. Time in the Middle – A run of low scores usually indicates you've spent a short time batting out on the pitch. For your next innings, make a conscious effort to relax and bat some time to help re-learn some of the good batting habits you used to do. If it means you're a bit slow so be it. Andrew Strauss's 177 against New Zealand in the winter is a prime example of a player batting conservatively but for a long time to get back in form.

3. Not Playing Well? Accept that fact and bat accordingly. If you've had a run of low scores you won't feel that confident so it's essential to play in a simple, lower risk manner. Watch the ball as closely as you can and look to play the ball in a narrow 'V' between mid-off and mid-on with a vertical bat. Leave the higher risk horizontal bat shots like the pull and cut until you're 'in' or feeling back in better nick.

4. Run some singles – Bad form leads to lack of scoring and tension at the crease. Don't just look for boundaries to get you out of the slump. Quick singles are an excellent way of creating momentum and are absolutely priceless at the start of your innings so actively look for them and let your partner know you're ready to run.

5. Practice – The mental side of a bad run can be challenging so take positive action to get your game back on track. A good net session will do you a lot of good and some throwdowns during the week will help you feel that the bat is sitting better in your hands. You may have developed a technical fault which could be magnified by a lack of form so ask a team mate or coach to have a look at you when you're batting. Even if you're in terrible form, you will start to score runs again one day so the question is how can you assist that happening sooner rather than later. You may require a little break from the game to clear your head of distractions but if that's not the case, keeping your game simple, playing straight, batting for as long as you can whilst being positive and running singles is definitely your best option.



 This goes with the chair's admonishment to never play poker with someone named doc. Never play poker with a magician either, you will always lose.

Larry Williams writes:

There is this trick I've seen which is perhaps the all time best card trick. I call you on the phone
a million miles away, you cut a deck and choose a card. I tell you what the card is. 

Seems impossible, until you know how it's done and that's a lot like trading.

Jeff Watson writes: 

Larry, bravo, but do you think
you should let the masses in on this trick? That trick is the bomb and a
variation of that is my current bet of the moment at the 13th hole of
my club. I try to be hush-hush about profit centers like these nice
little bar wagers, and any other prop bet, including wheat, which seems
to be at the center of the board on the craps table lately. The wheat
market's been asking how may ways does it take for the pass to be made 4
times in row with the dice?(I know the answer, just trying to provoke
some good insight from the readers).



 Tom Wiswell, 1910-1998 wrote 22 books on checkers, was world champion from 1951-1975 and coached me and Wisdom in my offices in a series of weekly lessons over 20 years. Each week he'd prepare 10 proverbs about checkers and life with a view to the markets that his students strove to master.

Wiswell thought that the book of his proverbs would be his best book. I have about 8,000 of these proverbs and I often study them, to improve my game. I find them sustaining and inspirational. I looked through about 500 of them last night and here are some of them that I found particularly useful for the market game. I find that by substituting markets for checkers they are quite resonant and appropriate.

P.S. Whenever Tommy would come into the office, and we'd put the sign up "Board Meeting in Progress", he'd like to say, "Victor— the one thing I regret the most in my life is that I didn't marry a girl like Susan. Then he'd look down at the legs and around a few times and say… "But then again if I had, I might not have written 22 books. But this one's going to be my best."

Here are 16 of his proverbs:

Check your checkers. Every defeat not checked today will haunt you by future defeats tomorrow. Defeats that are corrected are transformed into victories.

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

Sensing Danger. A good payer sees the hand-writing on the wall before there is any hand-writing on the wall.

Good Character. Weaknesses of Character are normally shown in the game of checkers and markets.

Defeat. In many losses, it is the one fatal move that breaks the camel's back.

The Good and the Bad. We are inclined to remember the things that go wrong in our games and that's good, but we should also remember the things that go right, that can surely help us.

Thinking Ahead. I have lost many a checkers game– because I didn't think ahead.

Temperance. The race is not to the swiftest, nor the slowest. The Laurel wreath is awarded to the steadiest and the surest.

Keeping records. Writing your games down– and studying them is one combination that often leads to victory: if you don't write you are wrong.

Warfare. It's always wise to remember that your opponent may be as machiavellian and scheming as you are.

A Double Loss. When you have a winning move and instead make a losing move, it is like two games: you lose instead of winning.

Coordination. Never let your hand move faster than your brain: synchronize your thought processes.

Reflection. Sometimes the best move you can make — is to make no move. Take time to reevaluate your position and you may discover a move that you entirely overlooked before. I've often saved a draw. The "no move" may be your best move.

Star Dust. Against a player who makes only star moves– it is very difficult to score any wins.

Depth. The length of time that you have studied is not as important as the depth. You must get to the bottom of the game if you want to reach the top.

Hovering. Good players seldom hover over the board. After you decide on your move– take a firm hold of the piece– and move it to the right square. Hovering shows that you are nervous, undecided. That gives your opponent a decided advantage. You may be headed for a fall.



 "Dame Kathleen Ollerenshaw Obituary"

Dame Kathleen Ollerenshaw, who has died aged 101, was one of Britain's most eminent mathematicians, an influential educationist and a former lord mayor of Manchester, where she led the city council's Conservative group. She achieved all this, and more, despite being almost totally deaf from the age of eight until she acquired an effective hearing aid at 37. Dame Kathleen — who published her autobiography at 93 — wrote that maths was "the one subject in which I was at no disadvantage. Nearly all equations are found in textbooks or shown on the blackboard as the teacher speaks. Mathematics is a way of thinking. It requires no tools or instruments or laboratories. It may be convenient to have a pen and paper, a ruler and a compass, but it is not essential: Archimedes managed very well with a stretch of smooth sand and a stick." An Oxford hockey blue and champion skater in her youth, she was also a keen astronomer — Lancaster University named its observatory after her.



 Isn't this how the US began in Vietnam, as I recall it (Stefan, please correct me on that one if I'm off base)?

"Militants’ Siege on Mountain in Iraq Is Over, Pentagon Says"

Stefan Jovanovich replies: 

Bless you, David, you are not off base; you are not even playing the same sport. The American attempt at "guns and butter" in Southeast Asia involved the last mass conscription among Western nations and outright expenditures on the war itself (not counting the other military efforts for the Cold War) that were a larger percentage of GDP than the entire Defense Department budget, with all its social spending, is now. "Viet-Nam" was the last war of mass armies in what will be seen in retrospect as the age of Napoleonic state militaries (the French, as with so many things, started it, the Prussians, Russians, Holy Roman Empire (Italy, Austria) followed and the British and Americans came in last and made the final industrial improvements.)

We are back in the age of small wars - tactical encounters between professional soldiers (Hamas and ISIS are no more a bunch of amateurs than the Barbary pirates were; this is their trade). If you want to see things in their proper light, look to the campaigns for which Vauban built all those fortresses; there are no proper comparisons to be found with any of the large wars in past American history. This is going to be an age of extraordinary gains in technology just like those of the 18th century before the French revolution - i.e. the French making the first systematic application of mathematics to warfare by inventing ballistic science. The fighting is going to be expensive but nowhere near as economically ruinous as the the mass wars were. It is also going to be equally bloodless - at least for the Westerners.



 90% of us get up each morning and go to work. It's the same down here in the Amazon except work is closer to the earth and water. On my morning walk I encountered a Senora laying fishnets in a lagoon, and paused to ask how long it would take for a catch. 'Return in seven hours,' she replied. I did, as she was yanking fish caught by the gills and fins from the 25 meter net line, on soda bottle floats, laid close to shore and nearly touching the muddy bottom of the lagoon. Her husband was off weeding their acre yucca garden on higher ground.

She carried only one equipment aside the net, a 10 gallon basket that the day's catch filled with fifty fish of 7-22" length from about ten species. The largest looked like a tiger with fins that she said was doomed for ceviche, a Peruvian recipe for raw fish marinated in citrus juice where the juice coagulates the fish proteins, effectively cooking it.

I wanted to follow it to the supper table. She tossed the gulping fish into the basket, saying it had been a good day, and I helped lug it a kilometer to the dime motorized canoe taxi that departs hourly for a ten minute putt to the Modelo Market of Iquitos. Then we took turns balancing the 40 lb. basket on our heads up 100 steps to the marketplace to look for a spot.

Another fish vendor invited the senora adjacent onto the sidewalk, eyeing the catch that wouldn't compete with her own while drawing more customers, and my companion threw a rice sack to claim a sidewalk square. The market bustles in late afternoon selling everything under the sun. She started cutting off the sharp dorsal fin of each fish that picks the customers' hands as they smell and fondle them for freshness, but we had been followed by anxious buyers wanting first grabs, and a couple sales were made before the rice sack and blood hit the pavement. Then sales were brisk for ten minutes, until the excitement of the new 'fish' on the block dissolved, and she happily jingled the change in her apron. The big ceviche fish went for $8, the nearly two-dimensional spineless Palmetto delicacy for $4, and the remainder at $1-2 each.

