A study by Kora Reddy showed that for a sample of SPY days:

"4th trading day from the last trading day of the month (i.e 25th September 2014 in this month's case) is down and it is quarter ending (in the months of Mar, Jun, Sep, Dec)"

There were 45 instances, and all 45 had a higher close during the following 5 trading days.

For analysis, starting with all SPY days since 1993, we want to avoid overlap, so we pick every 6th SPY close and determine whether or not it had a higher close over the next 5 days.

Original study:

count: 45
with higher close next 5 tdays: 45
success rate: 100%

Non-overlapping SPY closes (every 6th):
count: 908
with higher close next 5 tdays: 863
success rate: 95%

To get a measure of the significance of the original results, we take our "every 6th SPY close" data set and assign a value of "1" for instances that have a higher high over the next 5 trading days, and "0" for instances that don't. Then we take that series of 1's and 0's and randomly pull 45 observations at a time (with replacement) for 1000 iterations.

Random runs: 1000
Mean sum (of the 45 values pulled): 42.77
SD: 1.437
z of original results (45): +1.55

So if we randomly pull sets of 45 non-overlapping SPY days, we would expect about 43 of them to be successes, i.e., have a higher high over the next 5 trading days. The original results have a z of +1.55 against our randomized runs, so they fall under the common +2 level of significance but are still positive.

To take the analysis one step further, we look at the size of the move from each SPY close:

Original study:
count: 45
mean move to 5-day High: 1.83%
SD: 1.15%

Non-overlapping SPY closes (every 6th):
count: 908
mean move to 5-day High: 1.65%
SD: 1.52%

z of original results (45): +0.81

So, analyzing the size of the Close-High moves shows that, while still positive, the z of the original results is much lower than that obtained by looking at the results as binary, hit/miss observations.



"Nearly a third of ASX-listed companies are fragile, at risk of financial catastrophe, report says":

A report out today on the health of Australia's listed companies says nearly a third are confronting the risk of a financial catastrophe.

Analysis of almost 16,000 annual reports by professional accounting body CPA Australia showed more alarm bells were ringing now than during the depths of the global financial crisis in early 2009.

The research, conducted between 2005 and 2013, said the red-flagged companies were exposed to the dual risks of the end of the mining investment boom and an unexpected slowdown in China.



 Most of my survival techniques are self-taught on the spot. Once while hiking at 12k' in the Sierra Nevadas with winter coming on, I had to find a way to sleep at night without a sleeping pad. The frozen ground conducted my body heat into the earth and I couldn't fall asleep. After a few hours of trying various positions, I fell into a sleeping tripod in which the knees and right elbow were the only contact points, and of course the toes. Nearly all of the body weight was on the former three, and since the knees and elbow are calloused, little heat was lost and I slept comfortably for many nights before coming out to civilization. I later learned that tripod sleeping is standard among nomad Tibetans who also use the right elbow as one may turn the head away from the heart.

I remembered that today in the hot Amazon on a vast crisp-dried floodplain carpeted with one species of dark green leafed one foot plants that absorbs heat. I was sleepy from earlier drinking river water, and there was no shade. The ground was so hot it burnt my skin through the clothes. The solution was the tripod sleeping and I awoke an hour later able to continue to shade and the river.



 Here are some good proverbs of Tom Wiswell that are very appropriate for markets.

Seize the moment: It may come in the midgame, it may come in the ending, but seize the moment, even if it comes in the opening. There are seldom second chances.

Build well: A good game, like a good house, must have a strong foundation

The Follow Through: Once you get a win you have to know how to execute it, or your opponent may execute you."

Fools Gold: The search for a fool proof system is always in vain.

The Wise Skipper: Start your game with a plan, but always be ready to change course in mid-stream.

A Time for Everything: The good player knows when to play for a win, when to play for a draw, and finally when to resign.

The Unexpected: Unless you are prepared to expect the unexpected, be prepared to expect the unexpected defeat.

Seize the Moment: A passive move is best met with an aggressive reply– or an opportunity may be lost.

A Wolf in Sheep's Clothing: The trouble with a loss is that it usually looks like a win or a draw.

Don't Argue with Success: If you are doing well with your lines and style of play, don't change them. If it ain't broke, don't fix it.

Reckless or Wreckless: the player who moves without a motive is an accident going somewhere to happen.

No Risk Policy is Risky: The player who never takes a chance may be taking the biggest chance of all.



 I liked the conclusion of this article:

"I predict that if we continue implementing Common Core, average students will drop out of math as early as they are allowed. Even math-bright students will hate math. Tutoring companies will proliferate to serve wealthy families. The educational gap between rich and poor will widen. If we want to destroy math and science education in this country, keep Common Core."

Ed Stewart writes: 

In my opinion a lot of the need for "change" is very likely driven by PC motives, which is why when it is looked at logically from a mathematics perspective it makes no sense. My guess is (using an example from article) it was hoped that allowing calculators for everything and allowing an increased use of "cheat sheets" would open up math for more equal distribution of supposed talent.

In terms of pace when I was in school we did have an accelerated math program but one had to test into it with an IQ test. The notion that a curriculum can be designed that can shuffle through all kids to be "above average" is part of the problem. It is a lack of realism.

I strongly disagree with the author that non-college kids are necessarily sent to dead-end jobs while college kids are not. Reality is working in a cube with a degree is just as much a dead in job as others, particularly in the outsourcing era where such work has been massively devalued. The notion that keeping ones hands clean is always better is just a bias. Guys who get involved in a field that actually builds something or is otherwise productive such as Natural resources will be better off vs. a twin of equal ability shuffled through the "college" program. And clearly many who see that opportunity follow this different track. Charles Murray is right we'd be better off admitting college is useless for all but the relative few - making it more accepted for people of even moderate above-average ability to go right into a job for training.

Stefan Jovanovich writes:

The need for "change" in education is driven by nothing more than the same financial incentives that operate in all markets where the customers are not the actual users of the product. Even military contractors have to deal with the fact that at some point the soldiers, sailors, airmen and marines have to use the weapons; and, if they don't work or work well, people get hurt, and then the survivors get mad and resolve to get even. Elementary and secondary public education in America has no such feedback mechanism. No school keeps data on the future trades and incomes of their students; in fact, in the name of "privacy" (that Federal Constitutional right that first trimester unborn children lack but the rest of us have), schools are prohibited from collecting and keeping such data. So, in education, "change" happens not because of any customer demand but because of the incentives it offers to the people who manage and create the changes. Every curriculum change means more money for the creators of the curriculum and, far more important, more paid time on and off time for research studies, training and conferences - all of which guarantee time away from the nasty children.

It does not matter whether or not the change works for the customers; indeed, there is a real incentive for the change to fail because that has invariably meant that more money, not less, should be spent on schooling. (Er, sorry, not "spent", "invested")

P.S. There is no evidence that public "job training" works any better than classroom education in the academic subjects; "job training" is another field where the government pays the money and the customers' feedback is completely ignored. The roughnecks who are getting semi-rich in North Dakota right now learned their trade from the informal apprenticing that comes from having an uncle in the oil bidness.



The next meeting of my NYC Junto will take place Thursday October 2, 2014 and feature Yale Law professor Peter Schuck speaking about government failures and how they can be remedied.  All DailySpec readers are invited: Meeting begins at 7:30pm, speaker at 8:00pm. General Society Library, 20 West 44 St, NYC.



Hands Up, from Bo Keely

September 26, 2014 | 2 Comments

The photo of the ice cream salesman has a story behind it. When I took the pic I thought the universal 'hands up' gesture odd until reflection on where I had just come from. Tinga Maria, Peru, on the Amazon River far from civilization doesn't see many gringos, so when I arrived it was as though I was a king. The steamer would have a couple hour layover, so I asked a three-wheel taxi to take me to meet a girl. Any girl, for it had been a long journey. He dropped me at the entrance of a 10' concrete walled enclosure. The door was closed, but the ice cream salesman was near. He explained that since the sun was only half past noon to sundown, the bordello didn't open for a few hours, however the inner guard knew his knock. He tapped a code on the large wooden door, the guard opened, the salesman explained the situation, and I was ushered in. Few working girls had arrived, but a handful were sleeping in their individual rooms lining the inner perimeter of the compound. The salesman pounded on one door, it cracked open, and a girl strong armed me through into a small cubical lit by a single candle. There was romance and conversation as I discovered she was a good student in business at the university and was doing this to pay for her tuition. Later, I paid her $4, and before leaving reached to shake her hand. She giggled shyly and held up a stub in the candlelight amputated at the elbow. She, like many others, had been a farmer and bitten on the hand by a venomous snake, and choose to cut off the arm in the field rather than die. The ice cream salesman was waiting outside the compound, and I thanked him and paid a dollar for this photo, and hence the hands up.



 I've been thinking about the importance of the actual day session. Pit close seems to be a moving target these days since most liquid markets trade almost 24/7. With futures there is a relationship to the cash market which must be respected. Also for margin purposes there is specific time/price which the "committee" uses which also must be respected. There is probably a range regarding importance depending on the contract. I would put FX at one extreme where the arbitrary close matters least. For stocks and equity futures, I believe the NYSE, Dax, Nikkei closes do still matter as a reference point. For the softs and metals they too seem more connected to the pits where the close is important.



 The sentence passed on Dinesh D'Souza —the filmmaker, writer, and outspoken critic of President Obama—for violating the laws relating to campaign finance, I was horrified to read was the following: "As part of his probation, Mr. D'Souza will also be required to undergo therapeutic counseling."

From Wikipedia: "In the Soviet Union, a systematic political abuse of psychiatry took place and was based on the interpretation of political dissent as a psychiatric problem. It was called "psychopathological mechanisms" of dissent."

Punishment is not therapy; crime is not disease. The Soviets thought that dissent was crime and crime was disease: therefore, with them, dissent was disease. We have not yet reached that point, but "therapy" for illegal campaign contributions is coming uncomfortably close to it.



Hydro, from Duncan Coker

September 24, 2014 | 1 Comment

The hydraulic fracturing process which has lead to a big increases in recoverable fossil fuels is having an interest effect on other resources. Hydro is the Greek root for water and the process is extremely water intensive. In places where water is finite in supply like the western states, water rights are being sold by municipalities at prices 10x those just a few year ago. This is not a new story but an interesting twist. I'd rather own water rights than oil/mineral rights out west and I wonder how long before the h2o commodity becomes actively traded.



 "Nobel winner Fama: Active management 'never' good":

Eugene Fama, the University of Chicago investing researcher who won the Nobel Prize in economics last year, once again warned investors against the lure of active management.

"The question is when is active management good? The answer is never," Fama said to laughs Thursday at the Morningstar ETF Conference in Chicago .

"If active managers win, it has to be at the expense of other active managers. And when you add them all up, the returns of active managers have to be literally zero, before costs. Then after costs, it's a big negative sign," Fama added.

He's known as the father of the efficient-markets theory, which says that asset prices reflect all available information; investment managers can never truly get an edge.

Fama dismissed the idea that it was possible to pick the best managers.

"The good ones might be good or they might be lucky. The bad ones might be bad or they might be unlucky. We can't really tell the difference," he said. "I don't know if it would ever make sense, even if the fees were zero, I don't think you'd be better off because you'd be investing in an undiversified way."

Read More Economy weak because of 'stupid' policies: JPMorgan pro

Asked about Warren Buffett's long-term record of picking good companies, Fama said the Berkshire Hathaway (BRK-A) chief actually agreed with his index-based thesis. Buffett said recently he actually has directed much of his fortune to be placed in passive index funds after he dies.

"He's, like, my hero," Fama said. "What he says is, 'I can pick a company every couple years, but if you have to form a portfolio, you're better off going passive.'"

"All the behavioral people say the same thing," Fama added. "In the end, they realize that the game of doing something active is fraught with problems."

Fama was also asked about hedging against big crashes, like what happened to the markets in 2008. Attempting to protect against them, he said, was the unwinnable game of market-timing.

"If you sold when the market crashed, you made a big mistake, and if you saw it coming you're a genius," Fama said.

Gary Rogan writes:

Everything that The Sage deems right and proper will happen after he dies, the charities, index investing, who knows what else. I guess it's no longer politically correct to say "Après nous, le déluge".

The statement "If active managers win, it has to be at the expense of other active managers. And when you add them all up, the returns of active managers have to be literally zero, before costs." is probably mostly correct but given that some active managers are also activist managers it's not completely correct. Also imagine that every single person in the world was an index investor, that would be an absurd situation where nothing in particular but the inflow of new money would determine the price of all stocks. And still, if the average of all managers, aren't some managers better than indexing? At the very least Fama could say that no person is capable of either being or choosing a better-than-average active manager, but he isn't actually saying this.

Bill Rafter writes: 

That's a poor logical argument by the good professor. While Dr. Fama may be right that before costs the average return of all active managers must be zero, clearly it is possible (if not likely) that there will be serial winners and losers. Speaking only of the latter, several years ago we were asked to propose solutions to a shop that had managed to underperform the S&P for every one of the prior 15 years. They did not like our proposals and also rejected proposals from other research providers, continuing with their own methods. They are now 0-18 versus the S&P. Since it is possible for some to get this investment "thing" totally wrong, it is perfectly logical to assume that some others have better than average performance with consistency.

anonymous writes: 

In the case of Buffett you might ask: cui bono? His non Berkshire index assets could fill an Omaha thimble. Is it not the same press release as Betfair put out about their fixed odds versus exchange book on the Scots referendum?



A good indicator of an over-valued, or at least fully valued, market: "Insider Buying Dries Up Defying $275 Billion of Buybacks"

On the other hand, if prices are high, why not sit on the cash until they come in a bit? Are insiders not buying in a risk diversification move?

Gordon Haave:

One wonders if insiders are really immune to errors that individual investors make. Individual investors see their neighbors portfolios going up and wish they had owned more stocks and then jump in. In the case of insiders they actually see other directors/executives making a fortune from owning shares. I would have to think that the psychological pressure of "missing out" would be even greater that that of the average guy.



We spend a great deal of time discussing the Great Seasoner but never give due attention to the person who has best understood what Henry Singleton was doing all those years.

anonymous writes:

Reinvesting cash flows while deferring taxes indefinitely? 



Trader, from Jeff Watson

September 22, 2014 | 2 Comments

 44 years ago, the Beach Boys went through a major shift and produced some incredible material. One of my favorite songs of theirs is the antithesis of who and what I am. It is called, "Trader," and blames the decline of everything on the spread of people willing to trade goods and services for the mutual benefit of both sides. Still, I love the song because I am above pettiness, will continue to love it, despite the message. My first summer girlfriend in San Diego, turned me on to this when I was 16, and if you saw her you would capitulate also.

Trader sailed a jeweled crown
Humanity rowed the way
Exploring to command more land
Scheming how to rule the waves.
Trader Trader spied a virgin plain
And named it for velvet robes
Wrote home declaring,
"There's a place
Where totally folks are free
(Happily completely)
Nourishment fills the prairies and the hillsides
And animals stalk the mountains and the seaside
And fish abound the lakes and birds the skies
Signed sincerely."

