"When all you do is hope for the best, things have a way of turning out for the worst." Greg Satell in Forbes  about crazy John du Pont who killed Dave Schultz. The movie Foxcatcher is highly recommended. And the quote is very applicable to those nursing bad positions in markets.

Paolo Pezzutti adds his thoughts: 

When you start hoping to get even with a losing trade it is time to close it. It means there is no rationale to keep it open. It is your ego that won't accept defeat and you'll only make things worse keeping the trade going. The problem is that many times hope works and you actually manage to exit your losing trade decently. It is just that one time out of 100 when prices do not come back that they bite your jugular and kill you.



 Germany has absolutely no problem with power supply. In the past few years it has turned from net importer of power to next exporter. On the supply side, renewables have had a huge impact. There are some sunny and windy week-ends when the country is running 100% on renewables. On the demand side, their consumption has been decreasing a couple percents a year. This trend of consumption decrease is expected to continue, because of big energy efficiency plans.

The only problem in Germany is one problem of imbalance. They have excess power in the North and not enough in the South. As a result, their power is flowing from North to South, but thru the lowest impedance path, which is neighboring countries. In particular, they are messing up the Czech Republic grid. There was a bit of a diplomatic row. This is being solved however, with the planned installation on phase shifters at the Czech border, and the planned connection of the German North to Norway (to use Norway's hydro has a means of storage of their excess power).

I strongly doubt any new nuclear plant will be built in any Western European country in the near future. Nuclear is very "has been".



 Foxcatcher for me was highly thought provoking and educational on many levels.

1. It records the decadence of one man John Du Pont who was born to wealth, once his interests in ornithology, philately, and conchology receded.

2. It shows once again the violence that people without opposite sex partners are prone to. (apparently he killed Dave as a birthday present to a rival wrestler).

3. It shows the great composure, and consciousness, as Brett would call it, of Dave Schultze who never lost his cool during all his aggressive bouts winning the Olympic gold and world gold while maintaining a truly benevolent attitude towards his life and students.

4. It shows the athleticism and sports genes of a truly great athlete in Mark Schultze who was always in the brother's shadow even though amassing the same golds, and adding an ultimate world to his laurels.

5. Once again the seed of the problem was the the Wrestling association like all official bodies tends to impoverish it's customers while enriching themselves thereby leading to the poverty of Mark that made him bend to the will of a crazy man as the only way to make a living while training to compete with the state sponsored athletes.

6. It reminds me of what the USSRA was like when I was in a similar situation to Mark, the best with no money and the USSRA watching me like a hawk to see that no prize with the rise in the price of gold amounted to more than $150.

7. It shows what good actors can do under the stewardship of a good director, the actors being Steve Carell, Channing Tatum, and Mark Ruffalo. They had to work out strenuously for 7 months to perform all the wrestling scenes in verisimilitude and live action.

8. It shows the subtlety of Bennett Miller who directed Moneyball and is obviously a fellow traveler in leaving the output of the movie to the viewer without knocking him on the head with hateful depictions of the rich, albeit to insure good reviews he had to make Du Pont look like an idiot for his patriotism.

9. It has real wrestlers and real footage to carry the story along.

10. the one thing left out to me was the strange case of why the security head who accompanied John on his fatal shooting didn't try to stop the shooting. Also, why Dave stayed with John for 7 years after the brother was ostracized. The humiliating spectacle of Mark staying on living rent free after being fired but being paid shows how money is so important in shaping a destiny. It's a highly recommended sports film.

Victor Niederhoffer adds: 

Here is some good skinny on the deranged man with money who was able to buy the wrestler's loyalty. There are many Jewish proverbs about this: a rich mans jokes are always funny; if you have money, men think you are wise, and handsome and sing like a bird.

Ed Stewart writes: 

The idea that the "amateur" restrictions on money making opens a window for freaks and weirdos to get leverage that they don't deserve is a good one. I have though that to some extent the same process occurs in political funding. The amount of leverage that, say, $25m can get is astonishingly out of proportion to what seems logical.

Another thought: can accommodating nutty behaviors or antics actually accelerate or provoke the insanity? I think so, I think I have seen it. And there is a clear line between expressions of individuality and self-destructive antics of a pending madman.

Some behaviors cry out so loudly to be corrected, it is almost as if the person in the downward spiral is dying for someone to set a limit for their antics. If there is no pain or reaction, (the real world) the aberrant behavior grows unchecked. In that sense humoring such a person might ultimately be a very cruel act. 

Hernan Avella writes: 

One aspect of the movie that is touched only tangentially is the decline of the sport of wrestling. These great athletes compete at the highest levels in their twenties and then it's all over and the best thing they can aspire is to be a coach in a reputable college wrestling program. The final scene shows Mark in a cage fight. He participated in the Ultimate Fighting Championship #6 and won his fight and $50K. Capitalism has open a window for wrestlers to transition into a profitable business or continue their careers through Mixed Martial Arts. It's a truly barbaric sport, but the consumer likes it. I have the utmost respect for cage fighters, who not only have to be highly proficient in wrestling, but also Brazilian jiu jitsu, boxing, Muay Thai, and many more arts. Thanks for the recommendation. Great movie.



Are financiers and regulators deranged? The author of The Lunacy of Modern Finance Theory and Regulation derides empirical research and lauds surveys that come up with the finding that Sigmund Freud is to blame for our financial woes. Here is my review of the book.



 Bio-feedback is a science that is around for sometime already. A computer game where no inputs are possible from the keyboard, mouse or any such human input device, but where a set of sensors measure the galvanic current on the skin of your fingers to estimate your mind-state is what Wild Divine offers.

I had bought this close to five years ago and gave to my daughters. They did play it sometimes. Discovered it in recent months again from their closet of abandon toys from "junior years" & began fiddling with it. Results are amazing.

I find this a constructive use of time, unlike the broad spectrum of other computer games. The only situation in which I could really observe my own emotions and had to practise rousing specific emotions to solve specific situations to meet game requirements.

If life too is a game and where deploying my emotions rather than succumbing to them is key, this package is a good beginning for taking such an approach to life.

Try it. There are delights to savour even purely from the perspective of refining one's cognitive skills.

DISCLAIMER: I otherwise do not like the soup of big words that one of the pop-philosophy Gurus behind this project, Deepak Chopra, spews. Yet a decent working invention of bio-feedback relevant for a trader who is nothing but a pure mind-worker.



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



ICICIBANK ticker $IBN had announced a stock split effective date on Indian exchanges. Just to let the folks who are interested in the stock splits and momentum and Indian markets and Indian Banks know that the recent state run bank SBIN had run of ~ 15 % in a month from the announcement of the records date (of course the overall banking index in India had run of 9%).



Whatever became of Martin Armstrong? Now a movie! Egads!



There have been big moves, 2.5% or more in a day recently, which at 15 times leverage makes for a reasonable day's work, recently in many markets, Bonds, Nikkei, SPU, European stock markets, Gold, Hang Seng, Oil. Yes, they are cascading because of the potential energy released by the realization that the CB's can buy assets and avoid the 1/10% returns of bills. Where do you see it heading next, and without falling into the t- (hopefully he won't take offense as he threatens so many others for posting negative things about him, as free speech is out of fashion these days), sornettian trap of focusing on only one small part of the distribution of returns), where do you think it will fall next?