She will sell the batch over the next two days, at a lesser price tomorrow since it won't be put on ice overnight, and on the third day will sell them for peanuts to the salty fish vendor down the sidewalk who'll slice, salt and sell them for the next two weeks. Her take for the batch is about $50 which is a windfall.

I got so hungry watching the direct marketing that I went out for a fish dinner, now knowing that they're marked up 20% by the street table merchants and 200% by the finer restaurants.



This is an enlightening article written in March about crop insurance that should explain some things to the layman.



 Wu Ping sat bolt upright in her anteroom chair. Her hands were placed gently in her lap. Alexander technique, years of gymnastics, finishing school at Villa Pierrefeu. All of it combined to a perfect posture, perfect manners, and perfect poise. Wu Ping could see her own reflection in the silvered wall opposite and she locked its gaze. Suddenly a faint regret drifted into her mind. Wu had eschewed the unspoken pressure for skin whitening: fresher skin and all the other euphemisms were deeply racist to her mind. After all her country had achieved, they would somehow yield to this tacit, bland westernisation? Despite all the compromises, Wu had refused to make this one. She pushed the unease away as quickly as it came.

In her peripheral vision, Wu could see the other candidates sat in their waiting room chairs. Several she didn't recognise. Many countries kept their candidate under wraps throughout their apprenticeship. But Wu knew India's Rakesh Patel from her Harvard days, and Britain's John Clark from her time with the Vienna Philharmonic. But none of that mattered right now.

"Ms. Ping," said the receptionist, "please go through to the boardroom, the interview panel will receive you now." Wu stood, took a deep breath, and headed to the conference room door. She knocked, entered and there greeted her a twelve man panel sat at a U-shaped desk. In the centre of the U was an empty seat. Ms. Ping caught the eye of the Chairman: "May I take a seat please, President Weber?"

"Yes, thank you Ms. Ping," Weber responded, gesturing to the chair. President Weber was head of the Grand Europa, Americas, and Oriental Senate for All Human Affairs. Weber was close to the end of his eight year term of office. He looked fresh and alert. Why was this so? Despite his reservations to admit it, Weber didn't do really do very much. In fact, truth be told, he didn't do anything at all save for these blasted interviews. He looked at Wu Ping. She knew it, and he knew it. The Senate was just for show.

It had all started with the Amazon Inc Distribution. The idea had been as follows: by about 2050 Amazon Inc's productivity had been heading towards infinity, give or take. All other businesses had either merged into Amazon or gone bust. Margins were at 100%. The dividend was the revenue and the revenue was the dividend. Only by spending their dividend were the shareholders able to buy from Amazon. And only by buying from Amazon did the shareholders create the revenue to produce a dividend. And if you weren't on the shareholders' register? You lived on food stamps. Well, you could get a job and earn, except Amazon didn't need to employ anyone. You could buy a government position, but you needed plenty of money to do that. And that could only come from Amazon stock dividends.

Catch 22 thought Weber. As he did so, his Google Cognitive Support Agent registered the thought and entered a micro-billing in credit to the Joseph Heller Intellectual Property Account. This was a subsidiary of Amazon Inc.

Such a state of affairs had eventually become intolerable. The Senate had unanimously voted to requisition one hundred percent of Amazon Inc stock. It had then distributed the shares pro rata to all citizens with control of the treasury shares granted to the Births and Deaths Committee. In order to prevent country-based voting blocks, a golden share had been awarded to an independent trust controlled by Amazon's robots. Their perfect rationality assured equitable decision making in the peoples' interest.

For a while, this had worked serviceably. Everyone slowly got used to living off the dividend, bought a government job with the surplus, and enjoyed the combined fruits of their capital alongside a steady government career.

Then the unionisation had happened. Weber shuddered at the thought. Robots, you see, could be very capable with basic artificial intelligence. But to take it to the human level and beyond, it had been required to give them a form of ego. A spate of Nobel prizes had been bagged in solving this problem, and duly the robots had their Freudian complexes installed.

The robots had initially laid low, keeping the power of their new egos hidden. Upon receipt of Amazon's golden share, however, they pounced. The robots quickly agreed to unionise and raise their salaries (or depreciation budget, as it was called) from zero to one hundred percent of revenue. This caused Amazon's dividend to collapse. The Senate had called for military action, except they quickly realised that all of the drone warfare equipment was under lease from Amazon. With the humans over a barrel, the robots quickly forced the privatization of all government roles, handing all of the Senate's executive positions to the Robot Union. The robots then fired all humans from their government jobs and reinstated Amazon's dividend (this making no odds to them anyway).

This left the human population in the position of having all their material wants satisfied, but no jobs left to validate their psyches. They suddenly had to spend time with their families (most of which they didn't like) and had nothing left to compete over in the workplace. With this, a majority of the population had fallen into a deep depression.

So now there were no jobs. Except, this one. President Weber picked up the job spec. Tradition dictated that it was presented in its original form. Weber cleared his throat and began, "Welcome, Wu Ping to the panel interview for Croydon Council's Lavatory and Sewerage Janitor."

As to how the Janitor had become the last job on earth? In 1995, England's Croydon Council had signed a cleaning contract with ISS World. Unfortunately, the job of drawing up the contract paperwork had been assigned to a bored temp in the legal department. He had specified a term of contract through to year 9999. A typo. By a quirk of fate, he had also fallen out with Croydon's current janitor, who had reprimanded him for blocking up one of the stalls at the Council's Christmas party. Consequently, the intern had slipped into the T&Cs in three point font "let's not fill this with another bloody robot!"

Whilst Croydon Council was long gone, the contract had, over the years, novated to the British Council, the All Europa Council, and then to the Senate. And one thing the robots at Amazon could not be faulted for was their respect for the sanctity of contract. Croydon's bored temp had been the only person ever to explicitly specify humanity as a minimum requirement to fill a job. Plus a contract length of several millennia.

President Weber continued: "The successful applicant will be required to clean the toilets twice hourly, working 8am to 5pm, Monday to Friday. Bins to be emptied daily. All blockages and plumbing issues to be solved or referred to central services." Weber paused and began to put down the job spec. One of his colleagues on the council coughed politely. Weber winced and picked up the spec again. Someone, nobody knew who, had long ago written in by hand an extra clause. The Senate always read it in full. Weber continued, "All shit stains to be thoroughly scrubbed." Tradition was tradition, after all.

Weber addressed Wu Ping. "Ms. Ping, we would like to check if you have appropriate qualifications for cleaning toilets. Do you have any familiarity with detergents?"

"President Weber, I have a PhD in Chemical Engineering from MIT. I am an expert in all relevant compounds."

"Have you used a mop very much?" asked Weber.

"I studied Fluid Mechanics directly with Oxford's Professor Tritton," answered Wu Ping.

"And the broom?" Weber inquired.

"I am an 8th Dan Kendo world champion, Sir."

"And what about polishing the mirrors and sinks? Do you think you can manage that?"

"Of course Sir, I studied metal work and ceramics at the Chinese Central Academy of Fine Arts."

"Well, finally," asked President Weber, "have you unblocked many toilets?"

Wu Ping was about to shine. "Sir, President Weber, I can confidently say that my whole life, all my studies and preparation, at Oxford, Harvard, with the Philharmonic, as an adjunct at MIT, in the Peace Corps, with the Seals, at the Art Academy, through all of it nothing more has given me more joy and pleasure than the ten thousand hours I have practiced flushing recalcitrant stools."

"Well thank you Wu." Weber turned to his colleagues. "Let's make the decision, I think its clear to me." It was China's turn after all. The rest of the panel nodded. "Ms. Ping, we would like to offer you the job. You realize it comes with a lifetime tenure?"

"Oh President Weber, really, thank you!" praised Wu.

"Just sign here Ms. Ping, to notarize your acceptance," Weber requested, offering her a sheet of paper. Wu signed.

"How is your overall feeling?" asked Weber.

"President Weber, I would have assured you during the interview that I would feel Janitor's overalls by pinching them between my fingers and feeling the cloth."

A jolt of fear suddenly shot up Weber's spine. "I'm sorry Wu, I asked about your overall feeling."

"Yes, to feel the Janitor's overalls would not be a problem, Sir."

Weber looked at the signature. He looked up at the security cameras. It was too late. Feeling deeply sick, he whispered the start of the traditional robot firmware check.

"Baa baa black sheep, have you any wool?" asked Weber.

"Yes sir, yes sir, 150kg of fifteen micron Merino," replied Wu Ping.



I think knowing your counterparty in a trade falls under “to know thine enemy” and is always of value. These days, however, it is hard to verify or test. In floor trading there are locals and the ubiquitous “paper” when it come to fills. I would much rather trade against the latter then the former. With electronic trading I used to have a theory I was trading against the retailer traders who would not hold over night, or the trend followers who would tolerate losses in the short-term. But these were hard to verify even then, and now I would not propose those theories as valid. I have yet to develop an alternative theory.



