The demise of Capt. Cook, Hawaii, Feb 14 1779











1. The book Captain Cook by Vanessa Collingridge tells the story of the rise and cannibalization of the greatest explorer in English history, and the discovery of Australia, and the attempt by a nobleman illustrator to take away his renown by showing that a Portuguese actually discovered Australia, and is a great travelogue of an intrepid modern day explorer geographer in Vanessa Collingridge, a cousin, and contains much material of salience for Aubrey lovers, e.g. Joseph Banks the naturalist rode with Cook and had a Maturinesque relation with Cook similar to Maturin's with Aubrey. But for me the highlite of the book was the story of 10 disparate random things, terrible coincidences that led to Cook's death at the hand of the Maori's in Hawaii. First, Cook had to create hostility with random killings by his rebellious officers on the previous visit, then he had to be turned back by icebergs when he left trying to find a northern route bak home, then he had to choose to go bak to the Maoris, then a Maori chief had to steal the tiller and carpenter's tools, then they had to have a miscommunication as they decided to blockade the harbor but Cook went out alone to catch the culprit, then the chief was ready to come aboard as a hostage, but at the last minute the wife intervened to beg him to stay, then one of his officers on the other side of the island had to kill a native, then the marines and Cook failed to watch their back not believing that a deity like Cook could be in danger. All had to happen for the fatal clubbing behind his back to kill Cook. It's like what happens with a bad trade that is not properly thought out that leads to disaster. Brett Steenbarger is rite that a few minutes of delay and thought before pulling the plug can save the Kingdom.

2. The round numbers are becoming particularly attractive all over.

3. The more I study chemistry, the more convinced I am that all the quantum and whole number states and jumps between wavelengths as in climbing up a ladder and angles between the atoms of the molecules have direct and useful implications in our field.

4. LoBagola is living in many markets with moves up and down the ladder occurring with inordinate frequency.

5. The Japanese baseball is a perfect model for how all traders should be prepared in our field, and it would be useful for all to see a Tokyo Giants game. An added bonus is that there are beautiful songs for each player.

6. The books about Rothschild show that he played the same role in financing the railroads at the start of the Industrial Revolution in Europe that the venture capital firms in Silicon Valley play today.

7 The best sushi restaurant in the world is in Awaji Island (outdoor scene restaurant the food ),the shellfish capital of the world. The beauty of eating non-frozen sushi just off the boats, and having abalone in abundance rite out of the shells is unrivaled.The price of a comparable meal in NY at Masa or Nobu would be 10 times as high, and 1/2 as good.

8. I know of many kids of Commodity Traders who are as independent as their fathers and often turn that independence into rebellion

9. Crude oil goes up and down with Mideast hostilities but like all commodity markets ultimately moves as Sushil points out to telescope future supply at lower prices and moves to balance today what future prices will transpire when the supply at current prices is reduced. In other words, the cobweb theorem still holds and trumps Russian and Yemeni and Saudi moves.

10. The elderly agrarian at the Fed seems intent on bulling up the economy when it will help our agrarian counterparts in the legislative branch.



1) "The leechbook is one of the earliest examples of what might loosely be called a medical textbook. It seems Anglo-Saxon physicians may actually have practised something pretty close to the modern scientific method, with its emphasis on observation and experimentation. Bald's Leechbook could hold some important lessons for our modern day battle with anti-microbial resistance."

2) and an interesting blog published by the Society of General Microbiology on resistant microbes and microbes in general



Fascinating story on the BBC World Service :

"For decades, Mark Landis donated art to museums and galleries across the US. He was feted as a wealthy collector but the pictures were fakes that he had created himself."

"I know everybody's heard about forgers that do all these complicated things with chemicals and what-have-you," he says. "I don't have that kind of patience. I buy my supplies at Walmart or Woolworth - discount stores - and then I do it in an hour or two at most."If I can't get something done by the time a movie's over on TV, I'll give up on it." The way Landis presented himself - and his donations - was also very convincing.

"He said everything an art museum would want to hear," says Leininger. He had a "back story about how he had this art collection and supposedly family wealth, promising money for endowments".Leininger sought advice from a former FBI agent who specialised in art crime. But because no money had changed hands for the forgeries, Landis had not broken the law. The burden of due diligence fell on the institutions who accepted his donations and if they displayed his fakes in their collection, that was their problem.

Pitt Maner III adds:

Reminiscent of another artist..

 "Eventually Boggs was acquitted. His lawyers persuaded the jury that even “a moron in a hurry” would never mistake his drawings for pounds sterling. In truth, the threat posed by his art had nothing to do with counterfeiting. If the Bank of England had reason to be anxious, it was because people knowingly accepted Boggs bills in lieu of banknotes."



Here's one of the most useful things i tell my students: once an old man told me to pull out a sheet of paper and order the five things in life that are most important to me. Most people choose: money, family, job, security, sex. for me (Keeley) the list i made at age 25 yrs was: knowledge, experiences, health, travel. and helping others. I've reordered those throughout the years, but the list remains the same.



Speed Traders Make Peanuts in Profits From Economic Data Plays - Bloomberg News Item

Vic Niederhoffer:

Excellent academic paper with many fascinating facts, e.g. the human reaction time is 200 ms. vic

Paolo Pezzutti adds:

It is called:

"Do High Frequency Traders Need to be Regulated? Evidence from Algorithmic Trading on Macro News" by Tarun Chordia, T. Clifton Green, and Badrinath Kottimukkalur

The link:,Green,Kottimukkalur_WP2015.pdf [38 page pdf]

Burgess Humbert comments:

Taking the paper at face value, and Ceteris Paribus, the elimination of excess profit down to a 'utility' rate of return is a natural phenomenon in a field whose technological advance has resembled an arms race of late.

Unfortunately - ( and this does not denigrate the thrust of the paper or its authors ) - a call to ex colleagues in the field just now led to them falling off their chairs laughing at the idea that the marginal returns are ( or are beginning to ) decline.

As to the other part of the paper about the need for regulations etc. Let me answer this way -

Execution via High Frequency execution has both improved and decimated 'liquidity'. ( Here , I refer exclusively to spot FX, commodity futures, long end interest rate futures and stock index futures )

It has improved liquidity for transacting small parcels that are small enough to be executed within the first two levels of the bid/offer depth order book. I find the improvement stunning - particularly FX.

In terms of dealing in size - well, just a year ago, one could call a counterparty and get a stunning bid and or offer in say 75 mio GBP/ USD Spot FX. No more…. a combination of regulatory change and HFT execution has worsened fills by about 0.00015 in this amount. ( please let's not even start with discussion about using market maker provided execution 'algorithms'…. )

A real life example to put some meat on the table ; The last time I sold 50 mio GBP USD the rate going in was 1.4987/89… the following 'fill profile' is typical of a market order of this size nowadays-




Worse case fill at 86 when dealing with senior professionals just a year ago.

There are ways to improve on this, but I wanted to demonstrate how HFT has both improved and decimated liquidity at the same time.

Andrew Goodwin is skeptical:

What is the cost to every resting limit order in every correlated asset? Think of all assets including options, stocks, futures and derivatives or combos. Isn't is a fool's errand to look at profit from S&P 500 futures to generate the conclusion that HFT does not make much money on news breaks?

Burgess Humbert agrees:

Indeed. Let's call it 30 billion a year with a Sharpe of something approaching infinity.

stef says:

The real problems with HFT are the rules and how they protect the manipulators

See "Direct vs SIP Data Feed"

Burgess Humbert adds:

There are indeed some very nasty yet very legal order types. The description of some of the orders extends to 20 pages ( yes twenty pages ).

But, there are ways to minimise and work with it some of the time.

I encourage all to regularly read;

One particularly amusing story on that site ( that caused a change in Federal Reserve data release policy !!!!) is called something like '… Einstein and the great Fed robbery …'

Look it up- it will change your world.

Surely a candidate to be made into a film one day.



Positioning for relatively low probability outcomes ( in terms of both magnitude & runs of consecutive similarly signed trading periods ) has been the optimal thing to do for the last several months in CL, Currencies, Bonds and DAX. ( ex- post profitability from momentum strategies likely in the order of that list also ). Contemporary returns from the HF world up until last Friday support all of this.

This post does not seek to challenge or discuss the wisdom of these moves or the disturbing future ramifications.

In dealing with the market's regular shifts between rewarding either;

* positioning for low probability scenarios


* positioning for high probability outcomes

It is difficult to assess how the market has done because the practitioners keep changing, survivors bias comes into play (in addition to all the other factors that are common in these types of studies)

One approach that has been fruitful has been to run theoretical portfolios of naïve trend following strategies and portfolios of naïve reversionary approaches. The aim is not to trade them but rather to have an objective measure of what strategies the market is rewarding with outsized gains and looking, quantitatively, at conditions that indicate a change in regime.