Trader found the jeweled land
Was occupied before he came
By humans of a second look
Who couldn't even write their names shame
Trader said they're not as good
As folks who wear velvet robes
Wrote home again and asked, "Please help
Their breasts I see; they're not like me
Banish them from our prairies and our hillsides
Clear them from our mountains and our seaside
I want them off our lakes so please reply
Signed sincerely."

Trader he got the crown okay
Cleared humanity from his way
He civilized all he saw
Making changes every single day say
Shops sprang over the prairies and the hillsides
Then roads cut through the mountains to the seaside
The other kind fled to hide, by and by,
And so sincerely

This song is the antithesis of what I believe, and how I run my life, yet I love it and it will always be on my playlist…maybe for sentimental reasons, who cares. As a side note, when this song was recorded, the author and singer of this song, Carl Wilson was a 20% shareholder in a $150-$200 million dollar value enterprise.



Dear Vic,

I think your readers might enjoy this white paper that I wrote entitled "CTAs and Rising Interest Rates: Is the Party Over?" [19 pages]. Also curious what they think about it.




 The webmistress asked me "what can you learn about life from turkeys? You might be able to write one of your 10 things about markets from turkeys" after she read that the book that the documentary My Life as a Turkey was based on. I start by noting the turkey is prey for many animals and has to learn from day one to look and observe and be alert and sensitive to everything in their environment at all times to survive. They become very smart and prone to survival. "Their understanding of the forest is beyond my ability to comprehend".

anonymous writes: 

I wonder offer that male turkeys especially have a fearlessness one would not expect. When I worked for the Chair, one Fall day I was leaving the house and near the end of the driveway, there was a tom with at least 6-8 females. He blocked my way for a good 5-10 minutes until his version of the fairer sex were done in the area with whatever it was. Mind you I was in a mid-sized SUV and gingerly tried to drive around the group, flash my lights, blast my horn to no avail. I was extremely impressed by such bravado and courage as I am a big fan of the underdog. I found similar qualities in the hyena when on safari in South Africa (something everyone should do once). Maligned throughout history, in point of fact, they are like the Swiss army knife of the animal kingdom with both known and somewhat hidden talents (courage, incredible bite strength, great hearing and smell, stamina, running speed, hunting in packs, all around intelligence) all making for an extremely strong survivor in a hostile environment.



 I first heard it at an LAX airport strike that had thousands of asking passengers scurrying desk to desk to escape the hive. The strike was an honorable test, not the horror everyone thought. Among them, an athletic man in a tailored suit patiently glided, to avoid the long lines, from employee to employee, to inquire of the carriers to NYC. At first, I thought he was following me until he asked, 'Are you following me?' Whenever I encounter a person who of my habit steps out from the crowd, I am surely charmed.

He was a Wall Street trader with a sports car, doll wife, spoke Japanese… and was about to pivot in life. We ended up traveling together on one of the last flights from the airport and, on arrival at Kennedy, he agreed to accompany me to a friend's trading room. He bowed at the neck only on introduction to the president, and murmured, 'Charmed, I'm sure.' Then he went on to prove his capacity for trading and Japanese in conversation, and that indeed he had had a tryout as halfback for the NY Jets on the traders' field.

He had returned to his NY glory to pull the plug – quit the job, divorce the wife, sold the car, and gave up football in order to return to the west coast to write his version of the great American novel. A month later, he was caught and imprisoned for bank robbery of the San Diego Wells Fargo when the police followed a trail of witness fingers out the bank door, checked the trash bins en route, and pulled out his discarded sailor disguise and, of course, traced the DNA from the false beard to nab him. The charmer spent the next few years in prison playing football and writing.

Charmed, I'm sure is used in either formal or street introductions with nearly opposite meanings. Among the well-heeled it's a warm greeting used in ceremonial introductions. Among the down-at-the-heels by one individual to another the meaning is that they don't trust you entirely yet, and if you screw up once, there's no chance of getting anything out of the deal.

As the years rolled by, and I jumped from fashionable sidewalks to the gutter, and back again, I've tuned into occasions that deserve the term. In sparring with a karate instructor for policemen, he suddenly stopped after what I thought was a missed kick and asked, 'Would you like to see that again?' I laughed thinking the kick had missed, but on looking down his toe marks over my heart covered my white T-shirt. Charmed, I'm sure, he slapped my face while my chin was down.

My first girlfriend stopped after the first five minutes of my first sex to explain, 'No, it goes there. Charmed, I'm sure.

In racquetball at a St. Louis pro stop, I wound up to take a backhand off the back wall and hit a killshot 40' away on the front wall. As I executed the shot, my opponent Ben Colton stood hands on hips in front court without attempting to cover the ball. 'This is for the money,' I scolded, 'Play ball!' He replied that it was his only opportunity to study my famous backup up close, and that it was worth losing the point because the ball would roll off anyhow. He was better than he thought, and lost the game by one point.

Yesterday, an Australian nipper dog bit me in midstride on the shoe instep from behind. It was such an expert move that I stood for moments in awe, and then understood it had dry gulched me, and would do it again. So I squirt mace in its teeth. In the same manner, once hiking the Pacific Crest Trail I nearly picked up a 10-inch long baby green Mojave rattlesnake because it was so perfectly colored and buzzed its tail pleasantly. And then was jolted to realize I was charmed, I'm sure.

In daily encounters you will see the foam head on a glass of beer, and take that instant to ask, am I charmed, I'm sure?



 This is a short video about quantum computing. I was drawn to the simple explanation of a complex idea and there seemed to be many potential market lessons or at least gaining a new vantage point.

1. There is more than one complimentary way to view something.

2. If you participate you can't know what would have happened if you didn't and vice versa, particularly relevant for size.

3. Intrinsic randomness of superposition allows observations without a probability distribution. Still wrapping my brain around this. An example of ever changing cycles? Or something else entirely? If there is no probability distribution how do you define outcomes of events?

4. Quantum correlations are richer in describing interactions. This idea seems ripe for trying to understand the complexity of market interactions.

5. Attaining perfection is hard, maintaining it is impossible.

6. Viewing quantum computing affects the results, perhaps in the same way talking a position does.

7. How did you get that result? I don't know is the right answer in quantum computing. Do it yourself so you can understand. Don't trade what you don't understand. don't blindly follow someone else's "system" perhaps there are others…

anonymous writes: 

I agree that the quantum-collapse idea has broader applications to life in general. Danilov & Mogiliansky, many years ago now, used the collapse concept to talk about Tversky's famous quotation, "Preferences are not read off of a master list, but are constructed in the elicitation process." QM discussions have a tendency to go off the rails very quickly, and to attract sophists & cranks. But superposition and measurement-disturbances are, in my opinion, relevant and common to quotidian life.

1 = duality

2 = contravariance (the math.DG kind, not the math.CT kind), on trees

3 = I don't understand what this means either, but we can clearly reason about the unknown without attaching PRECISE probability numbers to it.

4 = I would guess no. Quantum correlations can have negative intersections. But someone here could find out: just allow your covariance matrices to take on complex values.

5 = set of measure zero

6 = talking or taking a position?

P.S. If someone finds complex numbers arcane or silly, I'm happy to share a few bits of perspective.

Mr. Isomorphisms writes:

Just checked the video and revised on Wikipedia and a little googling. I don't think 3 is an accurate statement. Quantum states are expressed as waves which can be added together. Lots of things in the normal world can also be expressed as finite-energy functional spaces. But I don't see where the video said there is no probability distribution. Nor is superposition "intrinsically random". Superposition is just adding things together.

If you check the Wikipedia page for quantum probability it says that outcomes of events are basically defined in the normal way, except since it's a complex space the i=-i equivalence shows up and screws with things.

OK, someone asked for my ideas on clarifying complex numbers. Here's my attempt for those interested:

- First the physical intuition. Electricity travels along power lines. If the transmission efficiency is 1 then the consumer gets 100% of the power produced at the generating station. If the transmission efficiency is sqrt(-1) then all of the energy from the station goes to heating the power line and does no useful work.

Now the maths.

- The usual numbers are annoying because signs "jump" from + to - with nothing in between. the top video shows something else with only very specific points matching up, but instead of showing us only the actually equivalent points it shows us the whole movement, as it were — which is only posible in a smooth space. Complex numbers let us watch what's happening "in between" negative and positive.

- That's why e^i pi = -1. Nothing more special than that pi is halfway around a circle that goes from positive to negative, circling back to positive.

- View the complex line as a line and an angle ⟳. The angle replaces the usual concept of sign. All of the arithmetic on complex numbers works basically the same as regular arithmetic, except that you also take the "angle" (the "amount negative or positive") into account. If you multiply two numbers you need to add their "angles". (In finance, "angle" means "correlation".)

- So I generally think of the complex multiplication happening just on the unit disc, i.e. everything is equal magnitude but has different signs (and fractions of signs). Then I do regular multiplication second.

- However it's impossible to tell -i from +i. (-i)^3 == (—)i == -i So that has to be taken into account.

- Complex numbers don't require any changes to your metaphysical worldview, because they can be represented with real numbers. The matrix representation is on Wikipedia and it looks just as "half-negative" as (num)*(num)=-1 does.

- You can derive trigonometry from complex numbers. In other words the arithmetic induced by adding sqrt(-1) to a number system, matches what people figured out from plane triangles.

- For those who can use R (or don't mind logging into, opening a cloud terminal and typing R), run the functions in . That instantiates a "plat" function, basically like python mpmath's cplot except Cielab colours are psychologically superior to RGB.

You can "plat" polynomials like this: plat( Z, function(x) (x^2+1) * (x-2.3) )

Then red is positive, green is negative, and other colours are somewhere in between. Size is indicated with brightness, but there's nothing special going on here that you can't see in a regular plot.

I believe playing around with simple (and not-simple, if you can think of any) functions in these "plats" will give anyone (a) a better understanding of those functions, and (b) the feeling that the complex numbers are not scary or weird.

tl;dr. The complex numbers just let us look in-between positive and negative. More advanced: if you want to envisage a complex variety, then an idea I had recently is to animate the plat with a parameter that traces around the unit circle (all possible "signs" fed into the function).

The "worse" version of a parabola moving from +1 to -1 to +1 would be it "flaps its wings" with in-between being a flatline at 0–not very parabola-like.

Jonathan Bowers writes: 

I'll agree that I may not have articulated my understanding of superposition very well. In the video they show a coin flip since it also has two outcomes, but emphasized that while the coin flip has a probability distribution quantum computing does not. Perhaps that means that the distribution is always changing or unstable or when or how you measure it changes it.

Mr. Isomorphisms writes: 

I think it's just a superposition (convex combination) of 0 and 1. Same concept as a screwdriver if it could be any mixture of orange juice and vodka. You probably have a small range that you consider "screwdriver" but what if there was a word that meant "anything that's 100% orange juice, 100% vodka, or anything in between". That's a convex combination of oj and v.



 All government, in its essence, is a conspiracy against the superior man: its one permanent object is to oppress him and cripple him. If it be aristocratic in organization, then it seeks to protect the man who is superior only in law against the man who is superior in fact; if it be democratic, then it seeks to protect the man who is inferior in every way against both. One of its primary functions is to regiment men by force, to make them as much alike as possible and as dependent upon one another as possible, to search out and combat originality among them. All it can see in an original idea is potential change, and hence an invasion of its prerogatives. The most dangerous man to any government is the man who is able to think things out for himself, without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane and intolerable, and so, if he is romantic, he tries to change it. And even if he is not romantic personally he is very apt to spread discontent among those who are.

-H.L Mencken, The Smart Set (December 1919)

Stefan Jovanovich comments: 

That voters once turned out in much greater numbers than they do now is true. But those better days were times when the franchise was limited so voting was like balloting in takeover battles for corporate control; the voters for both sides had direct stakes in the outcome. That direct stake on the outcome continued after the franchise was expanded; with that Jacksonian revolution patronage also expanded. The stakes for voters remained very real. Those same rules still apply but now they are limited to the significant campaign contributors; for their interests who gets elected still matters. But for the millions or hundreds of thousands of voters who show up for elections there is no individual interest that is furthered by their ballot. For them voting is a completely ritual activity. Many people know this and choose not to bother. The fact that so many continue to vote is what is truly noteworthy. One can take the turnout either as proof of people's faith in democracy or as confirmation that politics has nothing to do with logic. Mencken would say "both".



 Last night just before going to bed, my iPad prompted me to update the operating system. So I did it without hesitation - Apple had built my trust through past experiences. This morning I found the iPad is dead - the update failed miserably. I then tried to restore it by connecting it to a computer, but had no luck. I searched and found news articles reporting large scale failures worldwide. It affects all iPads, and iPhones (if you have one, please don't update yet!). Problems appear not only with the update process, but also with loss of personal data and overall usability. Reportedly a lot of devastated people complain in social media.

Is this the beginning of the end of the iFervor?



"Success in the opening can lead to a weak middle game, and finally defeat in the ending". Tom Wiswell, proverb, 20 in "During the Game" from edspec. The story of Friday, September 19th in markets and many others.



 1. There is always a web of market interconnections, but the problem is that the web is always changing.

2. You should never try to make money the same way two or three times in a row.

3. The worst mistake a person can make in business is to get in over his head. Had I held the 7 or 8 largest investments I made, each one a 6 or small 7 figure expenditure, most of them would have made me 9 or 10 figures. The next worst mistake a person can make in business is to pursue a lawsuit when a reasonable settlement is in the cards. Comparable to this mistake is to get in business with disloyal or untrustworthy partners.

4. I am reading The Tyrrany of Experts by William Easterly and each page has new insights as to why the common man, the lowly man, when left to his own devices can improve his well being through technology, innovation or trade. The opposite side of the coin is how technological development from an authorian dictator can lead to trampling of natural rites and ruination. The story of the hard work that led to the prosperity of the immigrants on Greene street in Greenwich Village in new York is particularly inspiring and warrants a visit to that street.

5. The Story of Mankind by Hendrick Willem Van Loon written in 1922 is a great unbiased history to read to your kids.

6. The bonds have been down 14 days in a row or so on a 3 day basis, and they are due to go up.

7. The grains are at a series of 20 day low below constructal numbers and are worth a buy.

8. On option expiration day, the markets will revolve from one round number to the other in order to create maximum churning.

9. The book Principles of Chemistry by Michael Munowitz is the best science text book I have ever read, and I wish I could turn over the trading business to my colleagues and spend a few months educating myself by reading it and his companion physics book.

10. My colleague Gene Epstein to whom I turned over the moderation and selection of the New York Junta which I ran for 30 years has been improved vastly by his supervision. However, he doesn't like the kind of speakers that I get who teach people like me with so much more to learn like George Meegan on how to walk 12 years in a row or Gary Hoover on the story of retailing or Ian Bagley on the heroes of New York.