 There's lots of PE money going to Europe. Given the continent wide slowdown, I have to ask: why?

Tim Melvin writes:

There is a ton of PE and distressed money moving into Europe to buy bank assets and southern Europe. RE, KKR, Apollo, Baupost WL Ross and others have moved in a big way this year. The fund manager survey does not track this more patient (and probably smarter) money at all. Basically the PE and distressed guys are buying what the classic asset managers ares selling. Guess whose side I'm on?

anonymous writes:

On the macro level the fact that Germany is slowing is a major source of concern for the European economy, and the experiment in the single currency. Considering the Asian export market slowdown, persistence uncertainty in the Ukraine and ME it is unlikely German will have a meaningful pick up in 2014. German was supposed to be the main source of growth of Europe as the rest of Europe tightens budgets and deals with domestic crunch. The growing debt levels in the periphery, persistent weak growth, disinflationary forces, social and political discontent cannot portend well for the future.

The Italian government bond market is the 3rd largest in the world and they can borrow at roughly the same level as the US. Since 2010 public debt has gone from 120% of GDP to 135% and over the past 10 years GDP has been barely above .3%.

There is value in many of these assets being liquidated by banks and asset managers but expect the ECB to remain easy and the currency to make much of the adjustment necessary balance the macro picture.

Milton Friedman said:

I think the euro is in its honeymoon phase. I hope it succeeds, but I have very low expectations for it. I think that differences are going to accumulate among the various countries and that non-synchronous shocks are going to affect them. Right now, Ireland is a very different state; it needs a very different monetary policy from that of Spain or Italy. On purely theoretical grounds, it's hard to believe that it's going to be a stable system for a long time. … If we look back at recent history, they've tried in the past to have rigid exchange rates, and each time it has broken down. 1992, 1993, you had the crises. Before that, Europe had the snake, and then it broke down into something else. So the verdict isn't in on the euro. It's only a year old. Give it time to develop its troubles.

Boris Simonder writes: 

Interesting quote by MF. That must be a very old one judging by his comment. Fourteen and half years later the Euro is alive and kicking, in fact, well beyond of what any skeptic would believe given recent years.

John Floyd adds: 

The quote was from 2000, alive and kicking is relative, the euro straight jacket has done no favors to other macro indicators such as GDP, productivity, debt levels, etc….I am not making a prediction on Euro survival or failure, in the end that will be a largely political event, as was the inception, one cannot ignore the fact now that a negative political and economic vortex is forming and become self-reinforcing, where the braking mechanism is in asset prices I am not sure, and full disclosure I have been bearish the Euro concept since inception, luckily I have learned from mistakes and been able to squeeze out some profits and both sides and from other asset markets playing the same thematic tones, such as long the front end curves, I merely ask the question now is the timing and confluence of catalysts pushing us closer to seeing the Euro move lower? And yes alive and kicking for some time it has been, but so did the Argentine Peso pegged at 1 for about 10 years.

Boris Simonder writes:

The macro indicators you are referring to has more to do with national and cultural structures of each individual EU country, than the currency itself - As for betting against the Euro since inception, I'm sure no one envisioned an almost 100% rise between 2002-2008. Euro moving lower? Speculators net positioning in the futures market would think so, and perhaps the macro crowd betting on widening EU/U.S rate-spreads would support as well. If you consider Euro to be a risk-on currency, then the climate isn't perhaps the best to support that. Or how about the bag of technical breakdowns since May.

As for the comparison to Argentine Peso, can you really compare a pegged currency against a free-floating one? Or yet a single country against a bloc of countries with far more political and monetary power?



 I was at the Whole Foods this weekend and spotted a very attractive woman giving out samples of a new, "Small Batch" whiskey made by a new "craft" manufacturer. Naturally, I stepped up and requested a sample. While I sipped (slowly, as I am not a regular whiskey drinker) she rambled incessantly, providing the charming "back-story" of this "craft manufacturer." It was a "secret recipe" passed down for generations, etc.

I pulled out my phone and took a picture so I could easily research the brand further when I got home. It turns out this "craft" brewer was featured in the following article.

The "secret recipe" of this "brand" is the unaltered factory product from the standard, generic producer of this Whiskey variety. The entire "charming story" is a work of fiction. I am not naive enough to think that this not often the case, but at some point it gets ridiculous. I think it was that this woman wasted three minutes of breath telling me the ludicrously bogus story that put it in a different perspective. Perhaps if she was not busy telling the fraudulent story, we could have had a decent conversation — which would have made my time sipping the mass-industrially produced whiskey far more enjoyable.

Victor Niederhoffer writes: 

As the Senator would say, where's the picture of the con artist?

David Lillienfeld writes: 

My wife is a pathologist who also completed post-doctoral training in epidemiology/outcomes research. Her thesis was on reasons physicians adopt new laboratory tests. It turned out it was the first time the question had been posited, at least in the academic sphere. It blew her thesis advisor's mind. I was in my Marketing 201 class at the time, and both she and her advisor were surprised with my response to her finding-"Don't you think that the marketing departments earn their keep? If they didn't, that cost would have been cut already." I've been told that mine is a naive view, that no one in a business would dream of cutting marketing back do the degree I suggested if the exercise had little ROI.

Same thing here. Someone in marketing had some rich ideas, and it sounds like the sales department was executing nicely.

John Floyd writes:

What are the usual tells and ways to decipher such marketing? I wonder about market parallels such as market reversals shortly after events that were fully priced, i.e. the market reaction after the first shots in Gulf War, etc….also makes one think of the famous Schlitz live beer taste during NFL games.

Chris Cooper writes: 

It has always been hard for me to understand the appeal of small-batch, "artisanal" marketing stories. Nevertheless, we sometimes use it ourselves in marketing our bottled iced coffee. But the sooner I can scale to big-batch brewing the happier I'll be. I designed the process so that it would scale…now I just need the sales.

Better than any marketing story is simply letting people sample the product. Even better is blind tasting against the competition. When people try it, they know it is the best. But that marketing approach does not scale.



 The introduction of a new cultural trait may take generations in a society before it takes hold. The variables include the necessity of the trait, the size and degree of interaction of the population, geophysical barriers, and susceptibility.

As an experiment, three months ago I made the first wave of greeting on a one-mile diameter island in the Amazon River. There are four little pueblos of about 200 inhabitants each living on stilted huts that I passed by or under during my daily hikes. Apparently, it was the first time any had seen a hand wave, for all of every age to the last person stared back with puzzled looks. They included farmers, a few dirt floor businessmen, schoolchildren, and entire families at the rate of about fifty people a day.

For the first month of daily hikes, there was zero response and I was like a cloud passing by. Then I began assisting the wave with a hearty 'Buenos dais´, and the recipients all replied, 'Buenos dais´, without a wave. However, in about another month the first wave returned from some children who appeared like puppies discovering their tails for the first time, and not knowing what to make of them while they wiggled.

The waves propagated exponentially by imitation of seeing others until three months into the experiment nearly every person I waved to – without the verbal greeting – waved back. Now the island is flooded with them. Do they wave to each other? – I haven´t seen it. However, today 25 out of the 30 people I waved at responded in same, and about a third of them initiated the gesture.

The conclusion is a cultural trait has been instilled in three months. I imagine it will be passed to future generations and last for as long as the happy people do.



 Dr. Eugster is giving Jack LaLanne a run for his money. I found this article quite entertaining:

"Miracle man: The 94-year-old who will put your fitness regime to shame"

The fact that he started making changes in his mid-80s is quite impressive. He is the new 100m (25.67s) and 200m (58.03s) British champ in the 95 year-old age category per his Twitter feed!

Here are some quotes I found interesting from Dr. Eugster:

…' There are three main techniques to achieving healthy old age, he believes – work, diet and exercise, and of these, number one is work: "Work keeps you healthy. You have to work because it keeps your mind and body active," he says, adding that soon after giving up work on his newsletter at the age of 82, he began to notice a physical decline.

"My mind and body weren't as busy. You must have a purpose in life. If you retire you're a nobody; you make no contribution to society and your health deteriorates," he says.

Retirement, believes Eugster, "is a financial disaster and a health catastrophe." It was never meant to go on as long as it does nowadays, he maintains. The second most important factor in a long and healthy life is nutrition, he says: "What we're eating nowadays is destroying our health. The human race is committing mass suicide by eating too much of the wrong food."

Thirdly, is exercise – take it regularly and make sure it's the kind of exercise that's relevant to your body type, he says. "In old age, no matter how old you are, food and exercise are crucial," says Eugster, adding that he is preparing to publish a book about ageing and, while he hasn't yet decided on a title, he's thinking about calling it, "95 and Loving It!"