 Music blared from a deserted French cantina on the Iquitos wharf as a handful of dogs surrounded me. They were like emaciated wolves smelling the chicken-to-go in my knapsack. A big white lunged for my waist that I socked in the jaw with a left hook. He alighted on his feet yelping and the rest bolted. But this was no ordinary pack. As the mongrels fled, an opportunist thug smashed the crown of my head from behind. Amazon wood is softer and the plank glanced off a round spot, as I wheeled. The little man was dumbstruck, as I grabbed his thick wrist in a wrestling hold, and twisted. A Peruvian in pain speaks the truth. This one snapped, 'Don't molest the dogs, my friends.' His intent was to rob me because there is no free wood and his cudgel was in hand. I twisted again, tugging him along, exclaiming, 'We're going to the police; drop the club.' It hit the street with a thud and he cried, 'My mother will spank me!' I yoked him into the lamplight and saw he was only a ragged urchin. 'Do you like dogs?' I asked. 'I live like one,' he replied. It is hard to find a dog lover these days, and so I let him go, knowing the next night he would protect me.



 The money printing has driven up prices, the prices of paper assets, including the prices of Treasuries, which has to be the largest paper asset class globally. But the money that winds up at the banks has largely then been put back to the Fed for the interest it pays. Banks haven't been lending like crazy, so that mechanism isn't pushing inflation. Meanwhile, cheap money has allowed corporations to manage their PE ratios by buying back stock, again pushing up assets prices. And for broad inflation, you need upward pressure on wages, but globally for the last decade plus there has been profound downward pressure on wages caused by China dumping tens of millions of smart, motivated workers into the global labor market every year, not to mention the other emerging Asian countries. And speaking of China, that country has served as an inflation sink for years now, via there currency/import/capital controls policies - there is inflation, and a lot of it, in China.

Stefan Jovanovich writes: 

Big Al's analysis is perfect. But he is describing the short-term credits issued by central banks to float their national Treasuries' deficits. Money itself - cash and customer's bank balances - has not been increased dramatically. I realize this can be seen as a distinction without a difference in a world of fiat money, but it does highlight the difference between the present and the 1970s. Then central banks and rich people worried about whether or not U.S. currency would keep its exchange value, whether the dollar would continue to decline to oblivion as the franc, lira and mark had after WW 1. Now there is no reason for such outright fear because currency positions can be hedged fully and there is, in effect, a monetary Treaty of Vienna assuring a balance of financial power among the largest trading nations that allows them all to quantify credit as needed. As Big Al notes, that balance does not answer the question of how a commercial truce can be sustained under a 19th century combination of steadily declining prices for metals, fuels and grains and increasing prices for land and financial assets supported by public/private finance.



 It is by now axiomatic that Eddie Redmayne "does" Stephen Hawking remarkably well. He studied ALS patients, viewed dozens of films, and met Hawking several times. Hawking has even endorsed Redmayne's characterization as accurate.

At one point in this engrossing film about the astrophysicist who has outlived his doctor's predictions by some 40-plus years, Redmayne as Hawking is in his wheelchair, curled up in the well-known curled fiddlehead fern posture, when a young student in the audience drops her pen. Imagining he will 'rescue' the lady and retrieve her pen, Redmayne/Hawking steps gallantly and invisibly out of his wheelchair, straightens up to his full height and his handsome visage, strides down the few steps, lifts the red ballpoint from its inconspicuous place on the floor, and gently flourishes it to the collegian, who smiles. Breathtaking to see the transformation both out of Hawking, then back in.

The sensitive audience gasps, since it may be an imaginary episode, but seeing Redmayne for over an hour angled into the unnatural poses forced by Hawking's disease (Amyotrophic Lateral Sclerosis), one is shocked and alarmed that he can so easily uncrook himself. Indeed, far from being disabled and less than fully presentable, Redmayne in life was a recent contender for People's annual Sexiest Man Alive this year. That he lost to 'Thor,' Liam Hemsworth, is no slur on Redmayne.

The film surprises in showing us the passage of Hawking from a 'normal' collegian, through his romance with first wife, Jane (an outstanding Felicity Jones), through the steady and incorrigible decline of his faculties of mobility and, eventually, even speech. The audience for the film itself surprises in not being uniformly PhD candidates, but regular people who might also attend flip entertainments like the embarrassing DUMB AND DUMBER TO. (Note to English teachers: Rail against this abuse of homonyms. Hard enough to get texting maniacs to acknowledge spelling of any kind, what with Spell Check ruling the roost, let alone marketing an entire mass heehaw with a deliberate misspelling in its title.)

Others in the cast are equally good, including the now-husband of Jane, played by an excellent Tom Prior, who was such a help to the Hawking duo with their three children, and the now-wife of Hawking (who even in his wheelchair managed to gather his rosebuds a second time. Evidently though not much else on his physiognomy worked, that still worked fine).

Though the subject matter of space is fascinating, few in a general audience know much of the specialized vocabulary, dark matter, wormholes and novae that form the bread and butter of such as Hawking, but the film does not condescend, and it shows a magnificent Jane holding her own in explaining the larger outlines of what her husband does. We don't, on the other hand, get very much of the stuff of the field, and attending the recent American Museum of Natural History's first extremely fun-filled and informative Hackathon, on space and all the majestic mysteries attached thereunto, we are happy to see the field is getting much-needed attention. Finally. Redmayne conveys with a twinkle the sharp wit that is Hawking's, amazingly enough. We are by now more familiar with Hawking's robotic voice than we were with his organic original. I predict that ideas of Hawking will now devolve more on Redmayne's portrayal of the scientist than on the man himself, much as many of our latter-day impressions of famed historical figure recent and past tend to transmute into their movie personnae.

In the case of THEORY/EVERYTHING, little damage will accrue if we do so in this case.



 "Generous Benefactor and National Squash Champion Victor Elmaleh Passes"

I knew Vic for 50 years. He was kind and generous off the court and totally bitter and hostile on the court. We won the National Doubles when he was 49 and me 25 and got to the finals of the NY State Mens Doubles in 1976. The strange thing was that he was better in both sports in doubles than me. He played a very aggressive game, and whenever I missed a shot he'd either throw the racket or glare at me. He was not like that off the court at all.

He invested in some of my first funds and loaned me money when I was a student at Chicago. He painted abstract watercolors that I collected and were published in a beautiful book. He also played a very excellent piano, and sponsored many musical groups.

He played doubles with and against my father in handball. In the 1930s, he won the National Doubles Handball Championship with Mortie Alexander. He continued playing squash well into his 90s, with the stipulation that you had to hit the ball over the service line on his side of the court. He won a highly competitive pro-am at the age of 81.

He met his wife of 70 years, Sono Osato at one of her performances at the Ballet Russe in Chicago. She subsequently starred in the initial production on Broadway of On the Town in the lead role of Lily, Miss Subway. Subsequently she worked out dancing each day with Baryshinikov.

He built some of the first squash clubs in New York, and sponsored the only 4 glass walled doubles court now in Toronto. In business he converted many big office buildings in wall street into condominiums and also developed the World Wide Financial Center, amassing many hundreds of millions of office and residential space.