11. The part 3 of Atlas Shrugged which one saw last night is very inspiring and true to the message of "living for oneself and not as a sacrificial object". The portrayal of the politicians is true to life, and the heroic messages that the producers in Galt's Gulch give to Dagny are timeless and inspiring. Galt's speech is done very well, and there are exciting visual effects of trains and trees and abandoned factories. It starts nicely with Galt refusing to be part of a employee owned business where everyone shares what everyone makes. 

11. I would hypothesize that anyone who bought an index fund of companies with the name video or game within it, would have superior market performance the next 12 months. The moderator of our site likes to invest based on what's hot for millennials, and her performance including several 5 baggers like Tesla, and Netflix has been exemplary. Had I followed her guidance, I would be a wealthy man.



As rates begin to rise towards a more normal level in the years ahead, what do you think will happen ? What are the implications for money managers using futures? I wrote an article last Spring entitled  CTAs and Rising Interest Rates: Is the Party Over?   [19 page PDF].





 Some of the largest wooden vessels ever built were designed as throwaways. These "disposable ships" were built in Canada to be sailed to Britain where they would be broken apart so their timber could be sold. Cargos of oak and pine were subject to an import duty of 275% of market value. There was no import duty collected on ship hulls and superstuctures.

Any comparison of these tax dodges with the current popularity of disposing of U.S. incorporation is clearly subversive. No patriotic American would ever do anything legal to avoid the tax on foreign earnings being landed on American shores.



 I found an interesting article about the town near Lookout Mountain and Ruby Falls: "Chatanooga's Gig: How  one city's super fast internet is driving a tech boom"

Like Atlanta they have a very nice aquarium and offer a fun downtown area to visit on the way to hiking in the Smokies. But this attraction of venture capital and entrepreneurship was news to me.

"The city is one of the only places on Earth with internet as fast as 1 gigabit per second – about 50 times faster than the US average. Despite Big Cable's attempt to block the Gig's expansion plans, money keeps flowing into Chattanooga"


"The fibre-optic network uses IntelliRupter PulseClosers, made by S&C Electric, that can reroute power during outages. The University of California at Berkeley estimates that power outages cost the US economy $80bn a year through business disruption with manufacturers stopping their lines and restaurants closing. Chattanooga's share of that loss was about $100m, EPB estimates. The smart grid can detect a fault in milliseconds and route power around problems. Since the system was installed the duration of power outages has been cut in half."



 How to Criticize with Kindness: Philosopher Daniel Dennett on the Four Steps to Arguing Intelligently:

In Intuition Pumps and Other Tools for Thinking — the same fantastic volume that gave us Dennett on the dignity and art-science of making mistakes — he offers what he calls "the best antidote [for the] tendency to caricature one's opponent": a list of rules formulated decades ago by the legendary social psychologist and game theorist Anatol Rapoport, best-known for originating the famous tit-of-tat strategy of game theory.

Dennett synthesizes the steps: How to compose a successful critical commentary:

1.    You should attempt to re-express your target's position so clearly, vividly, and fairly that your target says, "Thanks, I wish I'd thought of putting it that way.

2.    You should list any points of agreement (especially if they are not matters of general or widespread agreement).

3.    You should mention anything you have learned from your target.

4.    Only then are you permitted to say so much as a word of rebuttal or criticism.

If only the same code of conduct could be applied to critical commentary online, particularly to the indelible inferno of comments.

But rather than a naively utopian, Pollyannaish approach to debate, Dennett points out this is actually a sound psychological strategy that accomplishes one key thing: It transforms your opponent into a more receptive audience for your criticism or dissent, which in turn helps advance the discussion.



 Joseph Heller invited Puzo and Updike to steeplechase where you get 50 rides for a 0.25. He told them how when he was a boy growing up in Coney Island he'd wait near the finish for the old people to come out, and ask them for their unused rides of the 50 they didn't take. In the current, Puzo went through the revolving barrel and hurt himself and they all sat on a bench and talked about their terrible publishers and agents, and the decline of the book business, and their kids wasted time on television. As they left after a few hours, some kids came up to them. "Hey mister, can I have your tickets?". There were 47 left.

I played raquetball on Sunday at the central park courts, where 53 years ago I won three national tournaments with my father watching. I was good in those days, and the only way I could get a game was to play my opponents for a quarter hitting every shot behind my back, or if they were really good, hitting it through the legs. I challenged some guys to a match, and they told me they would only play me their backhand against my regular game. I jauntily refused and challenged a 70 year old guy to a singles game. He was ahead 11-6 when he hit one to my backhand and I ran to cover it, and for the first time in many tens of thousands of matches, I fell hard on the back of the head. The sound was so great that the players 4 courts over rushed over to see if I had lost consciousness. When I got home, I mistakenly told the perfect wife about it, and she looked at me and said "should we use heroic measures tonight to wake you up if you don't wake up". I said "No, just take the money, and put it in index funds, and marry someone much younger".

Pitt T. Maner III writes: 


Hope your head is OK and you recover quickly. Sure that the doctors on the site have told you to be careful with that type of injury. At 70 you are considered just a kid in Palm Beach…

I have not heard from Mr. George Meegan lately [recent junto speaker and world traveler] but he is in the news in New Zealand.

Tomorrow an anniversary date recognized in New Zealand (where it is already the 18th).

"1983 - British adventurer George Meegan finishes a six-year long walk from the southernmost tip of South America to Prudhoe Bay, Alaska; covering 30,605 kilometers (19,021 miles)."

Thursday, September 18 - World - NZ Herald News



I have been spending a lot of time researching GDP construction and it's history and this will be a part of my book that will be out in about 6-9 months. The basic issue is that "how" to measure an economy is a difficult thing. Very difficult. There were many competing theories on it in the first 1/3d of the 20th century. Modern GDP was constructed to serve the purpose of measuring the potential output of the economy for the purposes of conducting WW2. It has since become standard around the world as the only way to measure the economy.

The issue is that it does a very good job of measuring things in the short run. However, it can't take into account the "quality" of economic activity in the long run.

For example, under GDP 100 guys digging ditches and filling them in again are seen as better for the economy then 75 guys doing productive work and 25 guys staying home and taking care of their kids.

Likewise, 100 guys getting paid to destroy productive capital and kill people are seen as better for the economy then 50 guys working in 7-11 and 50 guys taking care of kids, painting, and playing the guitar.

GDP assumes in essence that people are rational actors and that if someone is being paid to do a job that it is by definition productive activity. However, with government that is not always the case, and with zero interest loans for wall street that is not always the case either.

There is a lot of chatter in public about why wages are stagnant and the average person isn't better off than they were 20 years ago despite the rise in GDP. The answer lies in GDP's accounting for War and other government expenditures, as well as the much more complex issue of how the banking/finance industries are reflected in GDP (you would be shocked at the answer to this most likely, but it is so complex I still don't fully understand it myself).

Stefan Jovanovich writes:

I remain amazed at how easily our political economy dismisses the pure waste of warfare and its effects.

Ed Stewart writes: 

Interesting points anonymous and Stephan. Anonymous, I look forward to reading your book.

Your ditch digging example is an easy one to see but when you start using that logic - what about the tax preparation industry that exists do to an ultra-complex tax code? There are many other examples. Many aspects of the regulatory state might be best considered a jobs program for the reasonably intelligent in the way that ditch-digging is a jobs program for physical laborers.

I had a realization a while back. We might be better off if we could shut down all of the fake work and specific social programs that actively harm productivity, that provide bad incentives (more kids = more $$$), and then just pay a basic annuity to all adults (privatized as a property right) to set a floor on living standards. Make it tradeable and you have an easy mechanism to transfer citizenship, etc. Citizenship is worth something why can't be buy and sell it, and why don't we earn anything directly from it like a dividend stock or bond.

Stefan Jovanovich writes:

Ed (and anonymous also) may be going down the path that my grandfather first set me on back in 1950s. He said that the Wobbly idea about "one big union" was hopelessly naive (he had been in his early 20s when he and grandma joined the IWW), but there was at the heart of it one very good idea - markets work brilliantly for consumers aka people who have the ready but they don't work nearly as well for "jobs". He had started mining when hand drills and sledgehammers were used to create the holes for the dynamite. (He told me that he even worked on one old and stupid mine in Southern Illinois where the owner still used black powder; he said he was young and stupid about politics but not about mining. He worked that job until he got his wages and then took the train to Chicago where he found a job working on what became the Navy Pier.)

He thought the Marxists had it backwards; the last thing you wanted was for the government to own anything and have permanent workers. They would inevitably become worse than even the most naked capitalists because they would never, ever have to stand the test of the market. You wanted competition and prices in everything; BUT you had to have everyone who accepted those rules be able to share in the prosperity they created. In his day miners did that sharing by literally passing the hat for sick and disabled workers and for burial expenses (for the children as much as for the miners and their wives). The idea of a "one big union" was that the hate would be passed for every person who was in the United States legally (which was everyone back in the day when people were freely allowed to come here if they passed the entry test for communicable diseases).

When he asked him about Bismarck's "social" programs, which were the model the American Progressives used for their "reforms" (sic), he just laughed. "You mean the laws that guarantee that every gymnasium graduate has a job telling everyone else how to behave?"

He would have agreed with Ed that even citizenship was a property right that people should be free to buy and sell. What he wanted attached to that right was the annuity claim to have the hat passed. And, he thought everyone - Rockefeller included - should have an account. "It is the only way to prevent people from thinking they need to make distinctions between the people who "deserve" to have the hat passed and those who don't." Sooner or later, he told me, the preachers will want to get their hands on the money and say it came from God. "But what about the communists and the socialists?" "Same thing, only they will say it came from Darwin."

The man has been dead for more than half a century, and I still miss him nearly every day.

Ed Stewart writes:

Very interesting, Stefan. It makes a heck of a lot of sense to me. I would love to read more if your grandfather or anyone else ever mapped out the idea further.

Stefan Jovanovich responds:

Ed asked if anyone had ever mapped out the Wobbly idea of one big union. The answer is "yes" - every time someone sits down and calculates what is spent on "poverty" and the parts of public health that do not deal directly with quarantines, innoculations and other direct measures against communicable diseases (in other words, almost all of the "wellness" spending). The most recent effort was this one:

"This week, the U.S. Census Bureau is scheduled to release its annual poverty report. The report will be notable because this year marks the 50th anniversary of the launch of President Lyndon Johnson's War on Poverty. In his January 1964 State of the Union address, Johnson proclaimed, "This administration today, here and now, declares unconditional war on poverty in America." Since that time, U.S. taxpayers have spent over $22 trillion on anti-poverty programs (in constant 2012 dollars). Adjusted for inflation, this spending (which does not include Social Security or Medicare) is three times the cost of all military wars in U.S. history since the American Revolution."

"Federal and state governments spent $943 billion in 2013 on these programs at an average cost of $9,000 per recipient. (Again, Social Security and Medicare are not included in the totals.) Today, government spends 16 times more, adjusting for inflation, on means-tested welfare or anti-poverty programs than it did when the War on Poverty started. But as welfare spending soared, the decline in poverty came to a grinding halt. How can this paradox be explained? How can government spend $9,000 per recipient and have no apparent impact on poverty? The answer is that it can't. The conundrum of massive anti-poverty spending and unchanging poverty rates has a simple explanation. The Census Bureau counts a family as "poor" if its income falls below specific thresholds, but in counting "income," the Census omits nearly all of government means-tested spending on the poor. In effect, it ignores almost the entire welfare state when it calculates poverty. This neat bureaucratic ploy ensured that welfare programs could grow infinitely while "poverty" remained unchanged."

Grandfather, being clear-sighted, knew that you could take all the money spent on the officially poor and divide it up among everyone - Rockefeller included - and eliminate poverty tomorrow; but, that would offend everyone who wants vices to be illegal and everyone (usually the same person) who wants official helping to be a sinecure that can be passed down from generation to generation just as parsonage livings once were. These are my words but his thoughts: "The snobbery of the caring classes will always win."



In an article today about Pimco they disclosed that they prefer holding bond futures as opposed to cash bonds. The logic being that since futures only require a good faith margin they can deploy excess capital into higher yielding shorter term corporates for the interest payments. The futures positions are used primarily to capture any price movements on bonds. They hold a $63 billion position in 5, 10, 30 year futures which I calculate represents roughly 11% of the open interest and every quarter they would need to roll 630,000 contracts.

Jonathan Bower writes: 

One of the huge trades I remember them making many years ago on the floor was selling 30-50k out of the money puts on US and TY. They did this several expirations in a row. The rationale was they could capture the premium and if the market went down they'd take delivery at their line in the sand. Perhaps it is an efficient way to put on size at a target level.



 There is good news in the nuclear patch. The US Nuclear Regulatory Commission (NRC) approved a new nuclear power plant design. It is GE-Hitachi's Economic Simplified Boiling-Water Reactor (ESBWR). Barring a few procedural hoops, GE-Hitachi's design is officially certified.

It's a big deal.

GE-Hitiachi can now sell their reactor to any qualified buyer in the US. Once certified, the design can be used to make unlimited number of reactors without additional regulatory review.

Internationally, NRC's certification is the golden seal of approval. Sovereign buyers know the certification means the design and equipment is safe and reliable.

For all practical purposes, there are only two reactors that have earned NRC's design certification. The other is Westinghouse's AP1000.

Today, utilities can go to the reactor store and buy an off the shelf reactor. They now have a choice between a boiling water reactor and a pressurized water reactor. No matter which they chose, it will seem expensive.

A new ESBWR or AP1000 will cost owners approximately $7.5 billion per copy (this is opinion, not fact; it varies by location). This hefty price tag limits the number of potential buyers.

New regulatory framework.

An easy way to understand NRC's certification process is to consider commercial airplanes. When Boeing or other manufacturers design a new airplane, they must submit their design to the FAA for their analysis and approval. Only after the FAA approves the design can Boeing build planes for unlimited number of airlines.

A decade ago, the NRC changed their regulatory process to mirror the process used by the FAA. Now the industry needs only to seek approval once so they can build many.

Builders must also seek site approval. That process has also been modified. After site approval, a utility can build any reactor they choose as long as it has been certified.

The site process also mirrors FAA's process. For example, FAA must also approve new airports. After approval, any certified plane may use the airport.

Reactor market.

Other than TVA restart project, only two utilities are building new reactors. Four AP1000s are under construction in Georgia and South Carolina. More have been announced. Many more have been shelved.

The current market is not the US or EU - at least not yet. The current market is China, India and oil producing regions. For example, Saudi Arabia is going "all in" on civilian nuclear to displace domestic oil consumption.

Internationally, nuclear power is far cheaper than most alternatives. When a nation is forced to import hydrocarbons, most pay a price that is indexed to oil. When those hydrocarbons (oil, natural gas, coal) are used as fuel for a power plant, the cost of electricity becomes prohibitive.

In Saudi Arabia's case, nuclear can easily pay for itself in five years (plus or minus). If oil prices increases, the payback is even faster.

Here is a bonus. No western nation will criticize another country if they choose to build a nuclear plant using NRC-certified technology. Even Iran could build an ESBWR or an AP1000 without much objection.

Good news today.