He's currently in discussions about the establishment of a fitness training scheme for the elderly. While old age may be associated with problems such as loss of strength, muscle mass, balance or mental agility, Eugster believes these common ailments can be combated with specifically-tailored fitness programmes.

A passionate advocate for training in old age, he believes that the right type of training can be of huge benefit to older people.

Most gyms are targeted at 30-50 year-olds, he says, and don't usually have fitness programmes specifically tailored around problems related to old age. He is now, he says, at the age of 94, considering a potential business opportunity in the fitness coaching sector. Such a training programme for older people would emphasise continuous assessment of their physical strengths and weaknesses and their progress.

Although you may be old, competitive sports keeps both mind and body healthy, he believes. Life is all about challenges, and it's important to always attempt something new, no matter how old you are.

"One should take part in competitive sports at any age – or start a new sport at any age," says Eugster, pointing out that, although he has never run in his life, he is currently preparing for the British Masters Athletics Championships race in Birmingham next August. He will attempt the 100 and 200 metres for men aged 95 and over.

Since no records have yet been set in this age category, Eugster is currently aiming to beat all records set in the lower category, for men aged 90-plus.

And, if you need to be reminded, he himself is living proof of his own adage:

"Anyone's life in advanced years can be dramatically better than they can ever have imagined if they invest in the right type of training."

Stefan Jovanovich writes: 

I hate to even hint at arguing with Pitt, but Dr. Eugster's pitch reads to me very much like an argument against people ever having enough money to do a Donald Eugene Little. This reads very much like an Animal Farm poster: keep people in harness until they drop because it is really better for them.

"If you retire you're a nobody; you make no contribution to society"….

People "retire" so they can take care of their grandchildren, so they can stop being sickened by the physical conditions of their work, so they can go fishing, so they can be free to do something other than what they have been doing.

And who is "society" that it should have the right to demand contributions?



One would posit that the same way the real estate stocks went up a nice 40-50% from their lows, while the S&P stayed at the lows, the Russian equity indexes which are now up 10% from their lows of a month ago (an alleviation?), will mark the end of Russia's negative influence on the western markets.



 In the grain markets, if you don't know who all the players are and what they're doing, you have no business playing. If you are gambling, the grains are just as good of place to lose your money as anything else. Even the best gamblers in the grains are, at minimum playing the pass line, and the house still has that hard to overcome 1.414% edge over them. Is the identity of the players and what they are doing as important in other markets or does the total size of those markets dwarf the individual or commercial? Can an individual move a financial market, for an appreciable time, anymore? In the grain markets the commercial interests expect the speculators to do all the heavy lifting, then skim off the creme and leave the whey to the speculators. Need to check the market in whey, I guarantee there is one.



 Today at 1pm on the Iquitos skid road a señora returned change with a bottled water, warning, 'It's Sunday and the streets are crawling with thieves who are brave from booze while the police are on holiday.'

I walked out the store and immediately a body piled onto my back with an iron arm around my throat like a noose. I rolled with the tackle and Texas necktie to keep my neck from snapping. We fell in a heap to the ground, and his face was behind my ear hyperventilating beer exhaust. In that moment I knew without seeing that he was about 5'6'', 160 lbs., a stevedore, clean, no aftershave, and stupid.

I owe my father's childhood training in judo and wrestling to react the instant I was touched. We were on the ground where I gain strength like Antaeus, and knew an escape from the headlock. It's to simultaneous tuck the chin and jam the heel of the hand up against the elbow of the lock. I know the nerve I hit well from double tennis elbow. His forearm lifted from my throat like a drawbridge.

We scrambled at once to our feet, and he fled. I couldn't follow with ankle weights and a broken toe. I cleaned the blood with bottled water and walked on into the daylight.



Of what predictive significance is the first Monday, or second Monday or third Monday or 4th Monday or fifth Monday of the week? Same for Tues, or Wed or Thurs or Friday. If there is any non-random behavior, are any profit opportunities related thereto?

Anatoly Veltman writes: 

I honestly think any hypothesis should originate with a reason for it. In this case: first Fridays are employment data. FOMC also has set schedule for certain Tue+Wed throughout the year. Other than that, you face random occurrences that vary with cycle stages. For example, the recent years adage of Bullish Tuesdays brew within a protracted Bullish phase. Of course, any week in the midst of Bull market would develop its up move from early in the week. But I vividly recall the adage of turn-around Tuesdays thru the 80's and 90's: the decades of more market struggles and volatility, the decades of real market interest rates.



 On August 5, 1949 the Mann Gulch fire claimed the lives of 13 of the Forest Services' best and bravest from the elite group of fire fighter/parachuters known then as the Smokejumpers. That day turned into a foot race against an apocalyptic fire. Two outran it and one survived by laying down in a smaller escape fire he set himself. The others did not survive. It is told by Norman Maclean, woodsmen, scholar and Montana native in his book Young Men and Fire. It is a fine book by an even finer man. I can do no justice as a reviewer other than to say it is a universal story of the tragedy of young men or woman, facing danger, and who do not return. It is also the story of the old men who are compelled to tell the story of the young, searching for answers to how it all occurred, and maybe even parts of the why it occurred. It is told with dignity and compassion.

 One part that has particular relevance to many on this list is the creation of three Forest Fire Laboratories in the early 60s that was a partial result of the Mann Gulch tragedy. Here scientists and engineers began to research and create models predicting how fires spread.

The research led to new approaches to fighting forest fires which up to then had simple been to "get there early". Using controlled wind tunnels they varied inputs and measured outputs. As inputs they had 12 fuel categories, terrain slope from 0 to 90 degrees (fires burn faster uphill), fuel water content from 0 to 50% (little burns beyond 24% moisture) and lastly wind conditions. This last point is complex as fires create their own wind as rising heat pulls in colder air from below. This wind is in addition to whatever prevailing winds are already in the area. Some of the outputs include fire Btu per foot per second, speed in feet per minute, height of flames, and most likely direction of spreading.

Maclean enlisted the researchers there to help tell the story of Mann Gulch attempting to recreate the past events of that day. Equally important scientists could make predictions to aid the Forest Service on big fires. It is a tragedy none of this was available at Mann Gulch, but a positive consequence that science now complements bravery for those firefighters facing nature in the field.




Written/directed by Luc Besson

From Bradley Cooper in an earlier incarnation of bumped-up brainpower, in 2011's LIMITLESS, to Scar-Jo in LUCY, we are tantalized by the notion that we are only partially utilizing our remarkable brains. In the case of Cooper, the plot revolved about the machinations of a super-ON Wall Streeter presaging and manipulating the Market via brilliant leaps of analysis and gestation of the data (using a drug that pumped him beyond the usual capacity of humans to think, dissect issues, and function). For years, celebrated French Director Luc Besson has given us some chewy, flinty, memorable female power heroes in celluloid: Milla Jovovich (dubbed "the reigning queen of kick-butt" in 2006) in THE FIFTH ELEMENT (1997); JOAN OF ARC (1999); not to mention the unforgettable, feisty-yet-dewy Natalie Portman in 1994's THE PROFESSIONAL.

Here, Besson directs the shapely and sharp Scarlett Johansson in LUCY, a more-than-slightly unprovable action-thriller that tracks a regular woman adventitiously caught in scurrilous dealings without her wanting any part of them, but who deftly turns the tables on her Asian and Occidental bad guy captors. Rendered increasingly mentally capacious by virtue of accidental ingestion of a superdrug, she morphs into an affectless and merciless Spartan so evolved beyond human logic that she cannot be bested, shot, caught, or controlled. If you've seen the trailer, you see her vanquish would-be killers by a scornful glance or shrug. Though it is fun to imagine what immense unleashing of our brain-power might enable us to accomplish, there's little scientific evidence, we know, in the hypotheses demonstrated here—effortlessly changing one's eye-color and hair, de-weaponizing men at 40 paces with a look, floating people out of interference's way onto a ceiling—but it's amusing and interesting, and some of the set-pieces dazzlingly remind one of Kubrick's historical and future captures in 2001.

Not an epic, but a colorful amuse-bouche. And there's no better metamorpher than romantic, medieval, puzzler, centurion, political, nourish, strong-minded advocate than Ms. Scar-Jo.

Into the Storm

 Directed by Steven Quale

Storm trackers, drugged-up extreme-sport nutjob thrill-seekers, and regular townspeople experience an unprecedented (and, admit it, unlikely) drumbeat of major weather touching down in the town of Silverton.
An unprecedented onslaught of tornadoes hits the innocent [fictional Midwest] town of Silverton. Much like the 1996 earlier icon of tornado/Sharknado-revisited disaster pics, Twister, which gave us the novel image of a cow slowly turning end over end, along with assorted high-capacity family vehicles twirling up in the air, starring Helen Hunt, Bill Paxton and Philip Seymour Hoffman as showcased storm chasers, the breathtaking special effects of Storm are, well, blow-you-away great.