 He was an accomplished architect and designed many of the buildings he developed. He was an ardent supportor or Adlai Stevenson during his presidential race in 1970 as well as other intellectual politicians.

He had 3 sons, all of whom were active in the business. And took great pride in their athletic, business, and literary accomplishments.

Thus, he was an architect, artist, athlete, businessman, husband, father, pianist and philanthropist. He lived a long and fruitful life in full, and I will always cherish our friendship and adventures together.



 "Dear, why are you getting up, you've told me a million times that you can't make money over night. Do your patterns show anything?"

"I have a hunch today. The centrals are all going to follow Japan and bull things up. There's much potential energy out there. I have a little position in China."

"How many times have you told me that you won't trade Asia again after what they did to you in (she looks around 3 times), Thailand."

3 hours pass. China lowers its rates. The European, US, and Asian markets have one of the 3 or 4 biggest rises ever.                                          

"Honey, they're way up."

"But they were at a high yesterday. You're not short are you?"                     

"No, this time is different, they gave us a break for once."               

"In that case you should take some chips off the table and send it to me for a rainy day."

"I knew you'd say that Susan. It's going to be a very happy black Friday and Christmas out there. The wealth effect et al".                                

"From the gleeful tone in your voice, I know that you better call it a day today and take a cold shower. Santa's going to have some black coals for your stocking unless you send that wire to  me".

Anatoly Veltman comments: 

Should the announcement be viewed as a very temporary factor? Or is it a policy turn?

Jim Sogi writes: 

Seems a lot of the action has been happening at night. Not sure if its the Asians, or the Europeans or both pushing things around when things are thin and sleepy. Then the day session comes around and its like molasses sets in or the freeze slowing everything down. I remember some studies Brent and others did a while back that showed most of the market gains came from the overnight session. c-o vs o-c. Recently it seems like there are more violent moves, which are reversed during the day. 

Anatoly Veltman writes: 

I have one guess to venture. See, preponderance of participation during Asia and Europe is of good old directional nature: only those who are willing to stick their neck out place orders through out those hours. Alas, during the U.S. hours participation is dominated by U.S.-domiciled penny-pinching algos, who remain market-flat.

David Lillienfeld asks: 

Naive thought: Could folks in China be using the Shanghai-HK link to buy shares there and then try to sell the corresponding ADRs in the US or Europe?




X= "I touched the stove"


Y= "I got third degree burns"

then I would NOT disregard the data set as "too small to be indicative".

Larry Williams writes: 

Yes, yes…one sample size is adequate–there seems to be a connection readily seen.

Leo Jia replies: 

My issue is when X is not exclusive to Y, I have not much clue on how X happens and whether Y has a rational reason to be linked with X. This can be possibly because if it is too clear it might very well be different later.

It is quite like a situation where I am a monkey in the zoo. Most of the time I am kept very hungry. The zoologists play a lot of games with me, delivering food here and there at times. During the last five years, I discovered this thing (which I have no idea what is but you humans call it "stove") 10 times in my play field. The 9 times I touched it, it was warm but not harmful and dispensed quite a lot of food, although one time it had no food and was hot so I got burnt then. I am not sure if this is part of the game, but I am clever enough to remember this.

I keep in mind that the stove was not the only thing I encountered that dispensed food. There have been a lot of other situations, one of which is that, quite frequently, you human spectators throw in bananas andvcandies though also often times with garbage which causes some real pain.

So in this case, how do I take into account the stove case?



 Perhaps other patterns and first appearances are to be found in the Twitter realm at lower cost.

"Twitter "Exhaust" Reveals Patterns of Unemployment":

"We demonstrate that behavioural features related to unemployment can be recovered from the digital exhaust left by the microblogging network Twitter," say Llorente and co.'


"The immediacy of social media may also allow governments to better measure and understand the effect of policies, social changes, natural or man-made disasters in the economical status of cities in almost real-time," say Llorente and co, adding that their techniques should be applicable anywhere in the world. Work like this shows how the nature of economic data gathering is changing. It'll be interesting to see how quickly governments and other organisations adapt.



 We thought this obituary was worth republishing, Ed.

Waving farewell - A surfing tribute to Doc Paskowitz

By Renee Ghert-Zand November 19, 2014, 1:42 am

Some 200 Israeli surfers paddled out together in to the Mediterranean to honor the memory of the late Jewish surfing legend Dorian “Doc” Paskowitz.

Paskowitz, who died on November 10 in California at the age of 93, is believed to have introduced the sport of surfing to Israel in 1956 when he visited the country for a year, bringing a bunch of long boards decorated with the Star of David with him.

On Tel Aviv’s Frishman Beach, Paskowitz found a kindred spirit in Shamai “Topsi” Kanzapolski, a lifeguard who was willing to take on the challenge of growing the sport in Israel.

It was on that same beach that the large group of Israeli surfers gathered on November 14 to pay their final respects to Paskowitz. Summoned by a Facebook event invitation posted by Orian Kancepolsky, Topsi’s son and founder of the Topsea Surfing Center, they arrived with their boards ready to ride the waves.

They paddled out on masse and formed a large circle formation in the water. Once in position, they splashed and threw flowers on to the sea’s surface.

“We enjoyed the Aloha spirit in his memory,” said Kancepolsky, referencing the “Aloha Doc” nickname by which Paskowitz, who spent part of his life in Hawaii, had been known.

According to Kancepolsky, not everyone who came out to honor Paskowitz had met him.

“Some just knew his story and wanted to be part of it,” he said.

Kancepolsky, on the other hand, had gotten to know Paskowitz and his large family (he and his wife Juliette had nine children) well when they stayed at the Kancepolsky home on their visits to Israel.

“It was amazing when he came here a few years ago to bring surfboards to Gaza. Here he was, this very old man with no money and who could hardly walk,” said Kancepolsky.

“I really liked his spirit. He believed that everything is possible, that nothing is impossible. He lived in the moment and had confidence that all would fall in to place at the right time,” he said.

Based on the turnout at Frishman Beach, it appears the Jewish surfing legend will be greatly missed by the Israeli surfing community.

“He was really a unique person. You don’t see a lot of people like him,” said Kancepolsky



 Dorian Paskowitz was the patriarch of America's first family of surfing. He died last night at age 93 as a result of complications from a broken hip. He surfed until last year. He was a Stanford educated MD who chucked it all and raised 9 kids in a succession of beat up old 24' RV's traveling to wherever the surf was good.

He did not believe in formal education for his kids, and preferred them to learn from wise people wherever they went. Money meant nothing to him. He was a health guru, and also ran the Paskowitz Surf Camp, which his kids run to this day. He did more for peace in Gaza than any politician by introducing surfing and teaching Palestinian and Israeli kids to surf, and to surf together.

I ran across him and got to know his clan over a 30 year period, and found him to be a perfect gentleman who was always willing to share a wave. Some of his kids are close friends of mine, and it looks like I might be making a quick trip to California for a paddle out in honor of Doc, whenever that happens. Doc and I fundamentally disagreed on everything political and economic, but he still had my respect.

Some notable quotes from Doc regarding health are as follows:

"Some of the most profound realizations that I came to about health did not derive from medicine, but derived from surfing."

"Health is a presence of a superior state of wellbeing, a vigor, a vitality, a pizzazz you have to work for every single day of your life."

His book Surfing and Health is one of the best books on health I have ever read.