There are many winners today. It is hard to find a loser. The regulator delivered as promised. The market has a new choice. It is easier for utilities and nations to buy new nuclear technology.

To add frosting to the cake, ESBWR and AP1000 technologies are neat. Both are next generation designs, which take advantage of passive technologies. There are fewer moving parts. The plants are safer, more reliable and economic. Every backyard should have one.



 I live in a very safe neighborhood, but tonight, I was attacked.

Indulge me as I explain and muse at the same time…

As many of you know, I am not a real trader/speculator like most of you. I believe the road to riches comes via riding the tortoise. I eschew the hare.

Managing risk within in a portfolio is paramount to success. If one can lessen risk, one, slowly but surely, gets ahead.

But there are some risks that you just can't account for. Things that unexpectedly come out of nowhere and knock you for a loop. Things that, no matter how hard you try, you just can't account for them happening.

I had just such thing happen to me tonight. I was out for my nightly walk in my very safe south St. Louis county neighborhood. A neighborhood far removed (25 miles) from the riots that happened in Ferguson a few weeks ago or the crime that occurs in north St. Louis city or East St. Louis.

I was walking my usual 5k route. It has the right mixture of hills and level paths that weaves through my subdivision and neighboring subdivisions. As a matter of fact, on this pleasant September night, I was enjoying the cool fall feel of the night while talking on my iPhone to Professor Haave…

…when it happened…out of nowhere…I was attacked.

The attack came swiftly and silently. I never heard a thing

One second, I'm walking, chit-chatting with Gordon, and the next second, BAM, something cold cocks from behind, right in the back of my head. For a second, I saw stars.

I was hit so hard, that went flying forward, almost knocked over. But I was able to right myself.

Having grown up in a rough neighborhood, I've been in this situation before. I quickly regrouped, turned my body sideways to decrease the "body area" available for another strike from my unseen enemy, brought my head in close to my body to protect it from further blows, raised my arms up in a defensive position ready to defend or strike.

Just as I was turning, I saw something zip over my head, and figured that my attackers were throwing something at me and missed. I braced for another blow as I searched for my attackers…

No second blow came. And no attackers were to be found…

As I'm processing my surroundings, I'm also talking to Gordon, basically saying, "what the crap just happened? I just got smacked in the back of my head." I can hear Gordon talking to me, but I'm not really listening…my mind is reeling and my senses are on high alert

As all of this is happening, my mind is processing the data that is available…

1. Silent attack (check)

2. Swift attack (check)

3. I saw something that went over my head as I was turning back towards my attacker(s) (check)

4. That something that went over my head landed in the tree right in front of me (check)…wait…what? NO CHECK…

Then it hit me…….even though it was very dark, I could see something up in the tree about 3 feet above my head. It looked like a blob of some sort. Wait…..that's not a blob….that's an owl!

Then it all made sense…I was just attacked by an OWL. Yes, a freakin' OWL just attacked me in my safe and secure riot free neighborhood. And to reiterate, I wasn't just given a love tap by this owl…oh no…it hit me in the back of my head so hard that it almost knocked me over. I saw stars!

I announced to Prof. Haave what had happened, and turned my iPhone on to the camera feature and got this picture of the culprit.

So, now I'm back home, with a knot on my head and a headache to match. I've got some minor scratches, but nothing too bad. I'm probably going to take a shower and go to bed shortly……and dream about ways to account for the risk of potential future owl attacks.

Of course, why stop there…My neighborhood is lousy with squirrels…..and as we all know, squirrels are Imps of Satan. Evil little beings that chew up my ceder roof shingles. I hate those little tree rats.

So do I account for the risk of squirrel attack. If so, how? What about opossums? Those things are mean. And let's not forget about the skunks.

How do I account for all these risks…?

Or, maybe…I'll just not worry about it. You can't account for all risks. And some risks aren't worth accounting for. Sometimes you just have to put up with the headaches caused by rare owl attack.
Yeah, that's it. I just won't worry about the things that really don't matter that much.

However, I do have a headache, so owl have to take some aspirin before I go to bed…but I'll hang around and write more if you can sparrow a moment for some more bad puns.

Sorry those puns were kind of fowl.

(I'll show myself out.)



Interesting study, though the numbers are small.

"Study Says People Smell if Someone Has the Same Political Beliefs as Them"

Scott Brooks writes: 

You can also tell a lot about people from the shoes they wear, their clothes, the kind of car they drive, and how many bumper stickers they have on their car. 



The Betfair Sportsbook is paying out a substantial six figure sum on the NO vote three days before the market closes, fully confident that the Exchange will once again be the most accurate barometer of a political vote…

The moves comes as the £8.6m Exchange market remains vehemently in favour of a NO vote at 1.27 (1/4 and a 79% likelihood), despite opinion polls predicting a much closer result after the votes have been counted on Friday. Over 85% of the total volume traded is in favour of a NO vote.

Several big individual trades continue to come on NO, with one customer staking £55,000 and another backing it for £27,000 on Sunday alone.

There has been little sign of the YES vote gaining any traction with political bettors, trading at 4.5 (7/2), and the average size of bet placed on this outcome under £80, in comparison to the £465 average bet for the NO vote.

Betfair's Naomi Totten said: "Political bettors have often favoured the Exchange as their choice of betting platform and it has historically provided an accurate prediction of political outcomes. Paying out early on our Sportsbook is testament to the esteem in which we hold the illustrious track record of our Exchange.



 One attended a lecture By Malcolm MacKay, author of Impeccable Connections, about the rise and fall of Richard Whiteny, who was the face of the stock market during 1920-1936 before going broke pegging the stock of a distillery in New Jersey whose game plan was to sweep the nation with apple jack after prohibition was repealed. Whitney spent 3 years in jail and had the entitlement that one often sees among the white shoes whereby when he was in trouble he'd go up to his worst enemy on the floor and ask him, "spot me 250,000 on my face" for a few months as I'm behind on some debts. He had 15 outdoor servants and 5,000 acres on his hunting estate in short hills so often he was in debt. He believed in free enterprise and thus was assured of getting bad press but he deserved it, as he showed no remorse for all the millions he embezzled. Fortuitously he embezzled so much from the NY Yacht Club that they had to sell their adjacent property to the Harvard Club where the lecture was held, and where the present author was not on the losing side of the lead up to the Nationals there for 10 years. He jauntily walked into the US steel pit on black Thursday and bid up the shares of all the blue chips thus temporarily stemming the tide of black Thursday so that stocks closed down only 3.5 %^. His brother ultimately paid off all his debts, and knew of his transgressions but was advised by the senior Davis law firm not to bail out a wrong doer as he might be an accessory to the crime.

Whiteny always wore his Porcelain pin and got some good hits on the prison baseball team playing first base. The wife came back to him after his mistress left him shortly before he entered Sing Sing where he was called Mr. Whitney, and the prisoners stepped aside when he passed. He ultimately tended a farm in Mass, and started a mail order orange company in Florida which he kindly offered at cost to his Harvard classmates on his 50th reunion book. He was the bond broker for the Morgan Bank interests during his heyday.

One should add that I had two distinguished guests with me, the father of market psychology, Mr. Brett, and Mr Siskind, the king of real estate deals during the last 50 years. Brett wondered whether Mr. Whitney had bi-polar disease and Donald Siskind noted that his personality was very similar to many of the real estate developers of the the previous generation. I would note that he reminded me of Peter Peterson who would throw out memos on the floor on the understanding that the servants would pick them up and transcribe them. It should be noted that Peterson once told me that Lorie liked to call him whenever there was a new joke, and didn't hesitate to do so during the Oct 19, 1987, crash interrupting Peterson from a board meeting.



 I now recall that Victor once mentioned that Charlie Munger wrote about him in his book, but I had forgotten about it, and it was a surprise to see Victor's picture and a very complimentary commentary about him and "Niederhoffing the Curriculum" in Poor Charlie's Almanack.

The book is not new, it's from 2006 but I find it worthwhile. Some day I'll resolve the cognitive dissonance between Stefan's experience-based opinion that Munger is evil and the relatively useful book in which he doesn't appear to be.



 I saw a great true documentary on the Discovery channel a few weeks back and it seemed to have some market lessons. It was unique in that there was actual film footage of an accident taken by the passengers/victims themselves.

It started out innocently enough with 22 tourists going on a sunset whale watching cruise on a double deck 60 foot sightseeing boat. The sky was ever so slightly overcast with slight rain. The 22 passenger/tourists were filming themselves and showing their excitement. A few in passing mentioned the weather with one man saying to his beautiful wife maybe we shouldn’t go, I am a bit nervous. The sexy wife said, oh stop worrying (sexy broker offering some stock in a slightly down market?). The captain now exits and gives a small speech and says, oh don’t worry about the weather, I have been doing this for 35 years (your broker saying great market buy any dips and don’t worry), enjoy your sightseeing trip and whales. Now the film footage shows the excited people on board looking forward to seeing the whales as the sun sets.

Unfortunately the whales hang out by an island where the seals hang out and where the great whites also hang out. The weather unexpectedly became a bit worse, the captain made an error and a black swan ensued whereby the boat overturned–all of this was filmed by various passengers. Most of them fell into the water and were panicked. They stuck together for some time and then one had his leg taken off by a great white and the ocean filled with blood attracting a feeding frenzy of great whites, which the experts commented happens 100% of the time. But something happened that the experts have never observed-all of the great whites left the area to make room for the boss a 35 foot great white who had the entire feeding ground for himself (like the markets making way for a great whale, central bank or the like?).

This great white ate the woman who told her husband not to worry as she clung to a giant buoy (actual footage showed this gruesome scene). Even now with coast guard helicopters above, the currents became to strong and people were drifting away. They were close to rescuing 1 chap but were 1 minute too slow as the same great white took him. All told, 3 people were killed and many injured. Sometimes you just don’t know when the markets will do something completely unaccounted for or unexpected in ways that no one imagined.




I continue to await lower oil prices. It's been a long wait. But I've enjoyed following the innovation in shale oil and gas drilling, and fast expanding oil production, especially in Texas.

Maybe the notes below will be of interest to Daily Speculations readers.


The Short Shale Oil Investment Horizon

Shale oil production is booming across Eagle Ford and Permian Basin in Texas. Lower taxes and regulations, and quick drilling permit approvals speed the process. In a recent post Riding Down the Cost Curve: Shale and Oil Sands Extraction, I noted Eagle Ford production continues to exceeded projected production.

A Motley Fool post dated May 2014, noted that Eagle Ford production started with just 358 barrels of oil equivalent a day in 2008 and: "Today, Eagle Ford output now tops one million boepd." The author further tells readers: "And based on projections by Benteck Energy, production is expected to surpass 1.5 million boepd by 2018."

Well, welcome to 2018! Eagle Ford production is now projected by Energy Information Agency to hit 1.5 million a day this month. Horizontal drilling and hydraulic fracturing has brought the nearby Permian Basin field back as well, with production rising through 1.7 million barrels a day.

U.S. shale oil production that the Energy Information Administration had predicted just a month ago would slow by 800,000 barrels a day in 2015, it now predicts will rise 1 million a day, to reach a total of 9.53 million (though being off by 1.8 million barrels a day in just a month suggests at least the second decimal point in EIA's prediction is optimistic).

Shale oil skeptics claim the shale oil boom is unsustainable, and maybe these skeptics influenced EIA projections. Shale skeptics note that new fields play out quickly and many are barely profitable. Shale pessimists think investors are being taken for a ride.

Shale oil enthusiasts argue that this same short life of shale oil wells allows shorter time horizons for investors, making shale plays uniquely sustainable and predictable. The billions invested to reach down to massive deep water reservoirs require many years to break even and turn profitable. Success with deep water investments off the coast of Brazil, Ghana, or Nigeria turn on continued high oil prices a decade into the future, and just as important, depend upon stable governments a decade into Brazil's, Ghana's, and Nigeria's future.

Shale oil operations are much less expensive, requiring just millions and paying off costs then returning profits to investors in just a few years. If oil prices fall off a cliff next year, shale oil drilling will quickly slow or stop until prices recover.

Smaller initial investments allow hundreds more small firms to launch shale oil operations, plus encourages a range of experimental innovations to improve yield, lower costs, and speed production. With shorter investment horizons and less uncertainly, shale oil drilling draws in more marginal operators. The most efficient producers are making lots of money, but less efficient producers keep operating. Marginal shale oil operations that require, say, $90 a barrel oil to survive, can keep drilling with oil prices at $95, since short-term hedging can lock in a similar price for a few years.

So the race is on for shale oil operators to ramp up across the many U.S. shale oil fields, applying newly advanced expertise to yet unexplored fields. Last Tuesday at the Kansas State Fair I talked with a farmer from Salina who from time to time over the years had earned $4 or $5 an acre for oil and gas leases. No firms had yet drilled, but he enjoyed the extra cash. After some years with no leases, a small firm recently offered to lease his land, but this time at $185 an acre.



 Argentinian malbec has been showing up at great prices under ten, and its a good wine. The Argentinian pesos is dropping through the floor. Official rate is 8. Last year I got 10 peso exchange down there at any restaurant or store by paying US cash. Probably could get close to 20 now. That's a nickel to the dollar! There would be good travel deals there. Its a beautiful country.

"Argentinian Devaluation Seen in Offshore Peso Gap: Currencies"

I think its making their wines super cheap. I like them better than the Cali cabs which I'm pretty sick of due to their artificial flavoring.



 Check out this beautiful new book: The Book of Trees: Visualizing Branches of Knowledge

It's tempting to consider information visualization a relatively new field that rose in response to the demands of the Internet generation. "But," argues Manual Lima in The Book of Trees: Visualizing Branches of Knowledge, "as with any domain of knowledge, visualizing is built on a prolonged succession of efforts and events."

This book is absolutely gorgeous. I stared at it for hours.

While it's tempting to look at the recent work, it's critical we understand the long history. Lima's stunning book helps, covering the fascinating 800-year history of the seemingly simple tree diagram.

from a very good blog post review of the book



 Shades of Galton….


In his fourth-floor lab at Harvard University, Michael Desai has created hundreds of identical worlds in order to watch evolution at work. Each of his meticulously controlled environments is home to a separate strain of baker's yeast. Every 12 hours, Desai's robot assistants pluck out the fastest-growing yeast in each world, selecting the fittest to live on, and discard the rest. Desai then monitors the strains as they evolve over the course of 500 generations. His experiment, which other scientists say is unprecedented in scale, seeks to gain insight into a question that has long bedeviled biologists: If we could start the world over again, would life evolve the same way?

Stefan Jovanovich writes: 

The absence of time's arrow is fascinating. The "fittest" compete in a world where the rules are constant and invariable - "meticulously controlled" - while everything we know says that the rules are always changing in ways that even we brilliant humans fail to predict. Still worse for the purposes of experiment, the rules sometimes instantly and violently, even as they obey all of our entirely predictable laws of physics.

Ralph Vince comments: 

This has nothing to do with "fitness," and everything to do with randomness.

Take X scenarios. At each discrete point in time, they branch into one of these X scenarios, such that after Q discrete periods, you have X^Q branches.