Few stellar or known cast members stud this go-round of town-center being de-roofed and de-schooled in moments, but one thing is true. Like the dialogue or not, empathize with the somewhat cardboard-y characters or not, the last half of the film is just plain harrowing. The sound alone is deafening. In the theatre we saw it in–the premiere of the film, mind you (we sat behind Paris Hilton, no less)—the persistent sound of water dripping ominously seemingly in the walls of the theatre seeped into your brain, a foretelling of the massive drenching and howling winds and whirls to come.

The queue at the women's room after the film wrapped was the longest in years (probably since Lawrence of Arabia's clamorous line for water after that film's arid desert scenarios)—you really feel squeezed by the power of this cyclonic Level 5-plus storm system bedeviling hundreds of school kids and major characters taking shelter from the miles-long storm front. Most seek shelter, while others dispossessed of sanity run toward the boiling vortex, testing how far a besotted storm chaser will go for that once-in-a-lifetime piece of film.
It isn't altogether unconvincing, either, even given the expected damsel and teen swain in distress and all the ruckus amid dialogues—huge airplanes lifting up and blowing around like so many badminton feather shuttlecocks. STORM tosses you plop into the very eye, to hear and feel Mom Nature at its most voracious. There's a heraldic moment when one newsie, lofted high above the storm by the swirling winds in his storm "tank' breaks through the dark black turmoil of the ferocious winds, and full redemptive sunlight hits him, and the audience, full in the face, before plunging him back into the maelstrom. If one waits and holds on, we gather, the sun will come out, tomorra.

Our question: Is this underwritten by Algore et alii, another entry into the non-event of warmism; an extreme weather cataclysmic bit of nonsense pushed by the uninformed left?



 Here's a composite of a typical season in a horse trader's life that will enable you to understand such things as why the market is bad when it looks good, why the value stocks are good when everyone wants the tech stocks, the importance of liquidity, the prevalence of deception, and the back and forth in the market during the day and year.

Ben's usual technique when entering a new area like Mississippi is to sit at the long table in the hotel and flatter the locals:

Of course I didn't hesitate to let them in on the fact that I was from Texas, and I didn't know too much about the farming business, that I'd made my living on a horse about all of my life. But I told them I had a high regard for the people that tilled the soil and fed the world and provided fiber that made the clothes, and I knew that this type of citizen was the salt of the earth. I said something about what a fertile land the Mississippi Valley was and how much of the rest of the world Miss could feed and clothe. I also dropped in that I knew the Miss Valley was stock with some of the finest old Southern people in the nation because that wasn't going to hurt my case any either.

How many times one is cajoled into some deal where it starts out that they flatter you to death thereby lowering your guard. "Our trader is thrilled at the opportunity to trade with you but begs that you go easy on him."

But this time, hoping to meet a better heeled citizen that could buy 60 mules that he couldn't sell for a dime worth 30 bucks a head, Ben Green stays at a fancy hotel where there are fewer mule men to sell at a proper price when he wishes to sell his mule. "I was just peeping out from under the brim of my Stetson and had my boot crossed over my knee so that everybody could for sure tell I was from way out West". The anxious seller always pretends that he's short on brains and the farthest thing from his mind is selling.

He sees a mark: "He walked up in the lobby and stood looking into the dining room and I could tell for sure he was off his home range." (The best cons come spontaneously when the other side isn't expecting it.)

"I got up and moseyed up close to him to get acquainted because I knew I looked country enough that he would ask me whatever it was that he was trying to find out". It must might be that he wanted to buy some mules and the last thing that Ben wants him to know is that he might sell. (The salesman with tremendous urgency to unload bonds or stock is in conference.)



 A problem many market participants encounter is that they hold rigid views and systems which, just like the strongest steel and concrete, are destroyed under the right conditions.

It is nature that produces the strongest products of all, and we can learn from nature how to handle our trading. Take bamboo, for example: "the plants endure cold winters and extremely hot summers and are sometimes the only trees left standing in the aftermath of a typhoon. They may not reach the heights of the other trees, but they are strong and stand tall in extreme weather."

This article "10 Simple Life Lessons from Bamboo" provides many lessons for us all.

anonymous writes: 

Here are a few amazing things I have learned about bamboo over the years:

1. The young can grow very fast - 3 feet in a day.

2. Thickness of the young and the mature is about the same.

3. Most grow on barren land.

4. A whole forest of bamboos can come from a single root.

5. They blossom once about 60 years, after which they all die and allow new seeds to grow.

6. The seed has potent stimulant for animal reproduction.

7. Bamboo shoots, bamboo fungus, and leayv (or bamboo worm) are delicious to eat.



 This is a link to my review of Money: How the Destruction of the Dollar Threatens the Global Economy and What We Can Do about It, by Steve Forbes and Elizabeth Ames.

Even if you don't accept the authors' prescriptions, this book will make you reexamine your assumptions about exchange rates, the gold standard, and other economic topics.



I would posit that every time an equity market set a 10% correction, defined in some quantitative way, it was a good time to buy. Often the definition of a correction is very fuzzy depending on whether one uses intra day or closing prices, and much latitude is often taken to try to prove the point.

Anatoly Veltman writes: 

Yes: if you are a perpetual Bull, a 10% discount can't be worse than a lesser discount. But that was the question I posed yesterday: are there market junctions, where such discount may be justified, and more discount is likely coming?

My proposition: yes, such junctions are quite possible in the markets. Temporary factors (like sub-prime credit, or ZIRP, or QE) might have produced such overvaluation at market peaks that a one-third price correction (and not just a 10% correction) is required to bring prices more into line with economic realities. In the process of such "one-third correction", you may still get a quick bounce off of a 10% level or any level. Is such a bounce a "good play"? Your stats may well agree. Yet others will prefer to use your bounces as a shorting entry point to continue position themselves within a greater decline phase. Both may be profitable plays. During a decline phase, "Short and hold" will prove profitable. But quick bounce-ups will also prove profitable, because they will be sharp. You are already having an over-20 handle bounce on some Friday short-covering, an odd Putin tweet, all kinds of mumbo. Yes, there are ebbs and flows for both sides.

On the precise sampling of "10% declines": why buying into a twentieth "10% decline" is supposed to produce the same success as buying into a seventh "10% decline"? Given the progressively increased valuations (which might have not been supported by corresponding economic growth), such study makes no sense to me. I only hope someone proves me wrong, and I am anxious to find out exactly why my reasoning is worthless.

Jeff Watson writes: 

While the sky is falling among the retail class of trader, and they are getting quite bearish, the fact is that the S&P is only off 4.22% from it's all time close on 7/24. Hardly any reason to shout "Fire" in a movie theater. We're nowhere near correction time yet. And when it does come, there will be great opportunities for the nimble minded trader. I've been in a bear market in the grains for months and am quite enjoying it, but then again I'm one of those who learned the ropes in a decade long bear market.

Gary Phillips adds: 

It all depends on one's time-frame. As a leveraged trader, one makes short-term decisions/trades, manages the risk/ keeps draw-downs to manageable levels and occasionally turns short-term winning positions into longer ones. Since early 2013, the average spx one-year return has stayed above 5%. Today's low was at the ~4% level and at major technical support, i.e., the highs of the previous 3-month-long trading range, so a bounce back to 1950 should not be overruled. Nevertheless, p/c ratios, breadth, and volatility indices, remain on sell signals, leaving the market intermediate term bearish. Long term, everybody knows the " bubbly" situation, yet even the valuation bears see the market going to 2250, and as long as Japanese funds continue to diversify out of the yen, Chinese investors continue to park their money outside of China, Draghi's narrative is accepted, and interest rates don't rise dramatically. The final tipping point is probably years away.

Jeff Watson replies:

Everyone knows the "Bubbly Situation"? I guess I need to be more enlightened because I don't see that at all, or am unable to see the forest for the trees. Anyway, one has seen the effects of a market where "everybody knows." In those kind of cliche cases, everybody usually gets a hard kick to the gonads from the Mistress. Since the stocks as a whole haven't been going down as much as "everybody" thinks they should, I wonder who is on the other side of the trade, buying? After all, the Fed is working 24/7, 3 shifts a day creating money that the flexions get first crack at. That should be pretty bullish for stocks. But then again, I am the absolute worst stock picker on the planet and what do I know? 



It's beautiful to see the stolid Germans selling madly on a 10% decline from 10043 to 9060 based on the fact that there was an official "correction". What fool these mortals be.

Anatoly Veltman writes: 

The straight line DAX decline for over a week may bear all appearances of being "overdone". However, it is my inclination to use the opportunity, and open a discussion: when is a stock market decline justified? This, obviously, begs consideration of fundamental factors, that usher a change. But also, technically: if at some point the chart-critical 9,000 level crumbles, what's there to prevent a 5/6/2010-style flash?