To those of this list who care - I believe a substantial change of fortune is at hand based on the above.

For the avoidance of doubt - Further out than the next 36 hours I have very little idea as to the direction of any of the major markets so I most clearly am NOT calling the end of any major 'Trend' ( whatever that is - Sorry, couldn't help myself). What I am saying is that the mistress is likely to be much more discriminating in sharing her pleasures than she has been in the last several months per unit of risk taken.



P.S. One of the gravest errors in the area of testing and counting is the assumption that if something is statistically significant in one period it will be predictive in the next (in markets or life). 

My market views:

Europe UP as long as Ukraine and Greece do not worsen.

USA with strong $ has lost competitiveness vs rest of the world, revenues do not justify present stock prices.

The tax burden is increasing in America. It is likely that markets remain flat (fall on worsening data).

Before Europe solves the problem of Greece … and EU proceeds with the QE, before skies are blue again [much time will pass]

The world central banks all involved to bring rates into negative territory, didn't they learn anything from the competitive devaluations of 1930's.

Summers advised Janet to NOT raise rates (and so the $) …maybe bring about negative rates?

All these Trillions printed in anticipation of future earnings… in a global economy that will not restart… and not one billion flows to the underlying… the real economy. Consumers are to be listed in the WWF web site as endangered species.

There seems to be an inflation of red pills:
Blue pill, the strange vision ends, tomorrow you wake up in your bed and believe whatever you want.
Red pill, you stay in Wonderland (rates negative and QE when needed), and they show you how deep is the white rabbit hole.

What are they waiting for? A miracle? Or the restart of the Chinese economy in April…

From 2009 to end 2014:
1514 total days, 27.53% of them "red 10 day" [positive 10 day momentum]

In 2008 it was only 11.81% (I am using S&P500 index, not futures).



"The forty-eight hours after the march into the Rhineland were the most nerve-racking in my life. If the French had then marched into the Rhineland, we would have had to withdraw with our tails between our legs, for the military resources at our disposal would have been wholly inadequate for even a moderate resistance."

This "quote" of Hitler's is now being used to justify arming the Ukrainian Army. It will undoubtedly succeed because "we all know" that, had the Allies stood up to Hitler, nothing bad would ever have happened.

What will be conveniently ignored are these trivial facts:

(1) The only two European victors in WW II - Britain and the Soviet Union -both supported the German military reoccupation of the Rhineland over France's objections.

(2) The actual testimony at the Nuremberg trials of the source of the quote, Paul Schmidt, who was the German Foreign Ministry's translator.

"Considerable fear had been expressed, particularly in military circles, concerning the risks of this undertaking. Similar fears were felt by many in the Foreign Office. It was common knowledge in the Foreign Office, however, that Neurath was the only person in government circles, consulted by Hitler, who felt confident that the Rhineland could be remilitarized without armed opposition from Britain and France. Neurath's position throughout this period was one which would induce Hitler to have more faith in Neurath than in the general run of 'old school' diplomats whom Hitler tended to hold in disrespect."




Many thanks for indulging my post.

Allow me to stretch some thoughts on Reality & its Perception.

Say, a star is said to be 4 light years away from us. If it is assumed for a moment that, it would be possible to travel at the speed of light or slightly less than the speed of light at some point in the coming future, then too it will take one to reach that star a little more than 4 years. To know the reality of the star for sure, one would thus be separated from its reality by the distance and the limitation on the velocity of cognition. One will therefore know only much later after the star ceases to be in existence when it so happens. Without the assumption of the travel at the velocity of light, all minds — scientific or otherwise — are limited by a fact that for an entire 4 years all could be only perceiving a star to exist that has actually ceased.

Same way, for any other observation of reality, there are perceptive limitations. Limitations brought about by the limited availability of tools of observations and the necessary and unavoidable lag on the one hand and limitations brought about by impositions of our unique minds (that are self organizing pattern seeking systems) on the other hand.

As economic agents, we are not required to and are often unable to work on the challenges of improving up on the available tools of observations. But as economic agents we are required to and all the time observe with the limited tools. We have a freedom to overcome our minds or succumb to them. Traders are those who overcome the mind. The rest are merchants, sales-traders, sales persons, research analysts, strategists. Each of the other agents in the financial markets is allowed to and encouraged to exist in their respective ivory towers of imagination, self-justified values and beliefs. Traders are neither allowed to exist in ivory towers nor do they choose to live there. Traders respect markets more than any other agent and the maximum weightage they attach to any inputs are the inputs provided by the behaviour / activities of the markets. In this simpler sense, traders are the ones who observe markets closest to the purest state of observation, while all others evaluate markets from their perceptive screens.

This connects the dots well with the idea that traders thrive and not just survive the intense frequency of feedback that markets produce. Those others farther down the perceptive efficiency chain (the food chain), ignore a lot of signals of the markets that are eeking red lights at them, since those others choose to not handle the intense feedback mechanism. This is true, according to my "mind", of any participants on any frequency / time horizon in the markets.

Traders, in fewer words, act spontaneously along with the market. All others act after imposing their beliefs. Some continue to live in Abelsonian denial.



A patient walks into a doctor’s office for a diagnosis of whatever ails him. A time-consuming, costly battery of tests follows that comes up with a targeted diagnosis many hundreds of dollars and days later. However, in Latin America the doctor examines the patient, asks a few questions, and 15 minutes later has a short list of differential diagnoses. This is the two or three candidates for the cause. Then, one-by-one, corrections are made until the right one is found. It’s almost always the first or the second educated guess. This is Latin medicine, on-the-spot diagnosis and treatment that prevents costly, time consuming lab tests. I’ve been through it a hundred times for my zoology of past and healed problems. One doctor in Mexicali told me that he could practice in the USA, but prefers Mexico because of this protocol.



One very significant and predictive element of surf forecasting is the period of the swells.

NOAA Wavewatch [latest pacific waves forecast]

The period is the time between the peaks of the waves and can determine the eventual size of the breakers, the power, and the quality. Higher periods mean faster and better waves. A smaller wave with a long period is often better then a big wave with a short period which is choppy.

I wonder if market price periods might have some predictive value. Survivorship analysis is one way to look at it. Time between events, max and minima time periods seem productive looking forward. An idea is along the lines of the longer time between max/min the more the amplitude as in waves in water. Would shorter periods mean more "chop" with less favorable trading conditions. Would longer periods predict larger amplitudes or more vol and good trading?

Ed Stewart comments:

I think there is something to it. The tricky part is sometimes one can identify wave periodocity that they won't let you profit from - they let you in on the bad trades every time but not often enough on the good trades. Yet is can be very enticing if one does not consider that factor beforehand.

For example. A friend told me his firm "shut off" their computers due to going outside their risk parameters, and what do you know the periodicity during that period was highly profitable with the type of very fast reversals and squeezes from extremes many short term traders thrive on. Huge volume still but a low level of resting orders. Made me consider that when composition of the participants change the character of price formation changes substantially.

Stefan Martinek says:

High/low pressure areas drive weather patterns. Pressure can be quantified in markets as well. We can fix a time unit and measure the price pressure, or we can fix a price unit and measure the time pressure. Price and time are non-linear. To manage just one dimension seems enough.

A few years back we sailed to Corsica [island in the Mediterranean] when Mistral [strong northwesterly wind] arrived. All was very predictable: Short chopping waves, everyone threw up 10-20 times except captain, and it went for two days. I never sailed between Europe and the US, but some claim that it is the most predictable journey due to Passat winds.



Here it is; Two old men coming out…now the media will be forever on our side. Vic captured their minds—I’m still here—and they are still talking about him as the legend he is.

My highlight of the baseball game was seeing people eating pizza (and other food) with chopsticks. Lots of traders here and some very successful one; they like to test


Vic Niedehoffer adds:

Larry and I are on the same wavelength. At a great sushi dinner, an attractive  tv reporter accompanied us. She mentioned that she had interviewed a certain world traveler that is old hearted about commodities at his home in Asia. Before she finished the sentence Larry and I both spontaneously and independently said  " did he hit on you?".

Aside from standing on Larry' s shoulders and seeing the Giants warm up, I visited the Tokyo and Kyoto fish markets, and had the best sushi of my life at Awagi Island rite across from the Pearl bridge, the biggest suspension bridge in the world. The Island is the shell fish capital of the world, and I had 4 sauteed abalones, which I haven't had as good as since 50 years ago at Sams on Bush street. They now cost 50 bucks a 3 inch circular abalone versus a buck or two in my day. The restaurant is a fish market during the day and converts into a sushi restaurant with all the local fish of the day in the evening. I had some Kobe beef hamburger afterwards as a test, but it's so tender that there is not much firmness in it. vic

 Gary Rogan complains:

It's interesting to note that you stressed directly the opposite back in 2007. You emphasized both on Dailyspec back then and live at the Junto, that your favorite seafood sit-down's in San Francisco menu merely appreciated not even three-fold over as many as three decades past. Your point was to knock down commodities' long term potential vs stocks. I could never understand why you meant that to immediately be Bullish for stocks vis-a-vis commodities. Did the fact that Stocks were at yet again historic high vis-a-vis commodities that languished for decades was comparatively Bullish for stocks?? I was shellshocked. Now we hear an opposite song: $50 vs $1-2! The deflationary omen?