RIP Doc.



 You have to admire the diplomacy, sagacity, and self interest of the Saudis. All that's missing is that they're trying to increase their profits to "save the environment and prevent climate change".

Saudi Arabia Will Support Stability in Oil Markets: Crown Prince

By Wael Mahdi Nov. 15 (Bloomberg)

– Saudi Arabia will continue its balanced policy and positive role to support stability in international petroleum markets, Crown Prince Salman bin Abdulaziz Al Saud says at G-20 Summit in Brisbane, according to state-run Saudi Press Agency.

* Says Saudi Arabia will take into consideration the interests of producing and consuming nations
* Saudi Arabia invested in spare capacity to support stability in global energy markets therefore supporting global economy growth
* NOTE: Oil-Price Rout Seen Deepening by IEA as Pressure on OPEC Mounts
* NOTE: Saudis Reject Talk of OPEC Market Share War as Crude Tumbles
* NOTE: OPEC Diplomacy Picks Up From Iraq to Libya Amid Oil Plunge

Anatoly Veltman comments: 

Anyone privy to a study of how each oil-producing nation has or has not invested in spare capacity in the years of $100 windfall prices? Why windfall? Well, yes, if the world operated decades at $ 20-30, then of course recent decade of $ 70-140 should have been viewed a windfall. I wonder if similar study has been done on gold producers, who until 2000 managed to stay in business at $ 300-400 but then reduced/abandoned their hedging programs as price jumped over $ 500 and all the way to $ 1,900…Silver producers who lived on $ 4-5.50, but didn't all duly appreciate the windfall of $ 18-49…Copper producers, who lived most of their lives below $ 1.00, but then treated $ 3-4 as a new normal. 



A Wiswellian proverb: "Unless you are prepared to expect the unexpected, be prepared to expect the unexpected defeat".

As usual the unusual in the market. Every day one tries to find a few instances somewhat similar to the current market activity in the last 5 years. Hardly ever does one expect. The market mistress is infinitely creative. And she never throws you an easy problem—- unless it is to fool you.



 Tom Wiswell wrote all his proverbs so that they'd be true in board games, life, and markets. Since the board games are models and teachers about life in many respects, he didn't have to stretch too far, to make the life and markets part work. Here's one:

"If I hadn't gone there", "if I hadn't made that capture," "if I hadn't sacrificed a piece". If it were not for the "ifs", we'd all be champions."

Okay. Here's mine. "If she hadn't spoken at the conference", "If I had woke up 1 hour later", "If my limit had been filled", "if the announcement had come one day earlier", "if it hadn't had the weak close the previous day", "if the auction results had been announced in the morning", "if the margin call had not come", "if my friend hadn't been bearish also", "if the earnings report had been issued before the close", "if the public were not so stupid to think that these ephemeral numbers like consumer confidence and philly fed, had deep significance", "if the Fed governor had spoken up just one hour earlier", "if they only realized that the tapering is deflationary", "if the planes had landed just two hours earlier"… I would be a wealthy maann.

What would you add to that one?

Anatoly Veltman writes: 

A revolutionary thought crossed my mind. We entered the new millennium knowing two investments that couldn't go wrong: stocks and real estate. So the Central authorities created conditions for real estate to go wrong by 2007. More recently, the Central authorities had made stocks the only game in town, and made government borrowing so desperately desirable that citizens pay for the privilege of financing the activity. May there be something "unexpected" in the wings for centuries long history of investing?



 On Friday the world's greatest mathematician, Alexander Grothendieck, died, in Saint-Girons, Ariege.

More in Le Monde and the NYT, but I liked this quotation from Recoltes et Semailles:

New tasks forever call him to new scaffoldings, driven as he is by a need that he is perhaps alone to fully respond to. He belongs out in the open. He is the companion of the winds and isn't afraid of being entirely alone in his task, for months or even years or, if it should be necessary, his whole life, if no-one arrives to relieve him of his burden. He, like the rest of the world, hasn't more than two hands — yet two hands which, at every moment, know what they're doing, which do not shrink from the most arduous tasks, nor despise the most delicate, and are never resistant to learning to perform the innumerable list of things they may be called upon to do. Two hands, it isn't much, considering how the world is infinite. Yet, all the same, two hands, they are a lot…

McLarty's lecture is the best philosophical (rather than mathematical) take I know of on Grothendieck's work on the Weil conjectures. In summary, with his topos-theoretic approach he built a space tailor made to his problem, from the simplest of bits–and then let the space itself do the work.

Richard Owen writes: 

One presumes he has reincarnated as an interior designer? It's a shame he went off his loop a touch in the last decades. Or maybe he achieved a type of sanity we're not smart enough to understand:

The windows and blinds are all closed in most of the rooms of this mansion, no doubt from fear of being engulfed by winds blowing from no-one knows where. And, when the beautiful new furnishings, one after another with no regard for their provenance, begin to encumber and crowd out the space of their rooms even to the extent of pouring into the corridors, not one of these heirs wish to consider the possibility that their cozy, comforting universe may be cracking at the seams. Rather than facing the matter squarely, each in his own way tries to find some way of accommodating himself, one squeezing himself in between a Louis XV chest of drawers and a rattan rocking chair, another between a moldy grotesque statue and an Egyptian sarcophagus, yet another who, driven to desperation climbs, as best he can, a huge heterogeneous collapsing pile of chairs and benches!

Makes me think of: "One of my old supervisors told me that Wilhelm Reich went through three developmental phases as a theorist. In the first, he was not crazy and was not very creative, in the second he was a little bit crazy and very creative, and in the third, he was very crazy and not very creative."



Another source of potential energy in the market one hypothesizes is this. The 3 trillion in the Pimco bond funds… the investors must be totally disgusted with the whole bunch of them. 600 million in bonuses to the upside down man and the former Harvard manager. A plague on both? Why get 2% in bonds when you give a billion to those feuding ducks. How about following the Japanese or the Norwegians and putting that money in ETFs???



 Some good advice from the President of the Old Duck Hunters Club for duck hunters and traders.

From "A Duck Looks Different to Another Duck" by Robert Ruark:

The rush of the wings was all around me. (Mallards were coming after a day of cold, careful preparation).

"How long before—-" I started to say to the president, and he cut me off.

"Might as well learn not to talk so much in a duck blind" the president said. "Maybe it don't make much difference, but it takes your mind off watching. And four fifths of shooting ducks is watching. Shhh. Sun's beginning to come out a little now. It'll be shooting light in a minute."



 How many times does one read about this market or the other entering a "bear market". And how many unfortunates liquidate without impunity based on the terrible words hastening themselves to their underplus.

Anatoly Veltman comments: 

This sure is true about selling into profound weakness, like a straight drop of 10% or 20% or 30% or whatever %. But selling into a straight three-fold five-year rise may be justified. Every price will be seen twice (?). 