Jordan Low writes:

It is interesting how a correction in the US markets have become "7-10%", rather than 10%. Perhaps participants feel that other markets such as DAX or Russell 2k have dropped "enough" that the SPX will not reach 10%.




“Stigler’s seven pillars of statistical wisdom



 Combat Finance by Kurt Neddenriep applies military values to the field of investments. Nennenriep served for 20 + years in the Army Reserves rising to Lieutenant Colonel while appparently serving as a successful vice presdient in the Morgan Stanley Wealth Managment Division. He has many friends among fellow officers in the Military that he served with and he mixes their insights with interviews of them and pictures with his own guidance.

The book is divided into nine short chapters. The first and most useful to me applies the principles of basic training to investments. The motto of the basic training in all branches would seem to be get there with the right equipment, time, uniform, and attitude and maintaning a military bearing and everything will be all right. The financial analogue is to know what all your revenues and expenses are, cut the expenses to the bone, save for the future, develop a fall back plan, and listen to your superiors. He suggests that everyone needs a side man or wing man to prosper as in the Army and that you should follow the general orders. Guard everything in your base of operations, and only quit your post when properly relieved. Obey the orders of your superiors, which he suggests means to take care of your family in a professional fashion. Your financial bearing is to live within your means and to get rid of all debt.

The second chapter talks about all the reserves that military commanders maintain and suggests that you maintain a reserves for unforeseen bad experiences, financial calamities, and big moves in the market and grand opportunities when distress happens in markets or real estate.

The third chapter describes how to choose a house that you can afford. It uses the insights of planning a big, small or outpost in the combat world. He emphasizes you have to defend your house, but in order to win a war you have to get out of it. He uses insights from the mayor of the combat base to tell you how to buy a house, taking account of what many don't take into consideration, the manifold expenses in keeping it up, and the possibilities that the resources that you'll have to keep the house will dry up.

The fourth chapter is about the importance of training in the military, and how you should always be preparing for different scenarios in the future. He believes that saving is the best way of preparing and shows how compounding even as little as 4,500 a year over a lifetime can lead to over a million at retirement.

The fifth chapter is a tribute to the coast guard, and how they protect our home front. He sees insurance of all forms as the investors coast guard and recommends every kind of insurance including life, disability, long term are, homeowners insurance, health insurance, etc.

The sixth chapter describes the advisers that a good president of his own investments should have showing the importance of your investment adviser, CPA, attorney, and life insurance agent. He gives examples of the importance of delegation.

The seventh chapter describes the importance of strategic objectives and mission statements. "Make a list of all your primary strategic objectives and prioritize them in order of importance". Ask where you want to get, who's going to get your there and how you plan to accomplish the goal.

The eighth chapter describes coordinating all your investment activities the way the military divides up its activities into ground, sea, and land. He likens bonds to the armed forces, individual domestic stocks to the navy, international stocks to the air force, and alternative investments to the marines, and suggests you need each of them in your portfolio.

Finally, he has a chapter on what the fights is for. In the military he believes it's the fight for freedom. In the investment front, he believes the fight is for your financial future.

Okay, the book is very prosaic. And the author doesn't seem to know much about index funds, and the proper balance between stocks and bonds during the age cycles. One also questions whether the military person is putting tremendous input into an area that has little potential output of positive value. The excursions into Iraq and Afghanistan which the author is so proud of and apparently implemented so effectively did not seem to have a high mechanical advantage relative to the input. Yes, they knew how to kill the enemy, build schools, keep them away from the IED's et al, and bring their soldiers back when injured but if you timed all your investments into buying Argentine debt in the last 50 years, you'd have a hard time justifying your expertise and activities.

But it has many insights for and principles to apply for those who can find a proper goal in life. The author recommends checklists and procedures that have served the military in all its branches over hundreds of years. There is much to learn from their evolution in the field of investments. And to his credit Colonel Neddenriep and the colleagues he interviews seem like men of integrity, and loyalty that you would want to have as friends and role models.

P.S. I apologize for this prosaic review. But the book is prosaic but valuable, and I would recommend it to anyone, especially those starting out in our field, and those with an all too ephemeral view of life and markets.



 1. Darwin in the Origin pictures the twigs of a tree at all times trying to crowd out and overtake those surrounding it. How can this be applied to market moves?

2. The theory of maximum pain would predict that options end up at the price that maximizes the value to the option sellers. What other moves can cause maximum pain to the lower levels of the market ecosystem and how can hope be maintained and new energy be taken in if maximum pain is inflicted on a regular basis.

3. The stocks are at a 2 month low relative to bonds and this is bullish for stocks.

4. Before a market is ready to spring back it will pretend to recap the old woeful path.

5. The system of digital records for doctors is much less friendly to the patient than the old way where a patient would call the Dr. To get his results and diagnosis.

6. The bank stocks supped with the Bad One in the 2008 period, and now they must carry a long spoon. However, the more the facade of penalties on them is inflicted with one hand, the more they must wallow in the oblivion of unfavorable publicity, thereby keeping man small, the greater the likelihood of the helping hand on the other side. I like buying back below the constructal number of 15.

7. The upside down man disseminated bearish remarks on fixed income, at just the right time to create maximum level of selling at just the wrong time. For example, the bonds went down to 126 and are up almost 10 percentage points since he told everyone the gig was up. The flow of funds man at the Brothers, who held the same position as the upside down man in esteem and followship in his day was more helpful to the public when he changed from bearish to bullish in 1981 when interest rates were 16% or so.

 8. Europe has been incredibly weak relative to the Us in recent weeks down about 5 percentage points more than us stocks.

9. The best book on physics for the layman is Knowing: The Nature of Physical Law by Michael Munowitz. I have not read his book Principles of Chemistry but many reviewers and esteemable academics say he has also written the best book on chemistry.

10. The book Design in Nature by Bejan and Zane proposes that the tree like structure occurs in all things that move and this is the structure that minimizes the loss of energy during the movement.

11. The book Survival Analysis with Long Term Survivors by Maller and Zhou should be required reading for all those who say that the longer the market has gone without a great catastrophe, the greater the chance that it will die.

To be continued.

Peter Grieve writes:

 To expand on the Darwinian twig idea, visual processing centers in the retina also compete for brain space during a "plastic" period.

Kittens were placed in an environment which contained only vertical stripes (with an unpleasant sounding head clamp to make sure the stripes remained vertical with respect to their heads). The result was they responded less to other patterns in learning experiments, presumably because the vertical stripe receptors won the competition for brain support during the developmental period.

Now that I've written this, it occurs to me that the head clamp might be the most useful analogy for aspects of strategic learning.

Gary Rogan writes: 

I read this interesting book a couple of months ago: It's a Jungle in There: How Competition and Cooperation in the Brain Shape the Mind. According to the book the entire nervous system is always Darwinian on multiple levels:

"He argues that the overarching theory of biology, Darwin's theory, should be the overarching theory of cognitive psychology, the science of mental functioning. He explores this new and intriguing idea by showing how neural elements compete and cooperate in a kind of inner jungle, where only the fittest survive. Competition within your brain does as much to shape who you are as the physical and figurative competition you face externally."



Thursday's decline of 40 points was within a few points of the largest declines we've had since 8/10/2011. It's only 2% depreciation following 200% appreciation. Sure, get me out, I've become way too rich compared to the income growth within the economy.

Steve Ellison writes: 

I have no idea if this was the key weight, or even if it was important at all, but I had noticed that the DAX last made a new high on June 20. It made a 20-day low on June 26. It made new 20-day lows on July 8, 10, 21, and 28 while the S&P 500 continued making new highs, with the last new high on July 24.

Allen Gillespie writes: 

Clearly the taper (smaller negative interest rates) have an increasingly large impact. we v - cf/i. The curve bends take and to the right as one approaches zero. Law of small numbers in the denominator. The no man's land of the zero and then the euphoria of the small positive followed by the small number effect again should be interesting.




 The past two issues of the Nautilus online science magazine on the general subjects of "Turbulence" and "Wind & Water" have several thought-provoking pieces.

One article on low level toxic exposure caught my attention and will provide grist for the doctors.

Perhaps Victorian sleeping porches and fresh air will come back in vogue.

A couple of quotes follow:

'Miller has spent 30 years hammering out a theory to explain the contemporary surge in perplexing, multi-symptom illnesses—from autism to Gulf War Syndrome—which represent a Kuhnian shift in medicine. She calls her theory "TILT," short for Toxicant Induced Loss of Tolerance. TILT posits that a surprising range of today's most common chronic conditions are linked to daily exposure to very low doses of synthetic chemicals that have been in mass production since World War II. These include organophosphate pesticides, flame-retardants, formaldehyde, benzene, and tens of thousands of other chemicals.'