Gary Rogan comments:

Abalone doesn't seem like a good predictor of anything general, especially their prices in San Francisco. All commercial fishing of them is banned.  As for comparing their prices in Japan today vs. California 3 decades ago and deciding what it means for commodity prices, this has got to be a job for the famous trader who is based in Asia who is the only person smart enough to accomplish this feat.



Larry is treated as a God in Japan. He started the whole industry of technical trading in Japan and about 1000 of his students were in attendance. He believes in conveying specific tested trades to his audience, and he has many students that he has been teaching for 20 years. One of his students handed me his card, and he was the Richard Branson of Japan owning 15 businesses including one involving the cruise ship outside our hotel . Larry concentrated on specific trades, and I concentrated on principles. We were a great tag team. But we both felt that we didn't get the universal respect we are entitled to. We decided at a great sushi dinner the nite before to rectify the situation. The only way to get universal respect in America, guaranteed fawning from the media is to come out of the closet. So we announced that we were coming out of the closet at our Sunday afternoon presentation, and we were greeted with appropriate plaudits, and Tokyo tv which followed us around and video'd the whole program was suitably appreciative. The highlite of the tirp for Larry and me aside from seeing all his fans was our trip to the Tokyo Giants suggested by Larry. I got there at 3 pm to see the 4 hour warmup. The best part was the 80 year old manager leading his team in calisthenics, all the time berating the laggards for not doing it expeditiously enuf. I used that scenario in my talk about the importance of preparation and wa. vic



The trading contest entries were fantastically good,and I compliment all of the entrants on great ideas and spirit. The Prize was 2250. The winnner is # 59 . The second and third place are 18 and 37. The prize will will be split 1500 to the winner and 400 each to the second and third place. Some of the entries were so good that they deserve to be rewarded . I am just back from Japan but will review all the entries and send canes to a number of the great entries that were not winners. The canes can be used as you know for hobbling down with your overplus to wall street during period of panic. Winners kindly send your address to and a check will be sent. Thanks for your heroic and valuable efforts. Sincerely, Victor

ps. The contest went so well that another contest will shortly be held. vic



I have seen this card trick many times ("Pick a card, any card"). This is not the best video, but is one that I found with a quick search: flash card [You Tube 0:39]. Please watch it to make sense of my rant…

What if: Traders are glued to watching quotes. HFT can flash quotes — "is it too fast?" Let me go slow. Then, it is something humans can actually see, dances around and pauses on the "right number", dances again. Sometime later, the market moves and everyone jumps in etc based on whatever indicator (FOMC, Economic numbers, Technicals, etc.). They need a stop. Let's pick a price "no one else will know".But HFTs know — 99% pick the same number based on the way they flashed prices and run them.

Is it possible? Because somehow the more I am glued to the screen, the more likely my stops are filled!



When planning a research agenda, I believe that it is fruitful to start with a modicum of thought about the ways in which markets try to misdirect our focus.

In extremis everything available to the modern trader that is supplied to him by the providers of the market infrastructure ( exchanges, banks, government et. al.) provides a picture or 'information/data' that in some way attempts to generate 'business' for the provider ( commissions, taxes, subservient behaviour etc. )

Whilst the above borders on tin hat conspiracy ( after all, we need SOMETHING to analyse! ) it makes one think about what factors affect prices that are not readily available.

Some are:

# True bid/ask volume and depth. Nowadays, this information as shown on DMA platforms arguably does not represent the intentions of the buyers and sellers in the market given all the different order types & not to mention HFT. So, one should research into whether magnitudes and changes in it have anything to do with future price changes in and of themselves.

# The price formation process. One has seen live trading evidence that there are very high levels of mathematics- applied to reasonably high frequency data ( not so high frequency that latency or hardware is the true 'edge') - that there exist relationships between numbers that are very predictable for short holding periods ( interestingly this type of predictive analysis descends into randomness with holding periods longer than about 36 hours - it may be of interest that the best trading firm since we left behind the primordial slime trades within this time frame) So, at the meta-level is there a price formation process that ( whilst not necessarily available to all, might in some way reveal itself )

# Changes in regime. Whilst not wanting to enter into a discussion here about things like hidden Markov switching et. al. It is very interesting to consider how, when & why the markets shift regime. This may be from Trending to non trending, from relatively low to relatively high levels of Volatility.

# Markets' varying responses to the same stimuli. An example shall suffice -yesterday morning, one was fortunate to sell GBP USD at a very good level based on one of my approaches. The market declined sharply subsequently. The same trade idea applied later in the day would have been the exact wrong thing to do. Now, I know why in terms of my trading approach but the bigger question is still there - it's all just data isn't it. Of all the four points listed in this post, this last is most reasonably addressed by an understanding of non linearity- but that for another day.

Just as I concluded the above it strikes me that perhaps 'comparative advantage' can be made to work in trading - I am certain that I have a 'closed form' answer to research that others have spent two decades on and I am sure others might look at some of my strategies' short comings and have improvements that would be very helpful to assisting one become a Rothschild.

Good day ahead all.

Ed Stewart replies:

Great post.

My working hypothesis is that markets "advertise" to draw in the maximum amount of resources to the system. Price action and "fast action" seems to entice the basic urges the way i fishing lure does for the fish. Much of the "stuff" out there, is to draw in new participants and their $$, like blinking lights at the casino. And it is not a "conspiracy" but rather spontaneous order of the market do to competing profit incentives.

Of course the above is not my idea, i learned it (expressed much more eloquently and accurately) from Victor's books. It is only "mine" in the sense that the more I trade, the more i see the applications, and the more certain I am that it is true. I would say it took me about 5 years to get the point, so I am a slow learner.

Mike Caro the poker author had an article recently that said something like "you should be happy when your opponent draws out on you". ( ) Of course, because it keeps them playing and taking shots. Same is true with trading, i think.

What the market does is advertise the "drawing out" situations and then entice people to make those plays, which are not percentage plays. Anyone who looks at a chart naturally picks out those "drawing out" situations and says, "I would have bought here and sold here" etc.

Even investors, traders, or hedgers who do not officially use charts or market-based signals can still be influenced by them, because they have psychological impact or pull that does not require conscious articulation.

Jim Sogi adds:

Big orders used to mean something in the depth, but deception is the rule of the day now. Some of the traders or market participants at CME get info on who is making the orders. That might mean something in a deceptive environment. When also seems to be important. How long seems to be a regulatory and legal grey area now as well.

Gary Phillips writes:

Deception is nothing new, and the market's micro-structure is nothing new. back in the pit, it was always my belief that the market would trade to size. floor traders would inevitably be lured into stepping in front of large orders, only to race one another as their lean got hit/taken and disappeared. the exchanges have since struck a faustian bargain to provide the same benefits to hfts, (including front-running, etc.) in exchange for the provision of market liquidity; something that was once the provenance of the floor trader. the new micro-structure, doesn't appear to have changed things much. back in the day, when we wanted to "pull liquidity" we simply put our hands down, and like the hfts, we would do the same things, at the same time.

Hernan Avella adds:

Gary observes: "and the market's micro-structure is nothing new"

When talking about the stock market, this is certainly not true. Here's a good reference Fox, Glosten,Rauterberg: The New Stock Market . When taking about futures markets, the differences are also profound. Electronic trading is a continuous auction that features an order book, because of this you add another dimension to the game: the priority in the book. You also have different types of orders that affect liquidity and risk transfer. The meta-principles of deception and whatnot might be the same in life, pits or servers, however, an observation relevant to practice has to take into account the enabling mechanisms . Hernan.

Paolo Pezzutti argues:

Overnight when trading is lighter the book may provide some " true" indications (although this should be tested…). Algos are less active, hft is not there and the slow trading pace sometimes looks more driven by arbitrageurs more than anything else. This might give an edge in an environment that has different characteristics and competitors than during regular hours.



Economic forecasters fail to foresee recessions and are politically biased. Those who get the big calls right do a particularly poor job on routine ones. But the picture isn't entirely bleak. See my review of "Inside the Crystal Ball" by Maury Harris.



I have come to like these posts which ask us to examine in depth the nature of trading. Today I think and write of very successful traders (speculators, if you like) who do not seem to ever be excited about their profession. This brief comment (from a few years back) by Sir Vic started me in this direction:

"Jim Lorie was one of the most successful speculators I ever knew. He passed away with a vast estate and he did it mainly on a teacher's salary, which was very modest in those days. His method was always to ask his friends for a good stock, buy and hold it, letting go only when it was bought out."