Kora Reddy comments: 

Every price will be seen twice (?) -> ain't it applicable only for upside prices in S&P 500 Index, not for the downside prices and/or Japan…

For example, since 1980, on closing basis, the S&P 500 index had hit 599 All Time High's (ATH) out of 8798 trading days. Of those 599 ATHs, 25 ATH closes (including the three readings in this month) were never revisited. The previous ATH breakout, so far, and that was never seen again was on 17th Oct 2013 $SPX close of 1733.15 below the ATH closings that were never seen again… 

Date             SPX    Future Lowest Close
7-Nov-14    2031.92    2038.25
6-Nov-14    2031.21    2031.92
5-Nov-14    2023.57    2031.21
17-Oct-13    1733.15    1741.89
29-Jan-96    624.22    626.65
15-Nov-95    593.96    596.85
12-Sep-95    576.51    576.72
11-Sep-95    573.91    576.51
8-Sep-95    572.68    573.91
7-Sep-95    570.29    572.68
6-Sep-95    570.17    570.29
5-Sep-95    569.17    570.17
16-Jun-95    539.83    542.43
15-Jun-95    537.12    539.83
14-Jun-95    536.47    537.12
13-Jun-95    536.05    536.47
2-May-95    514.86    519.19
27-Apr-95    513.55    514.26
13-Mar-95    490.05    491.88
10-Mar-95    489.57    490.05
24-Nov-92    427.59    429.05
13-Feb-86    217.4    219.76
7-Feb-86    214.56    215.92
22-Jan-85    175.48    176.53
21-Jan-85    175.23    175.48

Bold were just some big rounds. Apart from that, nothing special about them.



 This is the first hard core data I have seen that supports what only seem natural:

"Long-term Cell Phone Use Linked to Brain Tumor Risk":

Long-term use of both mobile and cordless phones is associated with an increased risk for glioma, the most common type of brain tumor, the latest research on the subject concludes. The new study shows that the risk for glioma was tripled among those using a wireless phone for more than 25 years and that the risk was also greater for those who had started using mobile or cordless phones before age 20 years. "Doctors should be very concerned by this and discuss precautions with their patients," study author Lennart Hardell, MD, PhD, professor, Department of Oncology, University Hospital, Örebro, Sweden, told Medscape Medical News. Such precautions, he said, include using hands-free phones with the "loud speaker" feature and text messaging instead of phoning.



There have been so many highways and byways in markets recently as they rushed from official or almost bear markets three weeks ago to staggering new highs with much reversions and opportunities of a lifetime to garner and lose, that one searches for a rudder, a foundation. The best way I know to search for one is to turn to the proverbs of Tom Wiswell in such a situation. Tom prepared a set of 10,000 proverbs, 20 a week for 10 years at his weekly board meeting in my office, and thought that this would make the best of the 23 books he wrote. Tom always wore his thinking cap, and was equally knowledgeable about baseball and the theater as he was at checkers. Not to mix the mundane with the sublime, I will add my thoughts in parentheses after each:

1. The unexamined game: "Little errors left untended ,I've discovered too often have a way of turning into big ones". (Do close out your mistakes rather than hoping them along.)

2. Unity and strength: "It is important to keep your forces together yet flexible, ready to attack or defend as the game develops. Any general will tell you that a divided army is hardly headed for victory. " (Too often we are too expansive in what we put on, especially after a lucky win or two.)

3. The handwriting on the wall: "Often by the time the opening is over, what is going to happen in the ending, is already happening, and cannot be reversed." (A corollary is that he who doesn't hesitate is lost.)

4. Big game: "Remember, when you are out hunting dragons, sometimes the dragon wins." (After those big tremendous declines , beware that a few more mite come.)

5. The Wise Skipper: "Start your game with a plan, but always be ready to change your plan". (Tom approaches the principle of ever changing cycles from a different perspective than Bacon.)

6. Hills and Valleys: "After a winning streak you'll probably lose several games." (This must be tested after rises and declines. But remember the Australian fisherman who never fishes in the same place twice as the crocodile never forgets. Humans are just as smart as crocodiles I think).

Wiswell wrote all his proverbs so that they'd be true in board games, life, and markets . Since the board games are models and teachers about life in many respects, he didn't have to stretch too far, to make the life and markets part work. Here's one:

7. 'If I hadn't gone there,", " if I hadn't made that capture, " if I hadn't sacrificed a piece". "If it were not for the ' ifs', we'd all be champions" (Okay. Here's mine. " If she hadn't spoken at the conference", If I had woke up 1 hour later, "If my limit had been filled"," if the announcement had come one day earlier ", " if it hadn't had the weak close the previous day", "if the auction results had been announced in the morning" , " if the margin call had not come ", "if my friend hadn't been bearish also ", "if the earnings report had been issued before the close", "if the public were not so stupid to think that these ephemeral numbers like consumer confidence and Philly Fed, had deep significance, " if the Fed governor had spoken up just one hour earlier", " if they only realized that the tapering is deflationary, " if the planes had landed just two hours earlier ", … I would be a weaaalthy maaan") (What would you add to that one?)

8. "Unless your are prepared to expect the unexpected, be prepared to expect the unexpected defeat". (As usual the unusual in the market. Every day one tries to find a few instances somewhat similar to the current market activity in the last 5 years. Hardly ever does it do what one expects. The market mistress is infinitely creative. And she never throws you an easy problem, —- unless it is to fool you.)



 From the Department of Skyscraper Index.

A replica of Manhattan could be a tourist attraction one day in China? Amazing.

"Few Signs of Construction at Yujiapu, China's Manhattan Replica":

China's $50-billion knock-off of the Big Apple sits on a river bend — much like its namesake — near the port city of Tianjin, some 120 miles from Beijing. Complete with its own Rockefeller Center and Twin Towers, it's been billed as the world's largest financial center in the making. But this Manhattan still has a long way to go.

And yet, as the author writes in his book: "Henry Sanderson, Michael Forsythe China's Superbank: Debt, Oil and Influence 2012:

There's a point where ambition and enthusiasm becomes recklessness and hubris, and Tianjin may have crossed that line. There's no better place to witness the physical manifestation of hubris than Yujiapu, Tianjin's planned Manhattan.



 Lately in the news they like to say that "the market will not stop falling until the last optimist, the last bull, goes belly up". Abelson said that that continuously in his columns for about 50 years. (I don't have the 25,000 columns of his I had to read before writing that he had never been bullish once during the 50 years of his columns before proving that the gist of what I said was true). No one except me would say that the market will not stop its incessant 70,000 fold gain from 1890 until the last short selling fund and chronic bears cries uncle.

Vince Fulco writes:

The canary in the coal mine will be when Elliott Wave folks shutter the shop.

Fred Rickey writes: 

50 years of articulate skepticism is worthy of respect! Given the trail of blood from exuberant or reckless bulls exiting the arena of which he wrote, there is a cautionary value to such skepticism. For goodness sakes, the man is dead! 

anonymous writes: 

Actually, given the guest columnists and mechanical nature of the columns, if started to wonder, towards the end, if he had become a nom de plume for the editorial board. 

Kora Reddy writes: 

My observation:

My blog posts with all sorts of title headings get about 600 page views. The ones with bullish headings get a slightly lower amount of views, around 550. The ones with bearish headings average around 750 or so. I guess Alan Abelson was a smart man (in his defense) to figure this out a long long way's back, and give the readers what they want to read.