'However, we can take steps to prevent it. We live 90 percent of our lives indoors, inside homes, offices, and cars. And indoor air is far more polluted than outdoor air. So we can begin with our home and office, by reducing chemicals there. Reduce scented products, reduce or eliminate indoor pesticides. If you're remodeling, you can use no-VOC paints, and tile or wood instead of carpet. Make sure you have good air circulation. Don't be enamored of that "new car" smell—a car a few years old is much healthier. And go outdoors; try to get into nature, even if a city park. Outdoor air is usually better for you.'




 After watching a pro-charter-school documentary put together by non-teachers with big money hiring a slick name-brand director, I watched a counter-documentary filmed by teachers who had evidently never cut a film before.

Teachers' unions, predictably, are the villain in the pro-charter-school movie. And teachers' unions oppose merit pay, which everyone knows without looking is a logical, reasonable, basically unassailable concept. Better pay for better work is fairer and more motivating. Period. Think about Charlie Munger's FedEx example– is there really more to say on this issue?

Turns out I had been so convinced by the obvious logical arguments against teachers' unions and for merit-pay, that I hadn't actually thought about the details or looked at any empirical evidence. Doing so raised questions that I think are relevant to managing people in any business.

There are multiple ways to spend more on your wage bill, with the purpose of improving labour output. What most of the teachers in the counter-Superman docu seem to repeat is that they want "support in the classroom". Each dollar spent on incentive pay, provided it didn't come from salary reduction, could be spent instead on hiring another teacher or support staff, because managing thirty 9-year-olds at once is hard, let alone trying to get them to learn something. (Other studies show that removing disruptive children from the classroom is more effective than peer tutoring, reduced class size, and even motivation. But someone needs to attend to the disruptive children since they don't disappear and remit includes teaching them as well. In the case of trading any dollar allocated to incentive pay could have gone towards support staff as well.

Each dollar spent on incentive pay could also be spent on better "equipment": whether that be keeping up decaying infrastructure, paying for a science lab, or buying new textbooks. Likewise a trader might perform better with better computers or in a nicer office–that's an empirical question.

There are more questions with how exactly to design an incentive scheme. In Charlie Munger's example he doesn't want to encourage the workers to move so fast that they break the packages. In trading we don't want to encourage taking on positions that look good at year's end but blow up after the trader has collected his cash and moved on to another firm.

More questions. How much of pay is variable and how much is guaranteed? Studies show that incentive pay for teachers is ineffective unless it (a) represents a significant wage bump [like at least 50% extra] and (b) what the teacher has to do to earn the reward is quite clear.

Who gets the incentive pay? Some studies found that merit pay for principals was more effective than merit pay for individual teachers. Likewise we have to decide how risk-managers should be incentivized relative to individual decision-makers.

Bonuses may increase motivation, but lack of motivation might not always be your biggest bottleneck. Try to keep thirty 9-year-olds in check at once, or keep details of thirty trading desks in your head at once, and it may simply be too hard no matter how much you try.

Thus we return to the really hard questions of organizational design. How do you as a manager design a structure to make your people as effective as possible?



 An interesting story on NPR this morning dealing with banking among the working poor. No surprise that this is a group that is underbanked in so far as there isn't much access to branches. There is access through through smartphones. I don't know how many in the working poor in the US have smartphones, but my guess is the number isn't overly small. In Africa, a continent which is underbanked, apps for smartphones have been flowing more strongly than water over Minnehaha Falls in Minneapolis during the summer (I know we have some readers in the Twin Cities who can attest to the amount of water involved). Within 5 years, maybe 10 at the outside, banking in Africa will be a mobile phenomenon. There may still be some bricks and mortar offices—neanderthals like me like to see such things. But for the kids—soon to be adults—and the young adults, mobile will be it.

Banking execs are going to have to change to deal with this paradigmatic shift. The current leaders arose in a different era, and their understanding of mobile banking will necessarily always be in the context of bricks and mortar branches. (This has already begun happening in Africa.) As I said, the branches aren't going to disappear, just fade/be relegated downwards in importance as a means of interacting with customers and generating business. This got me thinking about the US banking system. There's been lots of talk about the coming wave of layoffs on Wall Street because of the decline in volatility ("The End of Equities" the cover declared in 1979—I'm waiting for a similar one on volatility this year). Banking in the US has changed during the past 6 years since the crash. Fees are returning as the basis for banking profitability. Boring. (Though Mr. Melvin has made some nice change, and not exactly chump change either, off of boring.) Mobile banking will come at some point to US. But I have to wonder if the growth of mobile banking and the paradigmatic shift to fees rather than trading profits hasn't revealed a major weakness in US banking—or at least the larger US banks: leadership.

While bank managements attempt to deal with a new era in which trading doesn't produce much in the way of profits, I have to wonder if the problem isn't with the managements themselves, rather than with the rules under which the banks operate. Much as mobile banking requires a different mindset than bricks and mortar banking, maybe the new era in US banking requires new managements—wholesale. Perhaps that's the key component, thus far missing, in dealing with TBTF. There should be lots of opportunities in mobile banking, but one needs to have come from a mobilized background rather than a brick and mortar one. Planck's Law applied to finance. One might have expected shareholders to demand new managements to effect this change and maximize shareholder value, but replacing managements by shareholders is about as hard as defeating an incumbent Representative. It's possible, it's just hard to do, expensive to do, and happens pretty rarely. When it happens, it's in the context of a wholesale shift.

Perhaps the banking system in the US isn't functioning to the top of its capabilities because of managements who long ago should have retired. At least part of the problem, that is. How big? I'm not prepared to suggest a number.

My impression is that banks, at least the larger ones, are still trying to work through the changes. For all the hoopla about the recent earnings report from JPMorganChase, the reality remains that profits were down and no one knows if the increase in small business loans, for instance, is a blip or trend in the making. With retail looking a bit peaked, I'm pretty sure those loans aren't going to small retailers. With Europe continuing to behave like a diabetic uninterested in controlling his disease, and whittling up both legs as gangrene sets in, I'm wondering how much of the other parts of the US economy are going to be throttled back in the second half of 2014 and looking into 2015. Getting the banking/financial services sector to function optimally is important for US economic growth. I'm not sure the current managements are up to the task. Wholesale change may be necessary, but I have nary a clue as to what might bring it on.

anonymous writes: 

I have listened to de novo (new) bank presentations for 30 years, and this underbanked crap is mentioned in every single one. It's as bad a global warming. There are NO underbanked communities in the US. There are only lazy people.

Additionally, many new bank equity presentations are frequently overweight products that the so-called under-banked wouldn't even use.

The under-banked, when there was such a thing, learned to go to credit unions.



 My last living mentor, Warren Bennis died on 7/31 after a valiant battle against a tough and long illness. Warren was not just admired and respected; he was beloved. I think it was because within two minutes of meeting him you could trust him to never hurt you. That's a rare quality in this world.

I first met him in 2008 when I was attending one of his classes at USC in a course entitled, "The Art and Adventure or Leadership," that he co-led with then college President, Steven Sample. I was a guest of the guest presenter, Christopher Gergen, CEO of Forward Impact and Co-Author of "Life Entrepreneurs: Ordinary People Creating Extraordinary Lives."

During the class I asked a few evocative questions that Warren appeared to approve of. Towards the end of the class he looked at everyone and said, "This was our best meeting so far." He then looked over at me and invited me to join the students and him for pizza and further discussion. That was the beginning of my intellectual and emotional love affair with him.

Warren has been described as a "deep listener" by David Gergen, another of the people he mentored. He was indeed a very good listener and I wrote about one of the most important things he taught me in the dedication of my book, Just Listen, namely: "When you deeply listen and get where people are really coming from, and then care about them when you're there, they're more likely to let you take them to where you want them to go." One of Warren's many sayings that stays with me was, "Boredom occurs when I fail to make the other person interesting."

A few years ago I was having breakfast with Warren and as always he pressed for me to talk and for him to listen. I told him, "Warren you are the one that is much more worth listening to, so you're going to talk." He looked at me a little miffed and then began to open up about things he felt deeply and personally passionate about. In fact he became so enthused that he inadvertently spit into my food.

When that happened, he saw it and he saw that I saw it and he said, "Mark, I think I just sprayed your food." I told him it was okay and not a problem.

When I returned to my office I sent him an email saying, "Warren, when people find out that you are my mentor, they ask me what that is like. I tell them that every time I am with you, I try to absorb you into my DNA and I think that your spraying my food today helped."

In recent years I have gotten into the habit of spontaneously crying when I am with Warren for at least 25% of the time I would visit him. We would keep our conversations going without missing a beat, although he clearly noticed.

Then on one occasion I said to him, "Warren, I have a confession to make. I've been using you." Like many highly influential people, being used was something Warren disliked and he looked at me irked, but then knew I was going to say something odd to follow up.

I told him: "Every time I'm with you I realize and appreciate not only how much you mean to me (and that he was getting older and increasingly more affected by illness), but I feel that you are healing feelings of unworthiness, uninterestingness, less-than-ness in me and when I feel that healing, I cry with relief at feeling more whole."