Sounds boring; really boring.

For some reason Jim Lorie reminds me of one of the most successful commodity traders of his day, back-in-the-day. I won't speak his name since his privacy was important to him and he may still be with us. He had a small office on "the street" and visited a nearby deli, where he would have lunch and take the rest of the day off - the rest of every day off. This is where I made his acquaintance. I think he liked me because I did not know everything and did not act like I did.

He shared his trades with me. Very rarely did he have a loser; his winners were usually big winners. He traded in size for himself and he had a small, but very wealthy, client base. He was never excited about a trade. Mainly, he thought about his garden and fly fishing. He had one simple approach:

"Let the technicals confirm the fundamentals."

A book about folks like this would be a snoozer. The general impression about the successful speculator is that he is on the edge of stress every day in an exciting world of near misses.




dig if you will the picture
doubt and patience amiss
the smell of fear now vanquished
can you my bears
can you picture this

how can I be too long
when rates refuse to rise
maybe it's because of the dollar 2 strong
maybe I'm in for a surprise
maybe I'm just like the herd
they're always foolishly enticed
trying to change the free bird
maybe it's already been priced
but this is what happens
when doves fly



Everything was ready [for Eurozone economic recovery] but now Greece's blackmail threatens to blow up the party.

The situation with Greece seems about to escalate, at first I thought it was a way to buy time until after the May election, but the level of confrontation continues to rise day after day, both from European countries and from outside ( even from warren buffet and his dog, when warren will be food for worms .. Greece will still be there ), now there are hints of the exit of Greece from the euro. The substance is that they do not trust Tsipras, whose blackmail if followed by victory would be a negative signal, a bad example. EU will try to worsen the situation in Greece until new elections in Greece (…?) and replacement of Tsipras with politicians more willing to impoverish the Greek people at any cost . It seems another Lehman and it seems that Europe is willing to risk this poker hand.

So Greece will be "saved" despite everyone knowing the country can never repay their debts. The Russian or Chinese threat is something far worse than $ 300 billion of Greek debt. Which says a lot … about the debt of nations!

 Andrea Ravano replies:

I don't think the World's Nations are supposed to repay their debt, but to roll it on; the European  liquidity crisis which arose after the Lehman collapse is a clear example of lack of re-financing of existing debt. I think we must examine the problem of debt in these terms, not in terms of repayment.



Kyle Bass recently opened a new strategy against drug companies: short their stock and then attack their patents, using a law from three years ago that basically opens the door to such things. Even if the challenge results in no action by the PTO [Patent and Trademark Office], it will take a while for that to come to closure. In the meantime, there’s some discounting of the presumed NPV of the portfolio as those wily masters of earnings estimates on the Street (who are never ever wrong) conclude that the company’s earnings will be adversely impacted in this way or that. Stock drops, shorts cover, and PTO denies the claim. If the patent is for a cytokine, the challenge may be upheld based on recent SCOTUS rulings, but that’s about it.

Some patents may seem absurd (and some are!), such as Schering's (now Merck’s) patent on interferon alpha (used for Hep C) dosing—how many times a week, and so. That patent was challenged, and the challenge was denied. That doesn’t stop the perceived value of the company from dropping, though.

For big pharma, this may be more of a pain than a major matter. Sure, they will go to Congress to get the law repealed or at least reformed. And the structure of matter patents key to industry are probably intact so long as they are not straight copies of a naturally occurring molecule (I think that’s been the new SCOTUS standard). After all, if they were at risk, the chemical industry would be at risk, too. And the capitalization of the majors is such that a drop, while unwelcome, can be weathered.

However, for the start-ups, this may be a bigger problem. Not only is there usually tight spending already so that paying attorneys’ fees has a potentially major impact on the budget (could it mean needing to raise more capital, likely with significant dilution??), never mind management’s attention more productively spent on product development.

Then there’s the stock price. Many start-ups look forward to being acquired as an exit strategy for investors in the company. However, they prefer to do so when the company is in Phase 3, when the valuation has considerably risen. (Including product failures and the like, peak valuation of start-ups is midway through Phase 3). However, if the stock drops because of shorts piling on the company, the market cap will drop, potentially enough to attract the attention of a major pharma looking at the company’s assets as priced at a bargain. If this is early enough in development, the market cap isn’t going to be that great to begin with. Consider, InterMune’s valuation about a decade ago was 100 mil. Pirfenidone, the stuff it’s marketing now (whether it’s worth using is a different matter), was in Phase 1 / 2. Early development. Go ahead 9 years, and Roche bought the company for 8.5 bil. (Roche is a conservative company; someday, I want to get the BD fellow responsible for the deal off to a quiet corner of a bar and ply him/her with enough cognac to understand the thinking behind the purchase—but that’s just my view of it).

So while the biotech frenzy continues (there may be a bubble, except there are real products generating real earnings (and lots in the pipeline from acquisitions) that’s supporting much of the valuations. And while you can say that Celgene is a bit stretched, but Gilead sure isn’t. Take a look at its PE, its revenues, its products and therapeutic areas and then its pipeline. Not stretched at all. So, is there a bubble? If you look at Valeant, you might be pardoned for thinking so. At some point, Valeant is going to be big enough that the M&A isn’t going to support the company’s valuation anymore. Kind of like what happened to PDL before the Facet spin-off. At that point, Valeant has to start functioning like a pharma (and not an PE enterprise) and generating some increases in earnings to support its market cap. Either that or watch the air come out of its balloon (guess where I stand on that assessment).

So back to the patents. I think Congress will do something at some point, just not the current Congress, which could barely pass a bill mandating that Reagan National should remain open. In the meantime, there will be some raids by the shorts until everyone else starts to discount rumors of invalid patents. At that point, it’s Game Over. Until then, though, while the big pharmas aren’t going to be bothered much, there may be some significant damage on the start-up front. And before you pooh-pooh that sector of health care, it’s worth remembering that the amount of productive research in big pharma labs is pretty poor these day. Innovation is taking place in the start-up world (not for big pharma, which may get some bargains, but for the investors in those start-ups, who may decide not to invest as much in the area, or in any given company, citing this “play” as a major risk and lowering RoI as a result. in VC [Venture Capital] terms, that RoI has to be high enough to cover the costs of the all-too-prevalent product failures).



Bernie Cards are MLB's most profitable team

"The St. Louis Cardinals are baseball’s biggest anomaly," Forbes wrote. "Despite playing in one of the smallest markets, the Cardinals are MLB’s sixth-most valuable team, worth $1.4 billion. During the 19 seasons Bill DeWitt has owned them, the Cardinals have posted a winning record 16 times and have been in four World Series, winning the title in 2011 and 2006.

Since moving into their new stadium in 2006 the team has never finished below sixth in attendance and has placed second the past two seasons. The Cardinals also pull in baseball’s highest local television ratings. And with Ballpark Village, the Cardinals have made the area near Busch Stadium a destination place for people looking for dining and entertainment."



At dinner here in Tokyo with Vic a young 'cub reporter' seems to have fallen for the notion in America that inequality is rampant; wealth is in the hands for the few. Vic demolishes the notion. To take it a step beyond I looked at some charts ..a 43% increase in millionaires since 2008, more wealthy people than any other country. America is still the land of opportunity and allows for upward mobility.

S. Martinek says:

The reporter's complaints remind me of this famous reply by Margaret Thatcher: "On Socialism" [You Tube, 2:34].

Vic Niederhoffer  adds:

I would add however that the cub was no cub but the main producer and a very competent one of a major program on Nippon Tv about the future. She is planning an interview with Pikety, and Larry and I gave her a little food for thought. More important she accompanied Larry and me to a Tokyo Giants game, and we saw a 75 year old coach lead the team in 10 minutes of calisthenics 10 minutes before the game, berating all the laggards all the while. I commented that if a coach did that in the States he would doubtless be strangled. But the lesson of group harmony and orderliness before a performance should not be lost on all trading rooms.



Here is an excerpt from my session in Japan. [You Tube, 0:58].



 One comes back from a trip to Japan with yet another mumbo concept to inspire fear. This one is that 26 days have gone by without the market showing 2 rises in a row. Indeed the last time the S&P 500 went up 2 days in a row was 2 17 when it moved 2076 on 2 12 to 2086 on 2 13 to 2088 on 2 17. This supposedly is bearish showing that the market can't put a sustained rise together. The song "Let's Misbehave" comes to mind. But does it ever occur to anyone to test it? That's what we're here for. "Er, have you tested that" is the motto of some parts of the spec list. Indeed there have been 6 occasions since 2007 when the market went 25 or more days without two consecutive rises. And indeed 5 of 6 of them were up an average of 2%, three days later.