 NNT says on Twitter that he has not received a critique so far of this paper he wrote on GMOs that addresses the "core math" of it. A variety of "fallacies" are discussed–"Loch Ness", "Crossing the Road", "Russian Roulette", "Carpenter", etc. etc. In this article, "Risk Expert: GMOs Could Destroy the Global Ecosystem" Taleb writes:

"It has became popular to claim irrationality for GMO and other skepticism on the part of the general public—not realizing that there is in fact an "expert problem" and such skepticism is healthy and even necessary for survival. For instance, in The Rational Animal, the authors pathologize people for not accepting GMOs although "the World Health Organization has never found evidence of ill effects," a standard confusion of evidence of absence and absence of evidence."



 The reason the NY sports teams perform so much worse than their inflated salaries would predict is that they suffer from the diffuse and variegated nature of culture in NY, so that other things besides sports can take center stage, the way sports do in smaller cities. All the best soccer teams tend to come from midsized industrial cities where the only activities that holds everyone together is the sports team. And players come there knowing they will be lionized. On another front, the big cities demand high visible stars as an offset to all the other things they can idolize. And the owners have to give the fans what they want by hiring stars in their 30s, in the declining years of their ability, to give the fans a rise, and that decimates their bottom line and ability to field good teams. It's related to a line of studies now being bruited in the academic literature that shows that the size of the chairman's signature in the annual report is inversely related to performance.

Anatoly Veltman writes: 

I wonder if the gold market reflected that phenomenon last week. First came the news of record Bank of Russia purchases in September that catapulted them into the world fifth size of ownership among the sovereign Central Banks. The gold market promptly plunged to a new four year low on the news. Then on Friday, their Chair said they might sell some gold to defend the rouble–and the gold market erupted higher to score its best rally of the year.



 Strategy: A Smorgasbord

The right strategy must come to mind in the worst scenario – losing, tired, hometown ref, and nowhere else to turn but inside.

1. Always change a losing game; never change a winning game.

2. Always have a plan going into a match, and a backup plan.

3. Always have a surprise to pull out all the stops.

4. Reconnoiter your opponent before the match for his strengths and weaknesses.

5. Have a general strategy against all power players, and another against all control players.

6. Analyze every match – how would you play it differently next time.

7. Keep a log of your strategies, and of the opponents.

8. Always have a customized strategy against each opponent, if possible.

9. Call a timeout whenever you skip two straight shots, or the opponent runs three straight points.

10. Keep a coach in the crowd for a second opinion.

11. Have an offensive second serve, such as the jam or Z.

12. Save your upset serve, for example a crack ace, for game winning points.

13. Have a no-fail strategy that kicks in in the worst case scenario.

14. Define your strengths and weaknesses between tournaments, and drill the latter.

15. Set a goal, and time increments to achieve it.

16. Resist the norm – The way to the top is almost always a way no one else has tried.

17. Don't share your personal original strategies during your competitive career.

18. Find one edge against an opponent, or the field, and repeat it over and over.

19. Make your backhand as strong as your forehand.

20. Know the counters to all your strategies.

21. If an opponent throws something at you during a match that you can't handle, hit the same at him next point to know how to respond.

22. Use a slow game pace against a rabbit, and a fast pace against a sloth.

23. Always volley the ball when possible.

24. Always take the most aggressive shot possible during a rally.

25. Be able to hit five perfect consecutive ceiling balls as a fallback.

26. Match your physical attributes with your strategies, for example condition, age, grace. Elephant tusks cannot grow out of a dog's mouth.

27. Pick an overall strategy that is fun to play.

28. Strategy evolves on the sweaty hardwood, not in ivory towers, so think as you play practice matches.

29. Agree with your practice partner to pause after each game to dissect each other's play.

30. Ask every instructor or pro you meet for his best secret strategy.

31. Ask better players to critique your strategies.

32. The best place to glean strategic tidbits is by watching good players, or at a pro stop.

33. Unclutter the Clutter. Stop the mechanism. Have a sure-fire mantra or method to calm down instantly.

34. Develop a 'Muehleisen's Rheostat' at will of being able to crank up or down your intensity of play by 10%.

35. Fight first and save thoughts of victory for later.

36. The highest form of generalship is to conquer the gamesman by a stratagem.

37. At the beginner level a defensive strategy wins, but at an advanced level the most offensive strategy always wins.

38. Have one strategy for a slow ball and another for a fast ball.

39. The best general strategy is serve and shoot.

40. Go to the ceiling if the rival runs a string of points.

41. Go for the jugular with aces and cracks when you have momentum.

42. The shot to practice the most is the kill, because it's the only stepping stone.

43. The serve to practice the most is the drive, as it's the most forceful in an aggressive game.

44. Save your best strategy for the ripest time - pick the flower when it is ready to be picked.

45. When you go up to the mountain often, you will eventually encounter the tiger, so be ready.

46. During a reconnoiter find a tiny edge. A tiny is the best soldier that quickly becomes an army.

47. Strategy is about setting yourself apart from the competition: it's a matter of being different at what you do.

48. Always have a backup service strategy.

49. The greatest tactic is to be able to execute at the worst times.

50. To win by strategy is no less the role of a general.

51. Practice the weakest link in the chain of each of your last performances.

52. Have a short term goal and a long term goal at all times.

53. Use glass to your advantage with serves and shot selection.

54. Shot selection is the most common trait of a win, and flaw of a lose.

55. Have pre-designed strategies for every game style.

56. The greatest strategy is to commit no mental or physical errors in a match.

57. If you're losing a match, is it because your strategy is failing or because of faulty execution of strategy?

58. Use a new strategy a hundred times in practice before taking it to a tournament.

59. When in doubt grab the bull by the horns.

60. Nothing is more beautiful in sport than a well-conceived plan that's executed flawlessly against a superior opponent for a win.

61. Study strategy over the years to achieve the spirit of the warrior.

Victor Niederhoffer writes: 

Good for any activity one thinks.



In thinking about the fantastic rises from the dead of gold, crude, and bonds last week, one hypothesizes that the time things are most bullish is when it takes the most courage to go against the tide. For example, before the employment number, especially after 4 standard deviation declines in such markets before recent vivid events like last Friday.



November 8, 2014 | Leave a Comment

 Playing it My Way is the newly released Sachin Tendulkar's (a.k.a God of Cricket, next to Sir Don) autobiography, and I glanced and then read it as fast as I could.

For comparison's sake, it is more like a "Reminiscences of a Stock Operator" type book, where the modern reader, knows everything that the author wants to say. I'm seriously and eagerly waiting for the autobiography of Rahul Dravid, with everyone out there I bet, and if and when it comes, it could be an "edspec" type (I am serious, and no sycophancy here to either chair or Rahul Dravid who lives on the next road to me for the past 25 years).

Though I enjoyed the book, it is just a mere autobiography and doesn't really offer any tips on how to play the game. I think autobiographies need to be written by offering few minute technical tips to the future generation.



 These are the numbers from the election in the U.S. They are truly historic; to find a parallel in terms of partisan shift from the Democrats to the Republicans, you have to go back to the Wilson Administration elections of 1918 and Davis' crushing defeat in 1920 and Hoover's coronation as Coolidge's successor in 1928. Even Truman's successive losses in mid-term elections was not a comparable defeat because the Democrats remained solidly in the majority in state legislatures and governorships. Measured by all elective offices throughout the country, this is the first time in American history that Republicans have been the majority party for more than a single election.