Your "expectation," (not in the classic sense) is the sorted median outcome (whereas the classic sense expectation is the probability weighted mean outcome, and I contend that in the limit, i.e. as Q->infinity, they converge *).

About this sorted mean outcome (at QP0, in the paper this thread pertains to) there is a vast region of similar-outcome branches. It sounds to me as though this experiment has lass to do with evolutionary "fitness" and more to do with artifacts of expectation in finite time.

I am working on a proof of *, but working on it with respect to continuously-distributed outcomes (as opposed to discrete "scenarios") as well as continuous(though fininte) time, rather an discrete increments of time to Q.

It is a struggle.

Mr. Isomorphisms adds: 

This may not be what you're looking for in proving *. But the other day I worked out that you can exploit the "soft max" identity (seen in tropical geometry and elsewhere) to get analytic formulae for the median, third-from-top, etc. (only with log base ∞) which might get you where you need to go.

max = log_t ( t^a + t^b + t^c ), t going to infinity

min = log_t 1/( t^-a + t^-b + t^-c ), t going to infinity

second_max = max( {a,b,c} - max({a,b,c}) )

With recursion you can get all the way to the middle. (Now since we've turned the median into a continuous function we can take derivatives, which I haven't simplified or played around with since I realized one can do this. But I don't think that relates to your * — just hoping the method would.)

Steve Ellison comments: 

Regarding Shane's original question, yes, there is a phenomenon known as evolutionary convergence. Isolated areas with similar conditions often have similar life forms that developed independently. For example, cacti originated in the Western Hemisphere, but there are plants that originated in Eastern Hemisphere deserts that also store water and have spiky exteriors.

Gary Rogan writes: 

Clearly there are niches in the environment, just like there are in the economy, the market, the arts, sports, etc. It seems self-evident that a species that thrives on a Pacific island is likely to be different from a species being able to survive in the Arctic or at the bottom of the ocean. Not having "a single, cannibalizing species inhabiting the planet" only speaks to the niches in the environment not some complicated problem with evolution.

Ralph Vince adds: 

Perhaps we DO, in effect, have one, cannibalizing species, depending on how broad the field of view of our lens of examination.. How many animal life forms on the planet have but one eye? "Evolution" having eliminated that not-so-robust construction in all earthly environments. Is our notion of "species," which we believe to exhibit a vast array of life forms, only show us carbon-bases life forms with, at most, five senses. In that sense, is a penguin so much different from a scorpion from a human being? The notion itself of "food chain," with such biochemically similar life forms, is, in effect, an exercise in cannibalism. 

Gary Rogan writes: 

Since the evidence points to life arising or being successfully introduced to Earth just once, it's not surprising that we only have carbon-based life forms. And just because a scorpion shares a lot of genes and proteins with penguins doesn't mean they are of the same species, simply based on the definition of the word: to be so classified they'd have to be able to interbreed. I'm now no longer sure what the point is, but hopefully "descent with modifications" is not in question.

Ralph Vince clarifies: 

My point simply put, is that I don't find "evolution," or "Survival of the Fittest," an adequate model, i.e. a panacea for how life arose and differentiated (to the restricted sense that it has) on earth. I find it too simplistic of a solution, believe there are likely many other explanations (all of which are, in a limited sense, true, similar to the wave/particle properties of light) and am interested in any other explanations (there is not a debate here, aside from one which I don't believe you ascribe to of "Fitness" being an explanation for all life on earth).

For example, (to the best of my knowledge) every living thing seems to fit somewhere into the food chain. Perhaps there is an overriding-yet-undiscovered mechanism requiring this as a license for life on earth? (And if not, why not? A stupid question, unanswered, is still an unanswered question. I believe evolution seems to explain so much that we use it to explain where a different mechanism may be the driving one, yet, occluded by the seemingly-obvious-to-us explanation of "fitness"). Evolution is a powerful explanation, but it does not explain everything.Not that I have a problem with "fitness" as a driver here — clearly it is, so I am not at odds with you there (though I am not so sure life was introduced on earth only once, again, viral and fungal life is a difficult leap from living cells). So I simply wonder of what other driving mechanisms are at work here that we are unaware of.

Gary Rogan writes: 

Ralph, as it's generally hard to prove a negative, especially in open-ended complicated situation, I can't argue that there are other forces at work. As for fitting somewhere on the food chain, all carbon-based life forms eventually get weak and if not eaten at that point die. Weak or dead concentrated proteins and other valuable chemicals present too rich and too easy a food source not to be consumed by something, so this particular point doesn't instill a sense of wonder in me, but perhaps there is more to it than meets my eye.

We should keep in mind that on the average over any appreciable number of generations every existing species or otherwise categorized collection of biological creatures has almost exactly one descendent per individual, otherwise within a short span of time the group's mass would exceed that of the planet or conversely disappear. Therefore available resources present arguably the highest hurdle on the success of species, but as Hamlet said, "There are more things in heaven and earth, Horatio, than are dreamt of in you philosophy."

Ed Stewart writes: 

Speaking of the food chain, I think the concept of the tropic level has some serious application to the markets, as I the chair documented in his first book. Might be particularly good model to analyze the impact of various stimulus measures - what level the stimulus directly stimulates, then who feeds on that level directly and indirectly for investments opportunity.

anonymous writes: 

There are no marsupials above the Wallace Line above Australia. Below there are the myriad odd and strange life forms in Australia. It was a function of geology creating distinct eco zones and separate paths of development of life forms.



"NBA Hawks GM Ferry Takes Leave After Luol Deng 'African' Remark"

My friend wrote to me the other day, "I Wonder what the Politically Correct element is in the markets. What are we not supposed to notice in order to preserve the current order."

I suspect there is a meal for a lifetime in this statement.



 From Borrow: The American Way of Debt:

While Ford may have pushed cars, he never pushed debt. Ford so loathed the sapping of freedom that debt represented for him that for most of the 1920s he refused to sell his cars on financing plans, and in the process nearly bankrupted Ford Motor Company. His hostility to finance, coupling an anti-Semitic hostility to Jewish bankers and a mechanic's hostility to anyone who didn't make anything, hobbled the company. That Dick could get a job at General Motors, which believed in debt wholeheartedly, is largely a testament to Ford's hostility to consumer credit.

In the 1920s, Americans, both borrowers and lenders, discovered new ways to finance consumer credit, and, of course, it was only the beginning. Debt was everywhere, and its ubiquity was made possible by changes in finance, manufacturing, and law that had occurred after the First World War. High interest on consumer loans had long been illegal in the U.S., but around World War I, progressive reformers, seeking to drive out loan sharks, pushed states across the country to raise the legal interest rate. Now able to lend money legally, at rates which could be profitable, new consumer finance industries sprung up overnight. The legal changes coincided with a new generation of cars and electrical appliances that were both expensive and mass produced. The installment credit allowed manufacturers to sell these new wonders at a volume, and consumers could afford them because of the easy monthly payments. What ultimately made all this lending possible was that lenders could now, for the first time, resell their debt.

Stefan Jovanovich writes:

This is very bad history. Henry Ford disapproved of debt, but he had no problem with his dealers offering it. Where Ford's stinginess really hurt was his failure to offer financing to his dealers to allow them to finance their inventory. That is what GMAC did. Sloan had the wit to insist that GMAC be truly separate so that the brand managers could not channel stuff. The explosion in debt in the 1920s was not in consumer debt at all. It was in producer and public finance.



With all the talk about history, one should note that the markets had a historic move last week. Bonds went down 9 of 10 days, a total of 4 1/2 points, the last 6 days in a row something they do only once a year. Crude and the grains and gold and silver are down about 10% in the last month. The stock market is still at an all time high relative to the fixed incomes even after declining one % last week. People forget that bond yields are determined by expected inflation at a time like this, and that gold has nothing to do with international tensions and corn has nothing to do with the size of the harvest. What a time for great macroscopic trades, and level thinking.



 Two top NFL running backs are in the news.

I wonder if a mental health component will be found to be associated with these cases? Repeated hits to head at RB position? PTSD and concussions… actual physical evidence of brain damage?

Forces are much higher in the NFL (Mass x acceleration) these days — brain matter being pushed back and forth (sloshed) by collision contact at almost all positions over and over in game and at weekly practices– regardless of helmet used and whether its head to head or not… special teams on kickoffs and punts being particularly risky plays.

The Peterson case involves child discipline vs. child abuse issue.



 Marty Hogan's Power Raquetball was a 1978 paperback large book I got for 25 cents at a library book sale. It shows Hogan hitting a racqetball under a speed gun at 142 mph, and even shows Keeley with a shaved head playing in a match trying to psych out his opponent. It shows Keeley losing to Hilecher, on the floor as his taunting fails.

There are lots of conditioning exercises and routines in it. Here is a wrist strengthening exercise: with palm down, arm extended, get a double sheet of newpaper, hold it by the corner and start to crumple it with one hand only. Try and crumple the newspaper sheet into a ball the size of a raquetball. This exercise uses all the fingers and is better than simply squeezing a ball. Do it twice a day.



 Elections were held today and votes cast. Reinfieldt by most accounts is a good prime minister and statesman, but paradoxically the lure of change for change's sake appears to be in the works–the pendulum swings and pieces are rearranged on the chess board. A country of 10 million with a certain amount of world-wide influence…

"Sweden's Politics":

Sweden's election: The eight-year itch

The centre-right government of Fredrik Reinfeldt has been a great success, yet voters may well eject it in favour of the Social Democrats

FOR a decade Sweden could plausibly claim to be Europe's most successful economy. Anders Borg, the (formerly pony-tailed) centre-right finance minister since 2006, likes to trot out numbers for his time in office: GDP growth of 12.6%, a rise in gross disposable incomes of almost 20%, a budget moving into surplus and a public debt barely above 40% of GDP. These figures not only outshine Britain and the euro zone; they also eclipse America.



I wrote this article and thought you might all be interested: "Authors Must Be Marketers".



 The contagious and pervasive influence of video on our popular culture and markets is highlighted each year by the Video Music Awards held for the 31st consecutive time on Sunday, August 24.

The influence runs the gamut from the extensive time our kids spend with video compared to other pursuits to the spate of billion dollar deals and hundred million user apps that are reported daily these days.

Considering that the demographics and spread of video are ripe for epidemic growth, it seems like an appropriate time to consider how our market activities can be influenced by video.

A good place to start might be the following 10 interactions with markets that the recent awards ceremony elicits.

1. The VMA video of the year was won by Miley Cyrus and accepted by a homeless man who is wanted by the police.

The investment implications are that we should buy the grains to feed the homeless, buy the brics that are in troubles, buy fixed income of Spain and Italy and Greece and Portugal, and other weak EC countries.

Redistribution is the meme for the next year.

2. A cursory look at the video game and video music industry shows that the customers are young and growing and diffusing to all countries. All the major internet platforms are seeing more traffic to these applications. The customers are young and have a life expectancy of say 40 years more than the average customer for a product. This means that repeat business which is always more profitable should be feasible. The spate of acquistions in this space, the latest being Amazon's buying of Twitch and the emphasis that all the device makers and search engines are placing on making their equipment compatible for videos shows that the most knowledgeable and most successful companies in the world see this trend continuing.

The obvious implication from the VMA's is to buy the video stocks. Regrettably they're all up a google this year, but the growth rate trumps value any time. The top video stocks are Electronic Arts, Activision Blizzard, Take Two Interactive, Vevo, and Game Stop. The weather gauge is so good that I believe I'll buy them myself.

 3. The most useful words… are small. All the big stars of the Video world and other world have one word names. There's Bey, Iggy, Sia, Miley, Eminem, Lorde, Avicil, Ariana, Kesha, Usher. Does the same dynamic hold for companies? Are the best companies, the ones that are most exciting, most useful, perhaps most profitable, one word companies.

I found 124 companies on the S&P 500 with one word names. Corp, LLC, and Inc were not considered as words. The average performance of the 124 companies was 9.1% in the first 8 months of the year, a hair above the average of 8.0%. For the rest of the 176 companies with two word and more names. A suggestive difference but not a significant one as the average deviation is 5 percentage points. Hats off to the best one word S&P 500 performers: Alco, up 60%, Nabors, up 60%, Mallinckrodty, up 59%, Micron up 56%, Allegran, up 52%, Delta, up 51%, and Harmn, up 44%. 

4. There is a stampede of interest in video music. Vevo, a joint venture of Sony and Viacom, for example, has 6 billion downloads a month, up 50% from last year. Interest in video is spreading like wildfire. Who will profit from this? Most of the videos are being watched on Mobile. Who will profit from it? During the gold rush, the popular wisdom with some truth in it is that the suppliers of materials and apparel like Levi Strauss were the ones that profited, not the gold miners themselves. Who are the platforms, the suppliers, that will profit here. Perhaps Facebook, and Google, and the distributors of the music will be the best buys. 

 5. The more one learns about the video music field, the more respect one has for the movers and shakers at MTV. They are not only at the hub of all that 's going on in the field, but they make the trends. Each year, they have another innovation, some of them quite revolutionary. The latest was that they had multiple screens, and multiple feeds going for the VMA. Now, everyone will have to have two or more mobiles and TVs going at all times including the shower. Their latest trick was to have a team of translators on hand to make all the messages about the VMAs fit for mobile.

One looks back on previous VMAs and notes the prescient way that they showed same sex kissing, nudity, and many other aspects that became the be all and end all of popular culture. Their latest VMA's spread the meme of the importance of family with Bey holding the child and kissing the husband, and of course the idea that has the world in its grip that the purpose of life is to take care of those who have less, and to redistribute the wealth and trophies to the homeless, and to make policing less violent and more in tune with the neighborhoods they cover.vIt's no accident that Angelina and Brad announced their marriage right after the VMA. As always the trends were set and popular culture follows.

Okay, we know that popular culture is set here. How does it affect our market activities. Let us buy family friendly stocks, like Bed Bath and Beyond and Disney for starters.

 6. Why is it that video of all kinds is up 50% year to year with a typical statistic being that interactive streaming logs 35.5 billion streams in a current quarter versus 25 billion last year, or Vevo being up 50% to 40 billion downloads a quarter versus 25 billion? The ease of communication from mobile as opposed to a fixed location in a home or a car is the difference. Also, the ability to download contributions from everyone in the world versus a few producers who are responsible for the fixed communiques. We're living in a mobile world, with the know hows and ideas of each individual available for the masses. It's a communications revolution in the new millennium comparable to the industrial revolution in the 19th century.

7. If you can't beat them, join them. The populace demands video. The DailySpec is a meal for a life time that is not with it. We need video here. We are looking for a attractive video personality that knows enough about markets to encap one of the daily spec contributions or Brett's each day in a 2 minute focused and interesting fashion. We'll pay a reasonable amount, and the personality and we will become relevant and modern and diffuse through the masses. Note: One would like to thank a Director of Marketing at MTV, Ms. Joyce Kwon, for alerting me to the importance of video, and the excitement and influence generated by the VMAs.