Much more important, the stock bond ratio at 2053 to 164. or 12.45 is at a big, 28 day minimum and what are the alternatives to stocks, for investors, centrals, and pension. Same holds true for Japan and I predicted a new high there 3 to 5 years from now.

One notes the advanced computer technology in all of Japan and one was particularly pleased to buy two tickets on the bullet train to Kobe. And there were 50 sets of 3 seats on the car. The computer left only one vacancy and it was next to us two Gaijin . It was good to see that the computer is programmed to espouse Japanese values. And good to be back.

Just for fun a music video: Let's misbehave .

Anatoly Veltman replies:

The video trumps the test, by far. I thoroughly enjoyed the flick; but the test idea - not nearly as much. The moment I saw 2086 to 2088, I immediately thought to myself: this can't be serious. I've always questioned the idea of day's + or -, which at the same time didn't differentiate between a substantial and a randomly minuscule. So test results and expectations would differ if some day's delta was -2.00 as opposed to +2.00 with the subject value of 2,086.00? Something tells me the idea should be refined before a test. Great to have u back.



As there have been many excellent contributions to the "What is a Trader" contest recently, we will extend the deadline for votes for the best until Friday, the 20th. We will pay interest and augment the prize to $2,250. Good luck.



  Dollar at the round 100 and a 0.00 gain today according to Finviz


Hello all,

I'm Paul Marino, have written a very few times on DailySpec over the years and am a tremendous admirer of many of you and your insights for years.

Hope all is well with you and happy St. Pat's.

I'm half Italian/Irish if the last name and theme don't seem to match. :-)

Best of trading to you all.




Kindly vote for the best entry to "what is a trader" contest. The entries are numbered. Just tell us the number of entry you think is best. We'll announce winners at end of week. I would also say that the entries are well worth reading as they constitute the best writing on what trading is about that I have ever seen. Vic



 Growing up in the Jewish enclave of Pimlico in 1960s Baltimore, I would often hear stories of Hank Greenberg and Al Rosen. Greenberg was from the 1930s, and Rosen, the 1950s. (In 1965, Sandy Koufax entered into that list. When he retired a year later, you would have thought there was one giant shiva at someone's house; mothers who didn't know the difference between an infield and the infield fly rule, or who thought a Texas leaguer was a ball player in Texas—my great grandmother, when told that the Astros played in Houston, observed, "Boychik, don't they know it's hot in Houston, especially in the summer? Those men must be exhausted running around the field all day. Why didn't they do what Hank Greenberg did and play in Detroit? Detroit's nice and cool." How she knew anything about Hank Greenberg I never figured out, as it was the only sports fact of any sort that she knew. I didn't have the heart to tell her how hot Detroit got during the summer—began talking of Koufax with tones of reverence.

Al Rosen was one of the anchors of the very successful Cleveland teams of the late 1940s and early 1950s. Ask many about those teams, and the first person from those teams they might mention is likely Bob Feller, the hard throwing HoF pitcher. Rosen would probably be the second one. He was a power hitting third baseman, leading the league in HR and RBIs twice each, MVP one year, and almost a triple crown in 1953. It's a real shame that an injury cut short his playing career. I wonder what his stats woudl have looked like absent 4 years in the navy during WW2 and the injury.

More about Al Rosen from SABR:

Q. Who, during his AL MVP year, missed the triple-crown finishing second in batting average by .0016?

Hint: Had he not missed the bag at first, he would have had a hit in his final at bat that may have given him the batting title and triple crown.

Hint: However, the Senators players were rumored to have intentionally made outs to prevent the eventual batting title winner from getting a final at bat.

Hint: Bill James called his MVP season the greatest ever by a third baseman.

Hint: During his short career, he hit more homers than anyone else that played for only one AL team.

Hint: During the 1950's, only he and Mickey Mantle won the AL MVP by a unanimous vote.

Hint: In fact, he was the only unanimous AL MVP since Hank Greenberg - an irony not lost on either man.

Hint: He and Greenberg not only had the same award, but they also encountered the same type of prejudice during their careers.

Twint: An excellent boxer, he said he had a trick for dealing with anti-Semitic players and fans: "You flatten them!"

Twint: One might say of his mother "A Rose is a Rose is a Rose".

Twint: Hall of Famer Ralph Kiner said, "He was the leader of the team and the best all-around player I ever played with."

A. AL ROSEN, SABR Bio (1953 Won HR [43] and RBI [145] titles, but finished 2nd to the Senators Mickey Vernon (.3372 to .3356): He admitted he missed the bag and thus provided his own excuse for losing the title; It was rumored that Vernon didn't bat in his final inning due to fellow players intentionally making outs in order to award him the crown; MVP 1953 Vote; 1950-1956 HR 192, Yogi 191, Gus Zernial hit 193 but for two different teams; Greenberg unanimous AL MVP 1935; Like Greenberg, Rosen was Jewish; Jew or Not Jew? quote; Mother Rose Rosen) FCR - Bill Deane, Cooperstown, NY



 Nodding assent is important so the speaker and group you are in know that you are in agreement and are with them. Japanese want to have group consensus and they want to know everyone is on the same page which nodding indicates. If you don't nod and acknowledge verbally every sentence some one speaks they might feel you don't agree or are looking down on them. So nod and say "yes", "I see", "is that so" after every sentence, even if you don't agree or don't understand. They will be very happy. You can then disagree with everything they say in argument or questioning and its fine. Nodding is also part of the greeting, and social etiquette of bowing and establishing social rank. A nod is a very low bow. Most of them will bow lower to you as you are the respected sensei of trading but a nod will complete the greeting. They don't really want to shake hands, so don't stick out your hand in greeting.

Things are much much more different in Japan now than 10 or 20 and 30 years ago. Many young people speak English. Hotel staff, rental car counters, trains have some English to accommodate tourists. The trains announce in English. People are much more cosmopolitan than before. They don't stare at foreigners and allow handicapped people out and about. This is changed from before.

Japan is clean. There is no rubbish at all in the street. The bathrooms are spotless. The toilets have little water jets.

Out of 100,000 people I saw during a recent trip there, I saw 2 fat people. The rest were thin or skinny. On return to the US, I counted loosely 75% of people were overweight by at least 10 pounds, 50% by over 20 pounds, and a 25% 30 pounds or grossly obese. It was very shocking and will have economic and health repercussions as time goes by for the US.



 A very belligerent moderator of the Junto invited the nutritional equivalent of a chartist to debate John Mackey, and tried to debunk scientific findings. Somehow she believed that a double blind study of say 100 selected subjects (they are all from a pool) might be more indicative than the millions in these meta studies.

A good study in this area is "Does low meat consumption increase life expectancy in humans?".



Here is a nice more recent study of life expectancy with statistics on intervention showing a 20% reduction in the hazard rate.



A surprising number of SPU 500 stocks are between 95 and 100 having fallen recently below the round. JNJ, MCD, AON, GPC, GILD, HSY, ITW, NKE, PVH, PEP, PNC, R, SWK, PLC, SBUX, INTU, CME, MCO, MJN, it will be interesting to see how many of them and in what duration climb above 100 and whether this is non-random or not.

Jeff Watson writes: 

Corn and beans went through their round. Wheat is hovering above it…for now.



 A wonderful and brilliant husband and wife team of neuroscientists, Gavin Rumbaugh and Courtney Miller, from the Scripps Institute in Florida, gave a very good summary at the Four Arts Society in Palm Beach of research and findings related to memory loss and Alzheimer's disease.

Things I learned included:

1. It presently takes hundreds of millions of dollars and approximately 14 years to go through about 10,000 potential drug candidates in order to get 1 drug to market.

2. Inserting luminescent genes has made it possible for computers to accurately count the development and location of new, active nerve synapses. This is important in order to more quickly test the effectiveness of new drugs on the regeneration of nerve synapses.

3. Learning or knowing a second language is helpful in the development of additional synaptic pathways so that if you loose one you will have a backup and retain your memory.

4. Getting out of routines can make the brain work harder and improve brain health. Simple things like wearing a watch on your right wrist instead of the left wrist seem to create new pathways. One guesses that hitting or throwing a ball with the left hand (if right-handed and vice versa) would be equally challenging.

5. Rumbaugh gave an overview of amazing compounds in the developmental stage that show promise in countering Alzheimer's. The basic idea is that histones can shut down the actions of genes that are important to the development of new synapses–remove the histones and memories can come back. (Kilgore M, Miller CA, Haggarty SJ, Sweatt JD, Rumbaugh G. (2010) Class 1 histone deacetylase inhibitors reverse contextual memory deficits in a mouse model of Alzheimer's disease. Neuropsychopharmacology. 35: 870-880) 

6. Diet, exercise, and good sleep (dark, cool room devoid of any artificial light source would be conducive) also important to brain health.