A few details:

After the Louisiana runoff on December 6, Republicans will hold 54 seats in the U.S. Senate; they began the week with 45. The last time Republicans defeated more than one incumbent Senate Democrat was in 1980 when Reagan's landslide won them 2 seats. In this election they will have defeated 5 Democrats - in Alaska, Arkansas, Colorado, Louisiana and North Carolina. If you extend the calculation to include open seats previously held by Democrats (Iowa, Montana, South Dakota, and West Virginia), the Republicans gained 9.

Republicans now hold 31 (possibly 32) of the 50 governorships and 29 (possibly 30) of the state legislatures, a total that matches the Republicans' all-time greatest success in 1928. In the count of all state legislative bodies (99 total, thanks to Nebraska's unicameral legislature) the Republicans control 69; that is 5 more than their greatest previous success of 64 in 1920.

The President's record is truly extraordinary as the leader of an American political party. Since his election in 2008 the Democrats have lost 14 Senate seats (60 to 46), 72 House seats (257 to 185), and 10 governorships (28 to 18).



 There are offsetting affects to the decrease in $ priced crude. The decline in the rouble is in fact a windfall to those in power. The oligarchs in Russia have access to hard currency via exports, crude, natty gas, etc. The hard currency is converted to roubles to buy national real assets at 40% discount, like land, hard assets. As long as they can keep ahead of inflation it is a great deal for those in power. Or they borrow form the populous, sell paper bonds and pay back in worthless currency and pocket the difference.

I am not an expert in Russian affairs, but this scenario has played out in history before.



 On the last two announcements, whatever they were, the market did a big whipsaw which could be defined by big motion up, then down and vice verse in a short time equivalent to the range of the day around the central starting point. It didn't seem to matter what the announcement said. Crude has had some similar moves but were not related to the announcements mentioned above. The timing on crude was different also.

It might be analogous to the seismograph motion on an earthquake when the tectonic plates slip, or a heart attack type event on the heart scope.



 I note that gold miners bullish percent is at zero. Maybe some bankruptcies are forthcoming–IAG? Just recently Dr Greenspan opined that gold was a good investment…then the Fed announcement and the slaughtering of gold shares commenced. Hm.

Pitt T. Maner III writes:

All In Sustaining Costs (AISC) become important. IAG sold a niobium mine so maybe they will be able to weather a year or so with this cash. Perhaps the mining companies with cash, relatively low debt and available credit will be able to buy others and their better prospects on the cheap. 

"IAMGOLD Probability of Bankruptcy":

This will be added to Iamgold's assets to allow the company to boast of $800 million in liquid assets, with an additional $500 million of unused credit facilities to give the company a total of $1.2 billion in available short-term cash.

An area for more research?



Ten straight days with a 141 settlement handle. Ten day Vic (cumulative changes) at less than 2 points. How is Draghi going to upset this quiet?

Editor's Note: The Vic (first defined on this website in 2002) is a measure of volatility that uses absolute point changes rather than standard deviation.  For example the "10 day S&P Vic" is found by adding together the absolute daily point changes in S&P for the last 10 trading days.

anonymous writes:

It is important to understand what the currency markets are for and how they are used in the modern context.

Arguably the whole game is about keeping the stock markets (or more generally the 'risk' markets) going higher.

The USA started the game late in 2008 with QE. After a time the Europeans took over. Now increasingly the Japanese will supply the liquidity.

The Euro currency lower story is fading into the background in terms of 'rate of change'.

For the avoidance of doubt, the only two countries that are serious about lowering their currencies are Japan and Switzerland (Switzerland is a case study in defeating the markets - read about their actions in 2011).

The current QE in Japan is huge– make no mistake — an order of magnitude greater than the USA's actions.

The Europeans, at heart, are stable/ strong currency types and do not have the stomach to get genuinely serious about weakening the currency.

A multi-billionaire of my acquaintance in discussing Japan, put it to me this way– it is not often that a country pre-announces it's own bankruptcy.

Inflation is an interesting phenomena in this era, it is hard to create but when it arrives, it destroys. It is pathetic that policy makers believe that they can keep such a thing in control when it gets going.

There exist genuine reasons for low probability scenarios to play out in coming months.



 The dollar is strengthening. I remember when I was young in the 50s and 60s and the dollar was worth 350 yen, and 7 Francs. Bank accounts paid 5%. The world was a great deal. I wonder if that world will return.

David Lillienfeld writes: 

That was the world in which Jews and blacks couldn't own homes in some neighborhoods and could be refused service at will by any business. It was a world in which someone could be denied a job because of his/her sexual orientation, ditto for renting an apartment/buying a house. It was an era in which when women worked, they were expected to earn a fraction of what their male counterparts did, particularly if they were married since they weren't (it was assumed) the primary source of income for the family. It was a world in which a physician might not inform a patient of a diagnosis of cancer or pressure a patient to participate in a research study after the patient had declined to do so—in some instances, declined repeatedly. It was a world in which a black man with syphilis in a government study would be denied treatment in the interest of learning about the disease's natural history, though without the man having given any consent to be so studied. Ditto for Guatemala men and women, who were infected with syphilis by the US government with the same aim of learning about the natural history of syphilis. That world included an American government which didn't hesitate to listen in phone calls as it pleased and spied on persons as it pleased.

I could go on. There were lots of aspects of that world that were good economically, it's true, but there were lots of downsides, too. Maybe the level of discrimination is the same as back then—just less visible, but I'd like to think that we've matured as a society, as a country, such that there's been a reduction, ideally a significant reduction.

Is today better? Worse? I don't know that I can given an answer other than to note that it's a different world. Would I like our economy to be such that we had the dollar at 350 yen and 7 francs. You bet. But as for the rest of that world, I'm not so sure.

Jeff Watson writes:

But we live in a world where the poorest of the poor can own a smartphone and have the access to information greater than the library at Alexandria, in fact they have all the information of the world available to them. I'm very optimistic for the human race. Our poor are better off than Louis XVI in almost every way.

anonymous writes: 

The central conceit of many well intentioned people is that the poor are dumb and can't find their way around anything. We think the poor need help, and they need our money transferred via politicians to be made whole. As the Chair drums the cadence in our heads, it's "the idea that has the world in it's grip." That conceit needs to go away as it is just wrong. The war on poverty has cost enough to give every poor person a couple hundred grand, but the money has gone to programs, not the recipients. Not all poor are dumb at all, they are victims of circumstance. However, the war on poverty will continue, as will the war on drugs, terrorism etc as there's really big money in it for the insiders. 



 Car Talk was a really fun radio show to listen to on long highway trips. Both of the brothers who did the show were very smart MIT grads with a great sense of humor and a penchant for fun practical jokes on each other. Here is an obituary for the older brother who recently died.

"Tom Magliozzi, One Half of the Jovial Brothers on ‘Car Talk,’ Dies at 77":

By his own account, after graduating from college, Mr. Magliozzi took a conventional path as an engineer until experiencing his "defining moment" after being involved in a close call on the highway. He described the incident in 1999, when the brothers shared a commencement speech at their alma mater. Tom described driving on Route 128 to his job in Foxboro, Mass., in a little MG that "weighed about 50 pounds" when a semi-truck cut him off. Afterward, he thought about how pathetic it would have been if he had died having "spent all my life, that I can remember at least, going to this job, living a life of quiet desperation." "So I pulled up into the parking lot, walked to my boss's office and quit on the spot." His brother chimed in, "Most people would have bought a bigger car."