8. We only respond to video these days. Until the tape of Rice beating the wife surfaced, or the beheading of the reporters was aired, there was no outrage. We're wired to respond to images of things. With all the video apps, the only way to spread a meme these days is through clicks and forwards. All bid individual moves in companies can be accelerated by videos as in the recent Apple announcements of the new Ipods and countless others. 



I am reading more and more about use of statistics to predict human behavior. We saw it in athletics, but we also know gugl and fcbk use it extensively. Target and most retailers rely on it and use it, and so do dating sites to glean users preferences, whether they know it or not. Credit companies use it. It's big business. But it's not very out in the open because most people find it incredibly creepy and invasive. Yet they continue to use FB, Gugl etc. Where is the line of privacy vs. prediction vs. voluntarily disclosed info and the use of it, the aggregation of the data, sales of data, use of data? It's a new world and there needs to be a discussion about it. There a some very talented statisticians on this site I know. Market data is used as a predictor of price action and people's preferences or habits. I am sure there is other correlated info out there that predicts price action. The question is how is that data, and what data is it that predicts price movement?



 The hot hand is a topic garnering renewed interest. (Chair has previously mentioned the shortcomings of some of these behavioral studies).

So maybe Alabama-born guard Andrew Toney, a Philadelphia 76er, did have a hot basketball hand–I'd like to think so. It would make a good follow-up interview and book topic.

At any rate, a link to a "hot-handedness" study was found mentioned on Jordan Ellenberg's blog (an Orioles fan by the way and author of a new book entitled How Not to be Wrong: The Power of Mathematical Thinking. Under his August 16, 2014 comments Ellenberg writes: "New 'hot hand' paper by Brett Green and Jeffrey Zweibel, about the hot hand for batters in baseball. They say it's there! And they echo a point I make in the book (which I learned from Bob Wardrop) — some of the "no such thing as the hot hand" studies are way too low-power to detect a hot hand of any realistic size."

1. Here is the link to the paper and interesting comments from links found via Brett Green's homepage, Assistant Professor at UC-Berkeley (Haas School of Business).

2. from another article on the topic:

Zwiebel says the earlier researchers were too quick to conclude that the belief in a hot hand was evidence of a cognitive or behavioral mistake. Most likely, what's really at work is not so much a mistake but an "equilibrium adjustment" around the hot-handed player — similar to the kinds of equilibrium adjustments that occur in finance and economics.

The behavioral camp jumps too quickly to the conclusion that almost all sports fans and participants are under a dumb illusion that there are hot hands," Zwiebel says. "They have jumped to that conclusion because it fits their story that everyone is making cognitive mistakes and that these mistakes are extraordinarily pervasive.

3. The existence in basketball of the hot hand was discussed by Harvard researchers at a recent conference and in a Boston Globe article: 

With the Harvard graduates able to know the position of the players on the court, they could see that players with recent success in shooting were more likely to be taking shots from further away, facing tighter defenses, and throwing up more difficult shots. "They were more likely to just jack it up," Ezekowitz said. "Shoot more often."

So the researchers controlled for these variables—and found what players and fans have long believed: The hot hand does exist. At least a little. According to the new research, players enjoying the hot hand are 1.2 to 2.4 percentage points more likely to make the next shot. Not exactly en fuego, but still.



 What are your favorite podcasts?

Some of mine are:

Dan Carlin's Hardcore History and Common Sense - quirky commentary on history and current events

Freakanomics - by the author of the book 

99% Invisible - looking at design elements or things behind the scenes (like the tile pattern in the floor of the Atlanta Hartsfield International Terminal) 

Several from the How Things Work web site, and Stuff You Should Know site

Truth for Life with Alistair Begg (conservative pastor from Ohio)

Several Red Hat (my employer) specific including the DG Show which is two senior architects discussing general technology with a serious bent towards security.

I use Pocket Cast because it syncs across multiple Android devices and allows variable speed listening

Marlowe Cassetti adds:

I like to catch the podcasts from Porter Stansberry (on iTunes &

Some other podcasts i listen to:

The Data Skeptic 

In Our Time with Melvin Bragg 

The Skeptic Zone (they did a three phase interview with me) 

Monster Talk 

Skepticality : The Official Podcast of Skeptic Magazine 


Oh No Ross & Carrie [ ]

No, I'm not a podcast addict, although my wife has a different opinion.

Big Al says:

The one not to miss is EconTalk [ ]



Do any of the sports bettors on the site (Jeff?) have a sense of the following:

Scottish Independence is a binary event, thus the simplest to balance your book. You should therefore be able to make a dutch book?

Further, if the odds don't reflect the real probabilities, in theory, speculative money (or the bookmakers proprietary money) should balance them back up.

But, for uncommon events which involve a high percentage of public money, for which prediction is relatively difficult and unproven, do the odds generally manage to find equilibrium at the true percentages perceived by educated bettors? Or are they sometimes set to balance the money flows?

So for Scotland: if English will "emotionally" bet No, and Scots bet "Yes", and there is a 10:1 population imbalance, will the odds overstate a No?

More generally, say, could Manchester United odds (who have a huge number of world fans versus other football teams) generally be tight relative to the real odds, as "smart money" is insufficient to balance the emotional money? Or is this a sufficiently deep market for proprietary accounts?

Chris Cooper writes: 

Relating it to the practice among American sports books, the overriding concern is to balance the money flow. Thus it is possible to make a dutch book, considering the variations due to location and randomness. I'm not sure how true it is today, but in the past the Las Vegas lines for games involving Los Angeles teams could easily vary from the same lines elsewhere, especially as it gets close to game time, due to the proximity of the cities and thus the money flow.

The lines also vary depending on emotional factors or being public favorites. For example, as "America's Team", the Dallas Cowboys used to command an unjustified perception leading to perhaps a point difference in the spread. Again, the book is just trying to manage the money flow…if it gets too out-of-whack, they will normally try to lay off some of the action.



Grains, from Jeff Watson

September 11, 2014 | 2 Comments

 One must note that the grain market is on its contract lows. 6 months ago, the mention of $5 Dec wheat would have gotten you laughed out of the room, and we're almost there. Same thing with Dec corn closer to $3 than to $4. Nov Beans blew through the $10 the other day and hasn't looked back yet. The gravitational effect of the nearest buck in the grain markets cannot be over-emphasized. Furthermore, the fundamentals like country movement, crop size, carryover, demand, and a few other things support the lower price theory. When beans were at $10.75, I joked that when they got down to $10, I would probably not want to own them at all. Same thing with $5 wheat.

anonymous writes: 

I have very few kernels of knowledge on the grains. But, hidden in Jeff's note I think are some essential points that apply to markets. First, the power of sentiment/positioning and the force of the subsequent shift or reversal of the same. Second, while moves often take time to develop when they do the move is often faster and farther than expected. Third, the momentum in prices that can be generated and the signaling indicators within those price changes and levels. Fourth, the fundamentals and/or perception thereof and the confluence they might have with other supporting factors. Fifth, how does the psychology and risk around such a situation develop and best be handled in terms of adding, cutting, reducing, etc..

Prospectively we might ask what other markets might display similar conditions now to the grains a few months ago?



 The book The Power of Habit by Charles Duhigg, a journalist, is about the formation and the neurophysiological basis for habits and how to change them. I've been interested in this since I was younger. My essay to get into Reed College was about the neurophysiological changes in the brain of the Buddhist monks who meditate for hours everyday. It would take another 25 years before experiments shed any light on this subject. I've also followed behavioral psychology and thought there must be more to it than behaviorists documented.

Apparently the Basal ganglia, a primitive organ in the brain responsible for reflexes is changed when habits form. Habits form on a behavioral feedback loop where there is a cue, a routine and a reward. The habits are subconscious. There is no simple solution because habits are created in a complex environment. It's not always clear what the cue, the routine, or rewards are, and often they're not what first appears.

The author talks about simple habits, experiments with brain damaged patients, about alcoholism and AA, and habits of organizations. Everyone who reads the book wants a simple answer and cure to change their bad habits. It's not that simple. One has to look to see what the cues are and what the true rewards are. The book was a good read, and well documented with notes and sources.

Alston Mabry writes: 

The Power of Habit is a very interesting book. I would recommend, along with it:

Willpower by Roy Baumeister and John Tierney and The Brain That Changes Itself: Stories of Personal Triumph from the Frontiers of Brain Science by Norman Doidge M.D.



 Just about a year ago I sold all of my McDonald's stock after dining at multiple locations in the course of a 2000 mile road trip. Basically I tried most of their new menu items and found them to be disgusting and out of touch. I note today they reported terrible same store sales and the stock has done poorly since I sold.

It might be just one example, but I think Lynch was on to something when he suggested that it is a good idea to sample the companies products that you invest in. In my opinion, McDonald's badly needs a new CEO and strategic direction. Regardless, I will be sampling the food on this year's road trip, and hoping for improvement.



 There's lot you can learn from watching this last week at the US Open.

1. Never rule out the 'impossible'. Have to backtest, but never has a 1 and 2 seed lost in semis to two double digit seeded opponents.

2. At same time, champions do what champions do after a series of bad results — the grand empress of tennis had a big win after poor results over the entire year. Sooner or later they always find a way to get back to the top. It doesn't come cheap. She worked her ass off all year and summer following Paris and Wimbledon.

3. Cilic is an example of how working hard and staying committed to improving oneself can eventual topple the game's best. An inspiration to anyone outside the top three. Perhaps a warning blow. Federer conquest aside, he had Djokovic on the ropes at Wimbledon and let him off. He learned from that.



 Satyam Shivam Sundaram.

These 3 Sanskrit words together, have formed one of the most quoted and misunderstood treatises of ancient Hindu wisdom. Taken one at a time the three words mean Truth, Basic & Beautiful respectively. The root words for each of these words is Satya, Shiva & Sundar meaning Truth, Basic/Basis, Beautiful respectively. In this statement however each word ends with the suffix "am" (prounced as "um" as in gum) that basically is the conversion of any noun into the active entity. This phrase/sentence thus has only nouns and each is the active entity!

Since Sanskrit is one unique language that does not require any rules of syntax, we can translate the original in six different combinations, as follows:

1. Truth is Basic hence Beautiful.
2. Truth is Beautiful & hence Basic.
3. Basics are Beautiful & hence True.
4. Basics are Truth & hence Beautiful.
5. Beauty is the Basis & hence True.
6. Beauty is Truth and hence the basis!

Is there any contradiction? Well, if there are any felt by any, we can recline on Ayn Rand who surmised, "….check your premises". One of the several ways in which the premises can be checked and contradictions removed, that one may take all the six meanings together.

This list is a place where scientific approach to seeking truth prevails. I would be keen to hear from any who notice any contradictions in these six translations and of course from those who can wrinkle out and eliminate any contradictions to help establish a basic beautiful truth about truth, beauty and the basics.



 I’m not a fighter or a lover but these happen to be two of the four methods used in handling at least 100 street fights over the years. 90% of them have occurred in third world countries, but the techniques are as effective on the Bombay waterfront as NY Harlem. These are the four primary reactions available to normal citizens who go about their days and are suddenly confronted.

FIGHT – The general reaction to fight requires knowing how to or, at least, facing a weaker opponent (unlikely). The first rule of street fights is to grab an equalizer, a stick, bottle or rock. Don’t bluff a fight without expecting to be called on it.

To illustrate, a month ago after a night snack a man stepped under a lamplight and began screaming obscenities at me. Normally I would walk away from this, especially since there was no robbery attempt, however there were children nearby and it would have set a poor example. So, I handed my ankle weights and backpack to the kids, and stalked the man out the light who backpedaled and stumbled into a heap. It was as if a wind blew. Two weeks later, I was assaulted with a ring-neck tackle by a stevedore and had to fight on the street of Iquitos. Luckily, he fell into a familiar wrestling move and was beaten.

FLEE – The best practice is to have the fleetest feet around the world, assuming no guns are involved. It doesn’t matter how many thugs there are, if you can sidestep or outrun them it’s usually the best practice.The other afternoon on exiting a house of soiled doves, I was then surrounded by four young men with theft on their mind. I pulled off the end of my thumb with sleight of hand, and walked out the astonished circle. A few nights ago on exiting the cinema, two dirty men popped out an alcove as if from a movie in heavy jackets with hands in their pockets on a 95F evening. I sidestepped them into the street where they didn’t follow. It’s always a good idea at night to walk away from sidewalk alcoves and into streetlights.

TALK – 80% of my confrontations end after a few words. Most solo thugs dread conversation with a grammatician.

Yesterday I was attacked by three youths brandishing sticks on the Rio Amazon beach, and simply growled at them, ‘You don’t want to do that,’ and they left. The night before, a man with a butterknife closed in as I entered my hostel, and I stuck my hand in my pocket and stood steadily at arm´s length and replied, ‘Are you ready?’ It was a gamble he didn’t risk knowing what, if anything, was in my pocket. (In this case, Mace.) A single question had prevailed.

HOPE – Most victims stand mute and shocked when accosted by a thug. This is what every mugger bets on, so if you can have mentally rehearsed and kick into one of the foregoing three methods –Fight, Flee, or Talk - your chances of escaping unscathed with your wallet are high.

 I’ve acquiesced a few times when ‘outgunned and outnumbered’. In one instance in Venezuela two men thrust warning jabs with machetes in my ribs and legs, and I just asked them to leave me bus fare. Another time, in a boxcar I let two tattooed men rob me of little as they motioned toward the open boxcar door of the 40mph train that the option was to jump. After they took my billfold, I gave them cucumber & tomato sandwiches and we became more friendly. They gave back my shoes that had my bankroll under the insoles.

My personal methods in fights are the same as animal surgery, to begin with the most conservative and escalate to the most extreme. One knows in a sentence if talking is going to work, probably not. I never use hope. I flee 2 of 3 times even if I think I can overwhelm the opponent because fighting is dangerous in high numbers. However, on every third situation I hold ground and fend off or attack in order to maintain a mental and muscle memory for the struggle.

You don’t have to be Captain America to have a straight backbone. One of the best things you or your youngster can do is to take a martial art class to gain confidence. The best are wrestling and Aikido. In any case, the four fighting methods of Fight, Flee, Talk, or Hope are the same. And, as my old wrestling coach used to say, mentally rehearse the move a hundred times before you try it on the mat, and then a thousand times on the mat before you take it to a tournament. A fight is just another day at a tournament.



 One of the nation's largest grids is PJM Interconnection. Pepco Holdings' native territories are exclusively within PJM's borders. Exelon's native territories straddle PJM and a neighboring grid, but most of their assets are located within PJM.

Today, PJM's independent Market Monitor announced a potential problem. If the Exelon - Pepco merger takes place as planned, there could be a market problem.

In a report to the federal regulator, who needs to approve the transaction, Monitoring Analytics, LLC claimed, "The transaction should not be approved based on an incomplete record, or without taking steps necessary to protect the public interest in competition."

IMO, this will be resolved. Exelon will negotiate with the Federal Energy Regulatory Commission. Like Duke Energy (DUK), Exelon will give up something for FERC's approval. But the merger will become more expensive.