7. Dr. Rumbaugh and Dr. Miller invited all to visit their labs and look at things under the microscope. I may have to take them up on that. They said they are not in it for the money but are trying to do research that will be helpful to mankind. Footnote: One wonders if increased dietary intake of cruciferous vegetables, saffron, and healthy fiber to improve the gut biome would not be helpful for HDAC inhibition and thus body and brain health.

There is research that suggests so: "A diet high in fiber promotes colon health, and commensal bacteria in the gut may be protective against colon cancer. The bacterium Butyrivibrio fibrisolvens ferments fiber into short-chain fatty acids such as butyrate. Butyrate is an inhibitor of histone deacetylases (HDACs), which function in the epigenetic control of gene expression."



I am reading a math book now and came across a section regarding permutations. I thought it relevant in looking at various markets and the possible combinations like a ranking. If you had 10 markets for example, I was curious how many possibilities there are of those 10 when the order is noted. Turns out there are 3.6 million combinations for just those 10 markets. The formula is P(n,r) = n! / (n - r)! where N is a set of items and R a sub set of selected items. In my example both N and R are 10. Intuitively I would have guessed much lower and shows how my brain at least is not very good estimated very large numbers. Math experts please educate me if I have erred.



 I write this from personal experience and in step with a recurrent and important theme here: "know thyself."

Some people trade with the hope that they will accumulate enough wealth to provide for all foreseeable financial needs. What about those of us who, through luck or skill, have reached that goal. The questions then become: "why more?", "isn't the journey over now?", and "why ever take large positions again?".

The answer that comes to mind is that we have acquired an addiction. If that is true, we need to face it and manage it: "know thyself."

Perhaps there is another reason. When trading we are "in the eternal moment." When trading we are so very "in the eternal moment" that we do not hear the triumphal slave, always riding at out shoulder, who incessantly reminds us of our mortality, whispering: "Respice post te! Hominem te memento!"

In that case we trade to block out the "know thyself." Knowing thyself is a reminder of our mortality and that we briefly dance between the two eternities, past and future. And in that case, there is no cure.

Why do you trade?

To "be" a trader is to have had your butt kicked and then gotten back up. Before that you are nothing. To "be" a trader is to know how to manage or avoid those "terrible and typical" things and that only comes with knowledge and experience. They are all different.

The Delphian was speaking to the trader when she said: "γνῶθι σεαυτόν." A trader knows thyself and uses that knowledge to avoid the next knockout. Learning the rules of the market you are trading is easy. Don't be fooled into thinking that knowing the rules makes you a trader.

Trading is ultimately about you.

The market is always probing for your weaknesses. Only you know them; yes, you do know them, don't you? The one weakness you are most vulnerable to is the one the market is always– ALWAYS– after.

That's the one which will kill you.

Thus this existential imperative: γνῶθι σεαυτόν. "Being" a trader is a true Sartrean experience.

Kipling knew: "If"



 Hi Vic,

Sorry I didn't get to say hello at the last Junto meeting, which was terrific.

Regarding the question you asked at the event: This is not a comment on the validity of Mackey or Teicholz's position. I think Gene was right about needing to do the marathon rather than the sprint, i.e., reading up in greater detail to get fuller knowledge of the topic. But you asked Teicholz whether she rejected the findings of epidemiological studies in the face of many experts who considered them valid.

My question is how you come down on The Phenomenon Formerly Known as Global Warming, i.e., climate change, and whether the skeptics (called "deniers," as in "Holocaust deniers," by the proponents) should bow to the opinion of the majority of experts, notwithstanding the fact that the 30-40 years ago the experts were very concerned about Global Cooling.

I think you or one of the other questioners raised the point that medical journals have 20 referees on an article. So perhaps the studies are more reliable than those in financial journals, where a professor at UMass assigns his grad students to study the results reported in articles and finds that 25% have serious errors. No need to write a treatise on this, but I'm interested in your thoughts.

Best regards,


Victor Niederhoffer replies:

The hazard rate is the gold standard in epidemiological studies. And the hazard rate for life expectancy in the typical studies of meat versus vegetable studies is about 2 to 1. You can imagine the significance of such a difference with 80,0000 subjects or so. The estimate of p has a binomial distribution. When you have a sample in the millions as the meta studies of such divergences have, there is no room for selective sampling. What are the chances that a million people are selectively different from the remained. The statistics of quota sampling are relevant here.

I would also point out that all the epidem studies use the cox hazards model as their statistical foundation. The cox model is like a standard multiple regression model but deals with probabilities instead of levels or changes. All such studies control for all measurable independent variables such as health status, smoking history , and weight. The chances that other independent variables mite affect the outcome with numbers this large in the meta studies is zero.

 You ask why science is sometimes wrong about such things, and I would say that the epidem studies with millions of subjects in many different counties with many different independent variable and selected groups are in a completely different kind of scientific category than climate change where the dependent variables are temperature changes over time, and the independent variables are chemical entities with say 10 or 20 observations and more independents than observations. There are no epidem studies possible in climate change.

I believe Nina is very out of her area of competence and it was dysfunctional to have her armchair rebuttals of highly refereed studies and statistically significant results in the one in a billion categories based on sampling errors and hypothetical differences in the groups studied.

Victor Niederhoffer adds:

 Another way of responding to this tomfoolery less statistically and more qualitatively and common sense is this. The differences between the groups that eat meat and eat vegetables in the many life expectancy studies are of the order of 5 to 10 years. Such differences are important to most human beings who wish to live. With samples in the millions in aggregate and attempts to control for all measurable independent variables there is a reasonable likelihood that the two groups are representative of the populations.

Now if there was a difference in these groups with respect to some other variable, like exercise or preference for risky activities, and somehow that was not covered by the other independent variables, then what could that variable be. Let us find it, because it would be the key to health. i.e. if it had so much of an impact by not being measured, it is truly important, much more important than the diet, and if it could be found it would be the open sesame.

But of course it can't be found because it would be statistically impossible to find something uncorrelated with the other variables that have been studies that has such an effect. It only exists in the armchair and the debunking retrospection and Monday morning quarterbacking. 



 In the 19th and early 20th century the arguments against the gold standard were these:

1. It was barbarous to have the unit of account be determined by the luck, brains, sweat and the money to pay for it that gold mining required

2. Only the rich and the clever would have access to gold

It is difficult to see the difference between Bitcoin and gold mining. The BitCoin miners are clearly putting as much luck, brains, sweat and money into their work as anyone who worked the Comstock. (One notes that the actual costs - electricity - are not being paid in Bitcoins themselves but in the national money that the miners exchange for their production.) If they are not yet rich, they are certainly clever.

In the 19th and 20th century and this century the arguments for a managed currency have been the same: it will have a stable value because it will be supervised by the government.

The mine manager explains away Bitcoins' price fluctuations by the fact that the currency is in "an early stage of development"; he is as confident as any central banker that, when the Chinese government gives the currency its official blessing, it will have a "stable value".

What is fascinating to those of us in the bleachers is how successfully "stability" became the standard of monetary virtue. Even the current defenders of the gold standard believe that its primary justification is the promise of "stable value".

Nothing in the experience of work and saving even hints at the possibility that prices will be stable. And, when the Marxists get their way and the capitalists disappear, the rations fluctuate in the same way the prices once did.

Peel and Grant both knew that there was one reason only that money should be a defined weight and fineness of gold. In the world of promises the clever will always lead; but, with gold as money, the clever have to meet the simple demands of the ignorant if payment in cash. With coin, even the stupid who had teeth could determine whether or not the promise to pay had been met in full. No one, rich and poor, clever and stupid, could hope to escape the fluctuations of the market - except, of course, the people who had a guaranteed government salary and, as the government, could assure that those payments were stable in value.



I can't help thinking for the competition "what is a trader" what percentage bias it may have on the outcome to have the voters' thoughts on the winning entry exposed (i.e entry with favourable early views having a greater chance to go on and win it) with ballots where the entry is positioned in the queue. This kind of thing may influence markets and prices in addition to this competition.

Gary Rogan writes: 

Years ago in a college psychology course I had to devise and conduct an experiment. What it wound up being was walking up to women in a shopping center and asking them to rank the attractiveness of something like five men in photographs. In half of the attempts, they could see previous results and in the other one they could not. The previous results were fake and ranked "ugly" men quite high. The effect was quite significant, although now I'm having trouble quantifying it.



 Time to reflect on the market as we are at the anniversary of the 6 year bull market.

I hardly know anyone who was bullish at S&P 666 in March 2009, then the market tripled. Think back, who was bullish, maybe that person is worth listening to.

Over the past 8 years whenever I speak to a new [Scandinavian] hedge fund they are short the same stocks, Kone, H&M, Novo, throw in SHB and Autoliv and you have a basket of the highest quality stocks in Scandinavia (and the best performing companies over the past decades). Therein, I believe, lies the value of local research and knowledge.