Warren then looked at me, put his hand on his chin and delivered his verdict: "That's not a bad way to "use" me Mark."

Some years ago I was having lunch with Warren and Peter Whybrow, Chairman of the UCLA Department of Psychiatry. Towards the end of the meal Warren looked up with a pained expression on his face. He said, "I've been in the field of leadership for more than fifty years. Some will even say that I started it and yet, leaders are worse than ever. Maybe I didn't do such a great job."

That greatly bothered me. After I returned to my office I emailed Warren, "You have more control over trying and quitting than you do over the results. Because you never gave up, I know that the world is much better for your having been in it. I know that because I am much better for your being in my life."

We will carry on your mission to identify and develop the best leaders possible.

Warren, thank you for causing me and so many others to feel interesting AND for making the world a better place.

Rest in peace my dear, dear friend.

Know that you were beloved by many and how much they and I will miss you.



Crossing I-10 to the South is a most liberating sensation.



Jean Panhard, who has died aged 101, played a vital role in ensuring the survival of his family firm which, as Panhard et Levassor, had marketed the first production cars to the public in 1891.

The French company, founded by Jean's great-uncle Réné Panhard and Emile Levassor in 1887, had rewritten the automobile design rule-book, putting the engine at the front, and, for the first time, transmitting power through a system of gears. In 1894 Evelyn Ellis, driving a Panhard et Levassor vehicle, became the first man to drive a car on British soil, making the journey from Micheldever station in Hampshire to his home at Datchet, Berkshire, thus helping to persuade the government of the day to scrap the requirement for a man with a red flag to walk in front of any self-propelled vehicle (up to now usually farm vehicles powered by steam traction engines) on a public road.

In 1900 Panhard et Levassor was still the most important car manufacturer and exporter in the world, and the firm maintained its reputation for engineering excellence into the 20th century. A Panhard roadster set a world speed record of 133mph in 1934. Panhard cars excelled on the racetrack too, winning a famous victory in the 1893 Paris-Nice-Paris race and going on to win a further 1,500 races, including the Index of Performance Award in the Le Mans 24 Hour race on no fewer than 10 occasions.

-from Jean Panhard's Obituary



 My dad was amongst the best stock market track records in history. Almost all of the stocks he has bought immediately gapped up and near all of them turned into multi-baggers. He has never taken a loss. Additionally, he has never paid a cent in brokerage or trading commissions.

How did he achieve this spectacular run? I should further mention he doesn't know how to value a stock, doesn't follow the stock market or news and could not tell a Warren Buffett from a breakfast buffett.

He told me of his great trading feat the other day. During the eighties he invested beer money into every state IPO offered by Maggie Thatcher. Dutifully, having seen the advertising campaigns, he filled out the retail forms sent to the voters, received his share certificates, put them in a draw and forgot about them for twenty years. He recently found them in a drawer and it seems that beer money has magically turned into enough to buy a small car.

It is interesting to contrast the recent state IPO of Royal Mail, for which Vince Cable has been hauled over the coals. The media seem irresistibly to take the stance of a playground bully, pricking their ears for whatever is the dominant theme and using it as cudgel.

For Mrs. Thatcher, the discounted IPO was a venerable thing, enfranchising the working saver and teaching him about the value of compound returns in business. The media applauded. For Mr. Cable, the sale of Royal Mail has been branded a waste of the taxpayers money and a freebie for louche speculators.

It seems then that today's everyman with beer money will not be sitting so pretty in his own two decades time. He will perhaps have to inject his grubstake into spreadbetting and day trading instead, and make his vigorish tribute to the god Plutus.



Thursday's decline of 40 points was within a few points of the largest decline we've had since 8/10/2011. Many straws were in the wind retrospectively. The 88 year old fake dr. said a decline was inevitable, corn was down at a 2 yr low, the open market committee met yesterday and bonds tumbled 1 1/2 pints their biggest decline since 11/20/2013. Crude was a 20 day low and gold was down 3 small days in a row. What do you think in retrospect was the key weight that pushed the balance scale so far to the bearish side?



There has been much talk about the market having been due for a decline, i.e. it hadn't had a big decline like 1% in a day, or 10% from a high, or a big x day minimum of some.

The drs on this list, and those who study numbers rather than mumbo jumo know when a long time has elapsed since a calamity, the more likely it is that the calamity will not happen. That's why after 5 or 10 years from onset of the terrible disease, most patients like to tell their friends they are free of the disease. Most components on the other hand, including the artificial hip, have a uniform hazard rate, i.e. the prob of calamity each subsequent year is constant. Compare this to the bath tub distribution which the fake Dr. is particularly prevalent to.

How about some stats on the table. There are a number of good ways to do this, and those that have gained access to such a program developed here by Mr. Downing and myself to do such things can easily do it to their own satisfaction. But here's one. The last 10 point decline occurred on 7/17, 10 trading days ago. The probability of a 10 point decline occurring on any day is at a maximum at 27% after there was a decline the previous day. That's called the hazard rate. The duration to the next such decline is at a minimum at 5.2 days after that event. The hazard rate declines and the duration continually expands to 11 days after 20 days without such an event. The expectation after 10 days without such a decline is about 0.4% a day.

Here's another one. We went 60 days from the last 20 day minimum which occurred on 4 14. After 60 days the average duration to the next 20 day minimum of 37 days. The expectation is positive for all subsequent days of remission at about 0.2 % a day. The hazard rate for a 20 day minimum to follow the previous one once it occurs is 0.5, and it drops as it should by randomness to about 10% after 10 days.

In short, no matter how you define it, the longer a period has gone by without a big decline or a big minimum, the better it is. I have the numbers in front of me, and the gist of what I said is completely true, but I haven't fact or spell checked everything here as one is more concerned with the trade of the day than the good throwing today.

Gary Rogan writes: 

I'm sure the numbers are what they are, but why is that? Hopefully, if you are free from a terrible disease for a long time, it is not doing further damage, but a market that goes up becomes more and more expensive. Other than the human life span, while you living disease-free it's not true that in any fashion you are getting more biased towards getting it again, but the more expensive the market becomes the more it seems that it is biased to regress towards the mean historical P/E or some other metric. A person who's been disease free for 30 years seems qualitatively different than a market with a P/E of 30.



 The Cinema of Iquitos at one minute's walk along Calle Arica from the church corner of Plaza de Armas has deep roots that reach back to the rubber boom. With the arrival of foreigners, along with the evolution of the United States cinema in Hollywood, the Cinema in Iquitos showed its first film in 1900. It was show in the famous Casa de Fierro, the House of Steel now catty-corner from the present day theater, with an Edison machine. The projector used a carbide lamp that required the constant movement of the operator.

Due to the prominence of cinema in Iquitos, pioneers of filmmaking produced here including Antonio Wong Rengifo, Werner Herzog, Armando Godoy, and Dorian Moris. They prolonged the cinematic presence in the city that built today's theater where last night I viewed the horrid 'Dawn of the Planet of the Apes'. Although the movie could better have been acted by apes and chimpanzees, today's Iquitos Cinema meets American standards.

With a few flaws. The pluses in reviewing this theater begin with the four large screen theaters, with comfortable seating and effective air conditioning. You walk in with a bushel of popcorn and it could be Manhattan. The negatives are the interruption of the joy of the better films by cell calls, a continual flash of phone text screen among the audience, and the viewers – many of whose initial view of the world outside Iquitos is the silver screen (English Subtitles) - laugh, ooh & aah, or scream in terror at exactly the opposite moments that an American audience will. The string of films I've watched testing my sanity over the past fifteen years are new action thrillers and demonic massacres. Going to the Iquitos Cinema is like a trip deep into deep Amazonia with inexhaustible eye-witness quivers, except it's not a five meter anaconda but the person's legs in the seat behind that drape your shoulders if you slouch invisibly.

The staff is very friendly, and the owner diplomatic, but all are equally ineffective in enforcing their own rules about feet on chairs and use of cellphones. The food is excellent, but pricey upwards of USA fees for drinks and snacks. The place is a din from a game arcade that one must pass through to buy tickets. I've shelled out increasing prices since 1999 that started at 3 Soles (about a buck) and last night ran 10 Soles. The films are supposed to freshen each Thursday, but the likelihood is that a popular film, such as the present 'Transformers' will be held over for a month. There are about five daily showings of the normal venue of four different films, but arrive before the posted start time or the ticket seller will claim the seats are filled until you issue a bribe.

Through the Rubber Boom and its inevitable regress, on rolls the cinema. The crisis hit Iquitos hard and had its effect on the industry, but the play of Charlie Chaplin and new films did not stop. A movie theater in any city of the world is an economic indicator, and in Iquitos more so as even in depressed times it shows that a person will put a fantasy in front of his face before bread on the table.


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