Ed Stewart writes:

What is interesting is that they made an entire franchise out of something that seems so mundane and unworkable. No planner would have guessed, "this concept will be a hit." It entirely revolved around the talent and humor of the Magliozzi brothers. Isn't that the way most of the best things are? Talented people surprise us with things we enjoy or end up needing that we never would have anticipated. A great functional argument for an open system and individual choice vs. bureaucratic control, excessive tracking and credentialism.



 I admit I have difficulties separating myself from the monkeys.

During trading strategy development, most of the time I have found that a 'good' strategy by many criteria can't actually beat out the performance of the random trades by monkeys. So the question is what constitutes intelligence? Is performance the sole criterion that separates intelligence from non-intelligence? If not, what else? What can make me say, "ok monkeys, I can't beat you in performance, but this thing makes me much more intelligent than you"?

Marion Dreyfus writes: 

Monkeys' investments are hypothetical; no one has really actualized this hoary supposition. Your trades are measurable and real.

Et voila la difference.

Ralph Vince writes: 

Because you think too much.

No joke.

You look for an "edge," i.e. an asymptotic probability weighted mean that is > 0.

The monkey - he doesn't. He does not posses that great big brain that leads him to believe in the delusions (see previous line) that you do.

He is only concerned with a finite time horizon, one play (get the banana! Don't worry about the small probaiblity of a chock, get the banana), in his case. You, on the other hand, have used your big brain to lure yourself into thinking you will be around tomorrow, something you take for granted.



A most compelling talking of one's book, by a collectivist. 

"Gross Says Deflation a 'Growing Possibility' Hurting Wealth":

By Mary Childs Nov. 3 (Bloomberg) — Bill Gross, in his second investment outlook since joining Janus Capital Group Inc., said deflation is a "growing possibility" as governments worldwide are struggling to create inflation and stimulate growth. Central banks around the world have made "a damn fine attempt" at fueling inflation, yet their efforts have pushed up financial assets, rather than prices in the real economy, Gross wrote in his outlook titled "The Trouble with Porosity"…

Gary Rogan writes: 

"Balanced budgets are increasingly in vogue". What universe is he living in? And has anyone ever explained to him that when you have deflation you gain wealth without earning a dime?



 Here are some lessons learned from the last week (2014/10/24 to 2014/10/31):

1. Potential energy is very great for a rise in stocks. Any big central bank, any big pension fund, any big asset allocator can raise the proportion of its mix of bonds and stocks by a little, and the market can jump 3 or 5% just on the thought.

2. It's easier for a market to go up 10% from a low, then to go down 10% from a high. And improvements and much more likely than falls.

3. All my people know how to make money after the market is going down, but none of them know how to make money after the market has gone up. It's just as bullish after the latter as the former.

4. The worse the news, the better it is for the market as weak hands have got out.

5. When you are way down on a position and it goes to a point of manageable loss or worse yet break even, it's a great time to double up rather than get out.

6. Markets like to go to a round number. Crude broke 80 and gold broke 1200. And SPU broke 2,000 among others. The rub is what will they do when they get to the construals. In two cases they broke right through, in the crude case, they went right back up.

7. If you put in positions of size over night, you are a goner. Either you'll make a small profit, or you'll be wiped out, so you have to stay awake the whole time, for 24-7 which is impossible.

8. When the market refuses to hit your limit for a very long time but touches it the way my bond positions from the long side did often last week, prepare for a big loss.

9. The ratio of stocks to bonds is bounded on one side but not on the other.

10. The unexplained strength in the market on Thursday, was a precurse to Japanese activity on Friday.

11. After a streak of wins you are likely to lose if you try the same thing over and over again.

12. Having positions in many different markets is very dangerous as they all can go against you, especially temporarily in an effort to force you into oblivion. The markets often have a theme and if you play the theme in many different markets, they'll kill you in an ensemble when they go against.

13. The gold bulls, the doomsday crowd, with all their bravado is more pusillanimous then a mouse as witness a 6% decline in gold in a week.

14. Ephemeral things like protests in Hong Kong are opportunities to buy.

15. The favorite thing for market commentators to do before an election is to say that the market does better when the agrarian reformers win rather than the enterprises. Yes, that's true, when an agrarian is going to win, the market will go down 10% in the weeks before, and when an enterpriser is going to win, it will go up 10% in the weeks before.

anonymous writes: 

Great points Victor, maybe add:

Have something in your arsenal for markets that are trading not in your preferred setup mode, (mean reversal, say, or breakout) but are exactly where your fundamental bias lies. A good example this week was dollar yen for me after FOMC. It was effectively the strongest recent currency against the weakest but nothing was done on the long side here as my trading tool arsenal was too rigid and zero opportunity presented itself. The rocket took off and the trail is still burning.

Gary Rogan writes: 

Up until about 2009 I have been a great stock picker, but since then my record has not been too good. But my mental commitment to never sell other than to balance the gains imposed on me by buyouts has been a pretty good strategy. Most of the winners from way back when are still with me and they don't know any better, they just keep rising. Unless Alan Abelson is proven right posthumously I expect the latter to continue.



Hey guys,

So after watching the old PTJ video a long time ago I used to have a strategy that would allocate to things that had a tendency to go up after large factor moves. The Chair also mentioned strategies like this in The Education of the Speculator.

For example, Priceline would tend to underperform its peers on a t+2 basis so long as the Euro was in free-fall. So the strategy would keep trading Priceline versus its peers based on movements in the Euro. The qualitative thesis sounds great - the street is slow to adjust its expectations relative to the movement of real time macro assets that have material impact on their forward earnings.

Except for one thing.

In 2011, this strategy started falling apart and I stopped using it. From 2012-2014 it has gone into full free-fall. Moves have become coincident, basically, and over-react. So once EUR starts puking Priceline will immediately start gapping versus its peers, lower. On a t+2 basis it will tend to correct this over-response. I tried to improve the strategy to be more clever (like isolate factor exposure by stripping out fixed income from yen exposure, because things that move up with usdjpy tend to also move up with usgg10yr). It didn't matter/ reverse the breakdown.

My guess is that this is due to the increasing prevalence of quant shops who can run sophisticated lagging correlation analysis minute by minute. I've noticed that people on the list ascribe a lot to backtests like this. Do you have any qualitative analysis of your returns these days versus your returns before 2011 that you'd be willing to share? Is it harder to make $ now?

My gut instinct in response to the BOJ is to pile into things with Japan QE factor exposure (such as thing with a high weight in EWJ, or yield assets in Brazil - Japan FDI in Brazil has been in a structural uptrend for quite some time). But supporting the idea that an overreaction has already occurred, some Brazil yield assets moved up as much as 10-12% on Friday after being run up previously (mysteriously haha, obviously someone knew what was about to happen in Japan). But if we're in an existential market where this is already priced in - the trade is to fade it, not pile in. It'd be interesting to hear your thoughts on the subject.





 Nice comment from Nick Walenda after this weekend's walk in Chicago:

"I believe what I do is a calculated risk"

To which I would add just like the insurance companies that wrote a $20,000,000 policy on his life for this event.

I need to be more calculating.


Resources & Links