Even though every fund is said to be 'contrarian' there are always the current fashionable ideas that everyone gravitates to. Currently, in Scandinavia it is short ICA SS (on the thesis that Sweden will be hit with hard discounters like the UK. ICA's margin was hit in Q4 which reinforces the short sellers thesis independently of the reason) and long AKA NO (oil is said to be 'contrarian', couple that with a divestment case and you have powerful story for the analysts to pitch to their PMs).

Crashing commodity prices, currency war, crashing yields (with a big chunk of European debt trading at negative yield), surely this can't be because everything is so rosy in the world, this can't possibly be 'good' news. Couple this with valuations close to ATH [all time high] and I have for the first time in 25 years sold everything (I started investing when I was 12). Everything.

The ones who were bearish during the past 6 years blamed  QE, the Fed, [for how things turned out]. 'My model couldn't possibly predict the government distorting the market like this'. Now the thesis is 'money is free, the only place to invest is the stock market', 'yields will stay at zero forever', 'buy high yielding stocks'. Peter Thiel argues that high dividend stocks are the most bond-like, so isn't that the biggest bubble around. And at the end of the day isn't Peter Thiel smarter than all of us?



 The link below, and perhaps more importantly, the links referenced, provide an up to date review of the literature on the long held wish of the academic community to define and parameterise models (ahem) that describe 'herding'. There is enough in there, in my opinion, for one to finally say "it's a bunch of non predictive claptrap" or "huh!, I might test that":

Herd Behavior in Financial Markets:

Over the last twenty-five years, there has been a lot of interest in herd behavior in financial markets—that is, a trader's decision to disregard her private information to follow the behavior of the crowd. A large theoretical literature has identified abstract mechanisms through which herding can arise, even in a world where people are fully rational. Until now, however, the empirical work on herding has been completely disconnected from this theoretical analysis; it simply looked for statistical evidence of trade clustering and, when that evidence was present, interpreted the clustering as herd behavior. However, since decision clustering may be the result of something other than herding—such as the common reaction to public announcements—the existing empirical literature cannot distinguish "spurious" herding from "true" herd behavior. 

In this post, we describe a novel approach to measuring herding in financial markets, which we employed in a recently published paper. We develop a theoretical model of herd behavior that, in contrast to the existing theoretical literature, can be brought to the data, and we show how to estimate it using financial markets transaction data. The estimation strategy allows us to distinguish "real" herding from "spurious herding," or the simple clustering of trading behavior. Our approach allows researchers to gauge the importance of herding in a financial market and to assess the inefficiency in the process of price discovery that herding causes.

Link Here.



 On the currency moves versus the dollar the headlines get it sort of correct. A currency change seems to effects the non-US country much more that the US. For example since 2003 when the Euro/$ gown down 3 points over 10 days on average,n35 the Dax goes up 50 over next 10 days. When the Euro/$ goes up 3 points over 10 days, the Dax goes down -32 over the next 10 days on average, n05. In both cases the SP is relatively flat during those period. Admittedly the R square is very low. Todays outperformance of the DAX so far is unprecedented since 2003 with the Dax up over 200 and SP up a fraction or possibly down.

Meanwhile, the US consumer is the envy of the world. Energy cost halved, currency at 12 year highs. Rate at historic lows. What's not to like, except US equity markets which lag every other Western nation, except of course Greece.

John Floyd writes:

"I skate to where the puck is going to be, not where it has been." -Wayne Gretzky

I for one would consider the IMF assumption that a 20% rise in the US dollar has a 1% impact on both GDP and inflation. What if the Fed tightens in June to September and the US dollar is still appreciating and markets approach more Greek issues, a UK election, and upcoming Portuguese and Spanish elections?

Chris Cooper writes: 

I've been short non-US currencies for some time. But this appears to have been successful mostly because it is a "risk off" trade. In other words, one theme. My question is similar to Mr. Floyd's. Even if we assume that "risk off" will continue, at what point does USD cease to be a good vehicle for this theme? Is there, or will there be, a better vehicle, such as corporate bonds?



 Nothing highlights the effect of currency moves like foreign travel. The dollar had a major upmove this past year against major currencies. A 20% discount on everything is notable when traveling.

I'm in Japan now where everything is cheap to begin with (I guess due to deflation) and subtracting another 5th is amazing. The big currency moves are important looking forward and are signaling something just what I don't know.



 I thought this was a very good paper with market parallels.


Because members of the public have difficulty understanding risk presented in terms of odds ratios (e.g., 1 in 1000) and in comparing odds ratios from different hazards, we examined the use of time intervals between expected harmful events to communicate risk. Perceptions of the risk from a hypothetical instance of naturally-occurring, cancer-causing arsenic in drinking water supplies was examined with a sample of 705 homeowners. The risk was described as either 1 in 1000 or 1 in 100,000 and as present in a town of 2000 people or a city of 200,000 people. With these parameters, the time intervals ranged from 1 expected death in 3500 years (1 in 100,000 risk, small town) to 1 death every 4 months (1 in 1000 risk, city). The addition of time intervals to the odds ratios significantly decreased perceived threat and perceived need for action in the small town but did not affect response for the city. These framing effects were nearly as large as a 100-fold difference in actual risk. Instances when this communication approach may be useful are discussed….'

Isomorphisms writes:

David Spiegelhalter did a video on millimorts and micromorts. These are useful units in communicating the risk of death. Bicycling 250 miles = 25 micromorts, whereas driving 250 miles = 1 micromort (approximately). Hang gliding once costs 8 micromorts.

Of course, accumulating 1,000, 000 micromorts personally is neither necessary nor sufficient for dying. Those who accumulate the most probably lived best.



 "Ten key things to help you succeed in business, according to real estate legend Peter Thomas"

In 1968, he left to start a real estate investment business. The West in the '70s was an era of go-go growth, and by 1980 Thomas says he was worth $150 million. Soon after, his net worth was negative $70 million. It took years to work his way out from under that crash, but it taught him patience and discipline — and a sense of irony. "I was as close to being depressed as can be," he says. "I asked my wife Rita, 'If I lose everything, will you still love me?' She said, 'I'll always love you. But I'll miss you.'

Scott Brooks writes: 

Great article, Vince. Thanks for posting it. Lots of meals for a lifetime in this article.



 One of the main lessons learned from this website is to look for reasonably quantifiable concepts from other fields to try and apply them to time series of market prices.

The general problem is that the many other fields are dealing with physical phenomena with much greater certainty than the vicissitudes of price variation.

The two enduring things I continue to research ( in vain thus far ) are the measurement of Earthquakes (magnitude, duration, distribution and the concept of Allometry, in particular as it relates to tree & branch growth ( non linear horizontal versus vertical growth of two quantities with ever changing influences surely is a reasonable basis for time and magnitude studies in markets)

It is the first that will be mentioned thus forth in this post. I mention here just one subset of the studies, some similarities between the study of Earthquakes and markets:

1. The time of the day that an Earthquake occurs in relatively built up population centres is very important ( more will die at 10 am in a given office building than at 9 pm). There is merit in studying the after effects of market moves at different times of the day. (ensuring that one focuses on the entire distribution- not just big or small)

2. Magnitude and duration of Earthquakes. The mathematical brigade has started now to formularise relationships between magnitude and duration of very large samples of smaller quakes - the current leading edge seeks to parametrises formulae in a recursive manner to best fit previous data - obviously, the out of sample is poor.

There is some modicum of value in time and magnitude studies in prices. The world of price change though is best approached, in my experience, with the use of blunt tools ( market is up or down by an amount more or less than some reference point then add non linearity for forecasting).

3. Distance from the Earthquakes centre - the further away the better! In markets, are moves of a given magnitude and/or time more or less predictive a given amount of time from the open.

4. Geology of ground and quality of building construction: Poorly constructed structures built on mud come down easier. In markets - well two streams here; the first being the Chair's often mentioned 'base of operations' and the second related to some quantifiable measure of stability in the market - perhaps something to do with its 'state' vis-a-vis bonds et al. This link is instructive.



 This article on "the hot hand" uses sports betting rather than basketball or baseball to look into the effect:

"After winning, gamblers selected safer odds. After losing, they selected riskier odds. After winning or losing, they expected the trend to reverse: they believed the gamblers' fallacy. However, by believing in the gamblers' fallacy, people created their own luck. The result is ironic: Winners worried their good luck was not going to continue, so they selected safer odds. By doing so, they became more likely to win. The losers expected the luck to turn, so they took riskier odds. However, this made them even more likely to lose. The gamblers' fallacy created the hot hand."

This seems consistent with real life. From the day trader that makes money early in the morning and winds down participation to the big money managers that early in their career achieve 50-100% return, it creates the illusion of skill, increases AUM, shifts risk preferences and focus on the fees.



Perhaps it would not be remiss to express some thoughts I had over night.