This will not be Exelon's last hurdle. In addition, more expenses are likely. If there are too many, the merger will not take place.



 This book is an enjoyable compilation of studies that are so dense with fruitful analogous studies it is hard to share them all. The book is Behavioral Mechanisms in Evolutionary Ecology Published by University Of Chicago Press.

There is an interesting study in the book involving benefit optimization in birds' foraging behaviors relative to varying probabilities of success in various patches that are foraged in. Which is evolutionarily optimal: the benefit maximizers, the imitators, or the do nothings?

Also there is an interesting one about how to respond to signals when there is a varying probabilities of correct interpretation and/or response (studying frogs). I'm skeptical of the field studies, but the models and reasoning for them is nevertheless insightful and speaks to any one who has a love of economic thinking.

Dylan Distasio writes: 

Here is an interesting article about pigeon behavior:

And here is the abstract of the study

Whereas humans are risk averse for monetary gains, other animals can be risk seeking for food rewards, especially when faced with variable delays or under significant deprivation. A key difference between these findings is that humans are often explicitly told about the risky options, whereas non-human animals must learn about them from their own experience. We tested pigeons (Columba livia) and humans in formally identical choice tasks where all outcomes were learned from experience. Both species were more risk seeking for larger rewards than for smaller ones. The data suggest that the largest and smallest rewards experienced are overweighted in risky choice. This observed bias towards extreme outcomes represents a key step towards a consilience of these two disparate literatures, identifying common features that drive risky choice across phyla.

Orson Terrill comments: 

"Pigeons and humans showed remarkably similar patterns of risky choice, with both species showing risk aversion for low-value rewards and a tendency towards risk seeking for high-value rewards."

Is what underlies the strategy of acquiring deep in the money long dated calls in speculative stocks (SolarCity, Tesla…) and selling nearest dated calls in those same stocks essentially dealing to self selecting risk seekers paying the highest premium? Often it looks reasonable to get back your principle within the first year, and then another 6 -12 months of risk premium as income. The reserve requirements and added costs of frequent options exercises to see how much the return is reduced by those could be a deal killer…

Carder Dimitroff asks: 

How do you do this profitably for SCTY? How deep and how long?

anonymous comments: 

There are experts here that can answer this better; I don't have the real answer. This is in the context of the thread…. trying to deal to the most risk seeking individuals. The idea is to make it as much as like a covered call portfolio as much as possible, but reduce the cost of owning the shares by owning a deep in the money long dated call, with the minimum volatility premium, and subject to the belief that the income from selling near dated volatility can repay you over the duration of the longer dated call. This would suggest the longest dated possible, and probably a strike around half of the share price.

As an example: last week the cost of the 40 strike Jan 16 calls relative to the cost of the 70 Sept 12 calls. Would have put you at ~4% gross for the first week. It's not hard to imagine that after slippage, spreads, and transaction costs that it is possible to recover the cost of the long dated call in ~70 more weeks of selling nearest dated calls. However adding how much, and what, are the portfolio opportunity costs from needing to deliver on those short dated calls sold, and tax issues, make it look iffy at first blush…but it seems like there could be something there.

Even now there might be a $170 credit on selling 12 days (weekends are real) of upside risk from the Sept 20 calls against the the $3500 cost of the 40 strike in Jan 2016. Then you have to repeat the near dated selling; if you brought in $170 on ~21 of the 41 12-day periods leading up to Jan 2016 there would be a break even (gross). That seems like that is a large enough cushion to consider what may be left after taking the total portfolio approach to mitigate taxation, spreads, commission costs, and what return that is against the all the assets involved to implement…



 All Harvard and Yale would have to do to increase their endowment by 2 billion a year, would be to dollar average, putting all their money into index funds or Spiders on a once a month for 12 month basis over the next years, and eliminate 99% of their fund managers.

Russ Sears writes: 

One of the hardest things to do is to get someone to see they made a mistake because they did not have a broad enough vision or face all the the important facts, when they did have a well thought out plan but based on a narrow approach.

Kahneman's "what you see is all there is" needs to be expanded, to include the stubbornness that comes with it. This is the real danger of modeling. A good scientific model can help you overcome your emotional biases, but models are not perfect. Admitting that the models are not reality and letting yourself adapt when they are not accurate representations of what is happening is critical. This is why I believe in "counting" except when there is a liquidity crisis.

Basing performance on a Sharpe ratio has several problems / efficient frontier has several problems that it is blind to. First, it does not consider liquidity and accounting risk. Second it is exposed to modeling error on hard to model assets. And third it is exposed to execution risk or timing risk due to over-managing "exotic" assets.

A nice accounting scheme, can make certain assets almost guaranteed high sharpe ratios for the short term. Ask Gordon about how this worked with Federal Home Bank Loans and insurance companies. But same can be said about most real estate and other illiquid assets.

Second, the models assume correlations are constant and that there is no auto-correlation within the time periods. But if any asset is exposed to runs on the them, such as home ownership, then these are not valid assumptions. Structured assets are highly exposed to this risk. But so are banks and cash value insurance companies.

Finally, those that are blind to WYSIATI risk are those most susceptible to the news. Buying high because they hear how great others are doing. And then sell at the bottom because they hear how the others made a mistake. Further, most organizations that are void of valid self examination of leadership have many second tier leaders looking to say "I told you so" for any investment outside the norm, whatever that norm may be.

I have sat through many efficient frontier presentations where the conclusion was always the same; invest more in illiquid assets, invest more in assets that are impossible to model right, and invest more in exotic assets which I knew management did not have the guts to buy low and sell high.



 I am sure you have seen and heard the story of Benjamin Franklin's 13 moral virtues, but here they are as a good reminder for all of us:

TEMPERANCE. Eat not to dullness; drink not to elevation.

SILENCE. Speak not but what may benefit others or yourself; avoid trifling conversation.

ORDER. Let all your things have their places; let each part of your business have its time.

RESOLUTION. Resolve to perform what you ought; perform without fail what you resolve.

FRUGALITY. Make no expense but to do good to others or yourself; i.e., waste nothing.

INDUSTRY. Lose no time; be always employ'd in something useful; cut off all unnecessary actions.

SINCERITY. Use no hurtful deceit; think innocently and justly, and, if you speak, speak accordingly.

JUSTICE. Wrong none by doing injuries, or omitting the benefits that are your duty.

MODERATION. Avoid extremes; forbear resenting injuries so much as you think they deserve.

CLEANLINESS. Tolerate no uncleanliness in body, cloaths, or habitation.

TRANQUILLITY. Be not disturbed at trifles, or at accidents common or unavoidable.

CHASTITY. Rarely use venery but for health or offspring, never to dullness, weakness, or the injury of your own or another's peace or reputation.

HUMILITY. Imitate Jesus and Socrates.

Stefan Jovanovich comments: 

Two grunts from the peanut gallery (where everyone is still unhappy about seeing the end of the Fed's career):

1. The maxims were written as a scold for his son William, who was Royal Governor of New Jersey at the time (1771) and hardly needed lessons from Dad about how to get on in the world. (He could have used some help later on when the Revolutionists threw him into their improvised jail; Franklin literally turned his back on the man and never spoke or wrote to him for the rest of his life. This matters because it is only through the efforts of his grandson that the autobiography was published.

2. One of Twain's early hits was his essay on Franklin's autobiography; it was not a favorable review but it was wildly popular when it was first published in 1870 (of course, these are the same people who voted twice for Grant so what can you expect.) My favorite line in the Twain essay is this one: "His maxims were full of animosity toward boys." They were and are.



This story [about the first demonstration of anesthesia at Harvard] has many of my favorite things in it, including Harvard's ability to pull the wool over the eyes of its alumni and pay its fund managers 100 times as much as the average professor, not taking into account that there is no sales cost, no symmetry of risk, and no taking into account the normal random variations in performance which would always lead to some doing better and some doing worse. But more importantly it causes one too reflect on how he should change his views over time, be open to new things, and be humble, and appreciative of the young and unaccredited. What revisions of your thinking have been helpful, and what should we do so as not to decry things of value.



 Dedicated to the upcoming Gary Webb biopic, dir. by Michael Cuesta and starring Jeremy Renner. KILL THE MESSENGER comes by way of Webb's own first-person report in his book, DARK ALLIANCE.

Evocative of policiers such as the 1982 film starring Sissy Spacek and Jack Lemon, MISSING, and the iconic ALL THE PRESIDENT'S MEN, KILL THE MESSENGER announces its aim right from the gate, which is perhaps its only misstep. Kill the messenger tells us too much, too soon, since we are all familiar with the Greek-tradition from which that phrase hails. Famously scripted by Shakespeare in Henry IV (1598) and later in Antony and Cleopatra (1607). Prior to that, a similar sentiment was heard in Sophocles' Antigone: "No one loves the messenger who brings bad news." Messengers with bad tidings from the war front breach the invisible code of conduct, where commanding officers were expected to accept and return emissaries or diplomatic envoys sent by the enemy unharmed. UnKumbaya warrior leaders, of course, never got the memo. Ancient messenger job definitions often failed to add that the job description had unexpected short-range expiry dates.

Reporter Gary Webb, from a tiny provincial newspaper in a minor media market, becomes the unrelenting target of a vicious delegitimization campaign by larger sibling newspapers and the thin-lipped octopus of the federal government operating under dubious justification. The clandestine op was never supposed to have emerged, and it is perplexingly layered and dark, at every level primed for plausible deniability from prying eyes. The pushback, steely and implacable, drives Webb from job and family and to isolation and despair as he exposes the CIA role in arming the Contra rebels in Nicaragua by a Tom Clancy-like black ops to fund rebels via moving unthinkable quantities of cocaine. One kingpin in a grand jury admits to selling more than $1 million a day, of hotel rooms rented solely to stash unmanageable ceiling-high mounds of cash. Though the Agency covers its tracks, confident they are above investigation, as who would dare?, they mount their entrepreneurial cash-only business importing and selling crack: "The powder's for white-folk. It's too pricey for our market," says one dealer.
The fallout, as clips from the 1980s demo—several showing Maxine Waters and other activists of the time, and today–is an epidemic of crack users among the inner cities, in America's black communities. What seems a novel aspect is that even the drug dealers pushing tons through the ghettos do not have an inkling who or what is behind the importation and distribution network. Even they seem flummoxed by the scale of the op, and by its 'sponsors.'

People 'disappear.' Witnesses melt away. Identities sift out of existence.
The exemplary Renner heads a stellar cast in a tautly scripted, tightly packed thriller of how one reporter's diligent reportage of the drug phenomenon of the 1980s was a deliberate, unsanctioned project of Langley, Virginia. Drugs for money for unseating the side the US chose to kick.

The action is as cinema verite kinetic as possible, with major kingpins in jail (Andy Garcia as Norwin Meneses), billionaire 'farmers' leasing their fincas to gun-toting drug processors and flight drops, DC insiders and a host of side players: Ray Liotta, a shadowy character seen in dusky partial light, remorseful but uber-cautious John Cullen; and a sympathetic but stressed, loving wife, Anna (Mary Elizabeth Winstead, empathic in a painful, equivocal role). Curvaceous Paz Vega is underutilized as a top drug-lord's svelte, impossibly gorgeous, scarily manipulative babe, Coral Baca. Michael Sheen is again outstanding (watch him and Lizzy Caplan in "Masters of Sex") as driven, reluctant government deep throat, Fred Weil. Oliver Platt the great plays the tough editor of Webb's home newspaper.

Webb tries to keep the home-fires burning as his life is everted like a Glad Bag in the town dump. The sudden star cub earns his spurs, briefly incandescent in a field laden with hidden and overt landmines.

Most Americans wondered why all of a sudden a crack epidemic burst all over the news; now we know. It was engineered and massaged by lawless Big Feet who needed lots of do-re-mi to fund their pet contras. In the event, millions of young men and women died. Millions of minority kids spent their youths out-smoking their educations and incomes and career aspirations.

The late-comer rival papers and the murky men behind the grey suits and unsmiling faces unsheath their silent threats. One way or the other, how does one lone man stay the course, navigate between ominous antagonists eager to shoot down all those inconvenient 'truths'?

What is deplorably worse, it is all based on a true story. We felt the way Renner/Webb seemed to feel when we were investigating the "suicide" of Vince Foster, Hillary's quondam lawyer, or more, found in peculiar and impossible circumstances in a DC park. Found with an attaché, first full, then empty, with an office first full, then empty. We felt hunted, every moving light at night a threat and a fear. Every window an invitation to a magnum.

How, by the way, does one classify TWO shots to the head as a "suicide"? One is dead after the first shot; any second shot would be impossible.

We vacillate: Is this an anti-patriotic, anti-government exposé depicting the corruption of our investigatory agencies? Or a chapter that needed to be told, damn the consequences?

More than a thriller. Gritty, compelling, fraught with betrayal. Oscar bait.




George Meegan, who walked around the Americas for 12 years and holds the record for the longest walk, will be speaking at the Junto this Thursday at 7:00 pm.

The meeting will be held at the Mechanics Institute at 20
West 44th St between 5th and 6th avenues in Manhattan.

All are welcome. 



The emphasis is always on "free" when it should be on markets. Markets are the miracle of human invention– the one thing that we do than other creatures, event those more intelligent, skilled and long-living, have not bothered with. Markets only exist where 2 things occur at once:

1. People, by force or common acceptance, have outright ownership in what they are selling

2. Buyers have either money or good promises to pay money that the sellers believe they can use for payment when they become buyers

Markets are never "free" - there are always rules from the king, the viceroy or the legislature, as enforced by their minions, that dictate the conditions under which buyers and sellers are allowed to meet. And, most certainly, the king, the viceroy or the legislature, enforces through their minions the monopoly of the government over the question of what can be used to pay taxes. And, most certainly of all, there are always taxes. Commerce is always bent; but, even so, it is more liberating than anything else people do to each other because it assumes that each person is, as Friedman, put it "free to choose".

I wish/pray (depending on the day's preference) that the Libertarians and their allies would abandon their prohibitionist/abolitionist manias about absolute freedom (no borders, no armies or navies, no copyright laws, no legal tender, etc.) and simply become the party of "more" markets. The American labor movement only began to grow freely, without government enforcement, when Samuel Gompers persuaded others that their demands should be simple. "We do want more, and when it becomes more, we shall still want more."



There is often a tell. In retrospect of course. This time the tell was the hang seng up 2 1/2% on some seemingly ephemeral service survey, presumably doctored. How did Hong Kong know that there would be a Russian settlement? What other tells were there.



The Shipibo are an indigenous people of the Amazon rainforest who live in the 21st century while keeping one foot in the past millennia. Many traditions are still practiced such as ayahuasca shamanism, and the females in their colorful decorative clothing singing old songs are popular shamans at the Iquitos lodges.





















 I'm in Chicago for a few days to attend to some personal business matters. I'm sitting in hotel lobby when a part of three very loud men sit down at the table next to mine and began to discuss the previous evening's Chisox game. I couldn't care less about the Chisox, mind you. Not my team. But when one of the three fellows observed that "Baltimore is just having a lucky year," I calmly looked over at the fellow and asked, "A lucky year? Really? Why do you say that?"

"It has to be luck. Look at their players. There's no A-Rod there. No Jeter. They're over-performing. It's just luck." "You mean like last year was luck?" "Yeah, like that. Last year, Baltimore was lucky too." "Do you think Baltimore is always lucky?" "For the most part, sure. It's not in the big leagues that Chicago is. Or LA. Or New York. Or Cincinnati."

That last comment burned my ears.

"You're from Cincy?" "Yes, yes, I am. 3rd generation P&G." "So remember the days of the Big Red Machine." He smiles and responds, "Yes, yes, I do. Johnny Bench and Sparky Anderson? Yeah. Those were good times." "Do you remember the 1970 World Series?" "No, not specifically. Was there something special about it?" "The Big Red Machine was in that series." Another smile. "Yes, yes. I remember now. They were."

"Do you remember what Sparky said about that series?" "No." "Look it up. Something about dropping a paper plate and being thrown out at first." The image of Annie Savoy lecturing Nuke LaLoosh on the importance of lizard eyelids to success in baseball forms in my head. "Sparky Anderson?" "In 1970, Brooks Robinson played 3rd based while Orange Crush, the 1970s Orioles, systemically took apart the Big Red Machine." "OK. I guess Baltimore had a good 1970 season." "Y'think?" "But there's no way the Orioles can be as good as their record suggests. No way. How can they possibly win games like that without the players?" "Easy. Pitching, defense, and an 'Earl Weaver Special.'" "What's an 'Earl Weaver Special?'" I was getting up to go to a meeting and finished paying my tab. A waiter came over, smiled at me as he laughed and said to the fellow, "An 'Earl Weaver Special' is a three run dinger. I grew up by DC, and we heard about them all the time. Everyone in Maryland did." I looked at this very confused Reds fan, and said, "Buck's for real, and so are the Orioles. Orioles Magic is back. Get used to it. This is a team that's going to remind people of how the Birds flew high in the 1960s and 1970s." "But they're just not that go—" "They're for real. Get over it." At that, I got up and the waiter, clearing dishes off the table, smiled at me. I gave him a thumbs up. He laughed, and I walked off to go to my meeting.

I grant you that every team is entitled to its due. And those who know me know all too well my passion for the Birds, dating back to the time I got laryngitis as a 3 year old screaming about a Jim Gentile home run. But the reality seems to be that sports teams in Baltimore don't get much respect. The Os this year are the real deal. They don't just win. They create runs. They persevere when the pitching staff is having a bad outing. They cover for one another, and while Machado (before the injury) and Hardy aren't quite Robinson-Belanger, they're getting close. Is Brian Gaussman a Jim Palmer? Not clear yet. How about Chris Davis? Few teams could have handled having their heaviest hitter go into the swoon he did and handle it as well as the Os did this summer. And I don't mean teams just in 2014.



 Friends in Japan tell me there are going to inflate big time and expect stocks there to rip to the upside.

Charles Pennington writes: 

I'm going to bet with Larry. Japanese stocks (as sampled by etfs like EWJ [large caps] and SCJ [small caps]) are trading at around 1 times book value, 4 times cash flow, and 14 times earnings, and that's going to look attractive when free money gets thrown around. Rocky made this point in early 2013 right before a big rally, but what he said then is still true.

anonymous writes:

One of the largest economic myths is that Japan has been in economic cellar.

John Floyd writes: 

DXJ is a good way to play as it takes out the exposure of being long the Yen, should the Nikkei and USDJPY indeed go up. On a timing issue I think there are 2 key points to take in:

1. Structurally, unlike previous announcements and moves since the late 1980's the current move to end the economic malaise is much more entrenched and has wider breadth both from political and social support and the actual measures being using (the 3 arrows). Remember it was the stated intent of the BOJ in the late 1980's to deflate the stock market, they succeeded all too well.

2. Cyclically, Japan's economic growth is likely going to be lower than the BOJ is forecasting while inflation is also going to be lower than they think. However, it seems that the BOJ will not be revising its economic forecast until October and it will be sticking to its policies till then, but is likely to have increase QE prior to year end.

Gary Rogan writes: 

I don't understand how it's possible to to predict the effect on the Japanese stocks of this one factor. Earlier this year Japan raised its consumption tax from 5% to 8%. Last time anything like this happened was in '97 when it was raised from 3% to 5% and caused the economy to slip back into a recession. I don't think Larry believes that recessions matter for stock prices, but that's an arguable point. Also, Japan as an export economy cannot afford to inflate the cost of its exports, so you gotta believe that the price of Japanese stocks in dollars can't rise too much assuming there is anything like a recession or just economic doldrums. Someone mentioned hedging the yen exposure, and that may be the way to go. I'm also concerned that China is getting out of hand with the US walking around with a "Peace Now" sign. I any case, a single-factor analysis seems like something too simple for this situation.

Edward Talisse writes: 

I lived in Japan for a long time. It is very tough for non yen based investors to make money in Japanese stocks. The Nikkei tends to rise only when the yen depreciates, so any rise in stock gets offset with currency losses. Japanese stocks are all about corporate governance issues rather than financial metrics. Shareholder activism is rare and companies are usually loathe to reward shareholders with dividends or buybacks.

Obviously anything can happen. Last year N225 was up 57% and Yen was down about 30% and I am sure many are happy to have banked net 27% …but it was still below the S&P which returned 32%. Personally, I am routing for a big win in Japan and I hope the people there succeed. It just tough to make money. If you believe in the reflation story, it may be easier to just short the Yen and forget about stocks. Shorting JGBs should be avoided. All the bonds are domestically held and the BOJ buys whatever the MOF issues.

Lastly the story put forth here that Japan did not or has not suffered a lost couple of decades is at odds with my experience. There are people sleeping on the streets in Tokyo just like in NYC and senior citizens are in a deep pinch due to a lack of income on their savings.

Charles Pennington adds: 

Everybody hates the yen!

I was surprised to learn that the yen (as of July) is 24% undervalued based on the Big Mac Index.

anonymous writes: 

That makes sense, range has been -30 to 0 for past decade or so, and from semi recent travels on comparative basis the cost of hotels, coffee, noodles, etc. has not really changed much in 25 years, real interest rates have been comparatively high.

Alston Mabry writes: 

And at the same time, the surprising thing is that New Zealand is more expensive than Japan.

Peter Tep writes:

Wait until you see prices here in Australia. You will easily spend $20 a meal for a basic lunch, whatever cuisine have you and a drink. Dinner runs double that sans vino.

Public transport costs here are stupid as well as the parking costs. If you were out of town and were Parking in underground park for corporate lunches etc, you are looking at $30/hour.

Personally for me I travel some 15kms to work on the bus which costs me about $12/day. Mind you wages here are running higher I suppose with baristas (coffee makers) earning some $20+/hour. Friends of mine in the 20-30 age group pay $150-300/week in rent for a room in trendy inner city suburbs.

Just perspective for those interested in on ground prices!

anonymous writes: 

Peter, Thanks for the rundown on Australian prices, but they don't sound expensive compared to Silicon Valley.



The total risk in a trade can be deconstructed as the sum of market risk, process risk and idiosyncratic risk wherein each risk element originates respectively from the trade, the process of trading, and from the trader. This is akin to the idea that any observation has only a partial perspective if the focus is only on the observed. A complete perspective will incorporate the observation process as well as the observer.

The same trade of entry in to an X quantity at a Y Price with an exit at Z price when undertaken by any two different traders or by the same trader through any two different trading infrastructure has different risks.

Given, estimations of probability distributions for process risk are similar to those used in operational risk and are less easily believable and the distribution for idiosyncratic risk close to being conjectural / randomness, most of the time any discourse on risk amongst traders ends up focusing only on price or market risk.

Is systematic trading the answer to eliminating idiosyncratic risks borne out of the trader? Can the total amount of risk be reduced for the same expected return level or one is only modifying the type of risk from idiosyncratic to a larger process risk? Or is it that systematic trading trims down both the left as well as the right tails of returns distributions?

This thinking can be tautomerised to ask a deeper question: Is there ever a reduction in risk feasible or it is always a modification of the type of risk? If a money management overlay, whether self-monitored by a stand-alone trader or by an elaborate risk-management department, is eliminating the idiosyncratic risk borne out of a trader in discretionary trading approaches, is there an advantage that while the left tail is aimed to be trimmed the right tail is left intact? If total risk never changes, is there an unaccounted for expansion of process risk that the risk management systems will end up following the Peter Principle?

While good risk taking is what analysts, strategists and commentators also do as traders do, it is the skill at avoiding bad risk taking or winding up a risk-exposure that is going bad that separates traders from all other market-citizens.

While all bad risk taking can be avoided by actually doing nothing and holding on to the theoretical cash, the moment one begins to even trying good risk taking, the skills at avoiding bad risk taking must come along.

Finally for now, if the value of risk at a moment is unique to each individual, firm, system, approach yet its historical value (focusing only on the market risk as explained earlier) common for all does it all boil down to "to each his own"? The right combination of good risk taking skills and avoiding bad risk taking skills is then as idiosyncratic as each trader is?



 I have read about these top five regrets of the dying, and have wondered whether they might apply to myself.

I wonder whether people are all that similar. I observe vast differences amongst people, not only from individual to individual, but more importantly from groups to groups. There can be endless ways to group people: by social status, economic status, life style, fundamental belief, spirituality, sociableness, sensibleness, courageousness, risk tolerance, consciousness, and etc, falling under the normal bell curve with the majority of the people near the mean of each distribution. People near the mean of one gauge might be at the outlier of another gauge.

It is also not difficult to imagine that the answers to each of these regret questionnaires also fall under the bell curve. So the top answers are nothing more than a representation of the people close to the mean. Should one care to be normal? Or when they say, "I wish I'd had the courage to live a life true to myself, not the life others expected of me", should one simply say to himself, "I should have the courage to have my own wishes, not the ones most others had"?



 I have much to explain, yet little time to give exact data, much less test a hypothesis. I have been working for a living for the first time since I joined the spec list. I will use the definition of work as per the tax code and my ability to deduct the costs of doing business. Trading is an amazing business opportunity defined by the tax-code or our latest definition of a good business, revenue/employee.

Today is the day to check in after reading, "financial story from Bo". I had to log in this A.M. after reading that post to my daughters last evening. Why isn't that post lit up with comments? Why in the world is economic mobility between class in the USA a good question? It does not pass the Lack S Side street view of the world B.S. test.

I will edit and submit my diaries, re-education of a salesman/street trader asap. I have bought and sold many tangibles from the age of 11 until I was hooked on trading paper. Supply and demand of any item in the zip code you trade is well known by all traders. Consumers, biz to biz or retail are grossly misinformed by the vast amounts of free data from the interwebs. Branding is and will remain what it always has been, the first shot for a trade/sale. The most loyal customer will bolt on price, attitude, availability and probably the most important quality today vs 20 years ago, ability of the customer service. The demands of all customers are unrealistic. I have read the quotes here on the Comcast thread months ago.

A couple quick notes: The profits share of most any sale in many industries to the man on the ground/ revenue are remarkably similar per unit. The best business is of course paper with recurring residuals and fees. If one didn't care, know the risks to the clients or have the ability to handle stress, it is a great business. That is why most here trade or manage paper for a living. Everything else is by unit, service contract and time/revenue= XX basis points payout. I crack up at the different pay plans, bonus structures that I am pitched. I show them the table and their reply to my objection is, "you're looking at it the wrong way".

Lastly, my feet hurt! It's easy for any of us to work easy 55 hour week (+5) homework= 60 The norm seems to be 65+5 or an average of 70… No big deal 6 days a week, 12 hours, a quick sandwich grab, off Sunday. The wife is working until her medical leave. She takes on the AM kid shift and takes them to school. I have, after 4 months off the trading screens, found the ability to sleep in til 7AM and be at any shop by 8am. This enables daddy to be with it 8-11pm for the kids' homework.

I learned a new skill, the ability to listen. Sure that is what sales is all about. No, I am talking about listening to my kids. After homework, we talk for a couple hours. They are very happy as daddy isn't always looking at a computer or a phone. There are not enough hours in a day.



 An article by El-Erian believes that you fail to realize that there is always an unrequited and unanticipated reason for a market move. The question you are asking is incapable of falsifiying as it is descriptive and retrospective rather than predictive. One wonders if you are still suffering from the new normal disease. An acquaintance with the triumphal trip of Dimson, Marsh, Staunton would convince you that the 500,000 fold rise since 1899 in the index was not due to unusual anomalies related to expectations but was due to the return on capital of 15% and compounding. Such a compounding is particualry alluring during times when the earnings price ratio and the return on capital are so much greater than the long term interest rate as would be consistent with theory and the Fed M.O.



 Belatedly ran across the quirky, gently humorous, wonderfully directed indie, ROBOT & FRANK–from 2012.

Produced in part by Galt Niederhoffer, this film offers any viewer from the neonatal to the nonagenarian an unfolding, unpredictable, often charmingly gentle, smily movie experience.

Frank Langella plays aging second-story man, Frank, with his specialty stolen jewelry "by the ounce." He has served several stretches inside, as they say, for a modest variety of thefts, shambling around his increasingly messy home in the outskirt woods of rustic Rye, NY. The rest of the world is electronically savvy, though Frank sticks thoughtfully to his Ludditism, happy enough to avoid all the modern paraphernalia if he can plan his next heist on paper. His two children check up on him often, mindful of his lapses into forgetfulness. He insists he "is joking" if caught in a senior moment.

It played quite briefly, but is now available on NETFLIX, should you have a spare hour or two when you'd like to be delighted, laugh, and admire the great Frank Langella in a role he plays to perfection. The memory-lapsing father/thief receives a sometime gift from his son, Hunter (James Marsden): A robot 'butler' who is programmed to look after Frank, in part to relieve Hunter of his weekly 10-hour round-trips to check up on his father, and loving daughter Madison (Liv Tyler), calling in from Turkmenistan. Stubbornly, not obviously, the father stops resenting the "space-helmeted" short robot as it dawns on him how useful a powerful aide can be. Soon the odd companions try their luck as a heist team.

Jeremy Sisto as town sheriff, Peter Sarsgaard as voice of the appealing robot, boutique store owner Anna Gasteyer in a hilarious hairdo — the film occurs "in the near future," a caption informs us at the opening credits. Susan Sarandon manages to subsume her politics in a sweet (and eventually surprising) role as town librarian.

Not a word of 4-letter animus. No CGI. Beautifully directed, as if the indie were a full-fledged studio offering. Nearly every scene has a lesson to impart on helping the infirm, or not intruding on others' autonomy, plans going awry despite best efforts, with a ripple of ruckus and a chuckle as we consider this improbable Crutch Cassidy & the ceramic-helmeted kid. It did not stay around in theatres very long, mysteriously, but it's a great rental, Netflix flick, or party backdrop. Like honey-laced applesauce and oatmeal in winter, it's a comfort film.

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