1. Friday was perhaps the greatest loss in wealth ever.

2. Extraordinarily rare since the 90s for both stocks and bonds down 200. Actually only once since 1999. That in 2009.

3. Useful idiots attribute it to revision in expectations of fed increases.

4. But actually the rise had nothing to do with that but had to do with discounted value of returns on capital and lowering of inflation targets.

5. Amazing that good news can cause so much havoc.

6. But the market is the market. It will do what it wants.

7. But of course the stock market vigilantes, and now the bond market vigilantes will make it do the rite thing, especially before election.

8. Ephemeral things can cause great consternation.

9. The threat is worse than the execution.

10. They got me big yesterday. I actually make a nice little profit in SPU by getting out at 10 am.

11. However, I lost big in bonds, very big.

12. One will have to be more careful as the markets rise to new highs again. 

Jeff Rollert writes: 

It felt more like a systematic deleveraging. A balance sheet shrinkage, on both sides.

Anatoly Veltman writes: 

I think there is an important element missing from all these statistics. A drop such as Friday's is felt big by an SP futures long, because the SP futures long is very leveraged, while his currency exposure (hedge) is straight cash, unleveraged.

On the other hand, the real one day depreciation is miniscule for a holder of US stocks - as USD gained so much on the day. Compare a holder of US stocks Friday with an EU or UK person who held no stocks but their cash in the bank - and that person lost plenty, without being Long of US stocks.

Hernan Avella comments:

Anatoly, the reason why it was indeed very big is because you did not have the buffer of buying bonds, golds or oil. Furthermore, the 50-50 theoretical portfolio lost big on Friday on top of a bad streak of 5 down days out of the last 7, and now it's slightly down on the year.Now, when one accounts for stock market appreciation over the five year period as strictly "fundamental", "value of returns on capital", etc etc - one yet skips over a harder to quantify element of market truth: that Central Banks, with their long-standing zero interest policy, have left little alternatives for world wide investors but to pour cash into stocks the past five years. Some of that cash hasn't gone all in based on fundamental projections, it's just gone in. Like in "market will do what it wants". Enter one of the current day hot factors: EU is in dis-array. There is a lot of European capital that isn't investing based on long term returns on equity these days…They are paralyzed in fear of what next shoe will drop. So corrections such as Friday's are inevitable



There were only 9 instances instances in this millennium when $SPY posted 10 day worst loss for 3/4 trading days:





 1. Most journalists are "change-the-worlders" of the collectivist, "government should do more to…" sort.

2. Too many journalists were liberal arts students and are deathly afraid of math…any sort of math, even the common-sense kind.

3. Too many journalists regard their role as writing down the "he said-she said" rather than as working to find the facts.

John Bollinger writes: 

The AG's report on Ferguson is so rife with errors in the usage of statistics that it could serve as the course material for a "Mistakes Not to Make in Stats" course or a second edition of Huff's "How to Lie with Statistics". The report features many of the errors commonly seen in analyzing markets. For example, it appears no attempt was made to find the actual distributions to compare discovered distributions to and in no case does it seem that the negative hypothesis was formulated or tested. The interesting thing is that no one seems to have noticed/ objected. The media just picked up the report and ran with it, rather than dowsing it with a dose of critical analysis and skepticism; just as few notice/ object to poor usage of stats in market analysis and run with them. Since a lot of this is common sense rather than math, one wonders why.

anonymous writes: 

"One wonders why": The reasons are identical, I think.

Facts are made to fit a particular agenda. An attempt at applying objective truth of the kind that puts a satellite in orbit or makes the technology in an iPhone function never enters into the equation. That is the difference between politics and ideology and an actual, legitimate applied science– unless the science being applied is willful deception, which is realistically what is actually going on. 



Despite the lack of any real value in doing so nowadays as part of the research function, I read one 'scholarly' research paper each day. Mainly these are directly related to the study of price action. Given the incentives these days for researchers to keep 'the good stuff' to themselves (indeed I can think of one or two erudite gentlemen who started this process in the 1960s and 70s to their and their family's benefits), it is no wonder that compelling lines of research do not make it through the process.

If I read one more article involving parameter estimation (aaarrgghhhh)….. I am, however, overjoyed when I find something of note that, whilst still mainly descriptive, has within it some directions towards genuine alpha.

The overall conclusions are not necessarily ground-breaking but his way of getting there is interesting. This is just such a paper: "The Financial Market Effect of FOMC Minutes"

A year in a trading environment for the author, and learning some simple lessons therefrom, could push this work towards the asymptotic goal of greatness. One highly recommends also some of the references sited by Mr. Rosa.

Further, and begrudgingly, I bow down before various of the Laureates at the Federal Reserve and, perhaps even more so, to the team at the Swiss National Bank. Perhaps somewhat surprisingly, the FED team do good work on agriculture, a potentially fruitful, tangential pathway for us on this site.



 In honor of #WorldBookDay, here are my 10 must reads from a blog I wrote long ago.

‎#10. Trading and Exchanges: Market Microstructure for Practitioners by Larry Harris

"Trading and Exchanges demystifies the complex world of trading. It is a must for anyone interested in investing in the public markets" –Maria Bartiromo, CNBC News Anchor

"My goodness, if only I had known this, or hadn't let it happen to me!" or, "never again, the b##tards!" - Victor Niederhoffer

‎#9. The Art of War by Sun Tzu

The classical Chinese War Manual written 2500 years ago that is a must read at every Military Academy in the world still! Why do we need to understand war? Begin to think in the context of the markets, should I take this trade, should I not the type of conflict present in everyday trading life. ‎

#8. Statistics Without Tears: A Primer for Non-Mathematicians by Derek Rowntree

This primer without any of the mathematical formula and equations uses words and diagrams to help readers understand what statistics is and how think statistically. ‎

 #7. Twenty-Eight Years in Wall Street by Henry Clews

Author Henry Clews was a giant figure in finance during the late nineteenth century, and his firsthand account brings this colorful era to life like never before. This abridged version of an investment classic touches on a wide range of important financial issues, including:

-The causes and consequences of Wall Street panics

-The influence of Wall Street on national politics

-How individuals made their fortunes

-The characteristics of winning and losing speculators

–How operators attempted to corner the markets for individual stocks ‎

#6 Investment Fables: Exposing the Myths of "Can't Miss" Investment Strategies by Aswath Damodaran

A no-nonsense book by Professor Aswath Damodaran in which he debunks many myths, and he shoots at all styles: value, growth. No investing style is spared. This is a very accessible overview of finance research on most major investing strategies/or themes. The book introduces each chapter with a short story and then builds the case around each investing theme. The bottom line is that there is no investing "silver bullet" – which is probably intuitive, but often neglected in the search for a magical investing potion.

 #5 Triumph of the Optimists: 101 Years of Global Investment Returns by Elroy Dimson, Paul Marsh and Mike Staunton

There's plenty of reasons every day to assume the world is going to end. The media is constantly speculating about immediate financial collapse, the forthcoming mother of all recession, hyperinflation, debtflation, imminent stock market crash, pandemics, terrorism, etc… You might also find specialist #permabear, gloom & doom blog sites dedicated to each such topics "Triumph of the Optimists," is must read which shows the success of the equity markets over the past century. By far the most important investment book in years…It is the best and most complete source of data yet available…If you spend an hour with it and don't learn anything worth the price then you're truly lousy at learning about markets…Right now, buying this book makes more sense than buying stocks. (Ken Fisher Bloomberg Money )

"This will become the definitive empirical basis for analysis of the world's capital markets over the twentieth century. It is an important work of scholarship; no one else has calculated the equity premium of a large number of countries over the long term. In doing so, the book contributes to the very lively debate on the magnitude of the equity premium and will make a splash."

–William Goetzmann, Yale University

‎#4 Day Trading With Short Term Price Patterns and Opening Range Breakout by Toby Crabel

One of its great strengths in this book is that it is an attempt to statistically test the efficacy of price patterns. Instead of merely asserting that a chart formation is bullish or bearish, Crabel actively searches for evidence. With his empirical approach, you will be filled with 'Wow!' and 'Unbelievable!' with startling regularity over the course of reading the book. Test, test, test. Test everything you can. A person who doesn't test will lose money. Data is available for almost anything you can imagine.

#3 The Education of a Speculator by Victor Niederhoffer

"with an original mind and an eclectic approach, Victor Niederhoffer takes the reader from Brighton Beach to Wall Street, visiting all stops of interest along the way. What emerges is a book full of insights, useful to the professional and layman alike" – Palindrome Victor Niederhoffer gives us page after page of distilled investment wisdom. Taken together, this is pure nectar to those who aim for consistently superior stock market performance." -Barron's ‎

 #2 Secrets of Professional Turf Betting by Robert L. Bacon

It is best book on professional speculation around! While reading, just replace the words 'race' 'racing' with stock markets. What is a 'race', a day of trading? How rare is the man that understands mass psychology and how to "copper" the public. The horses are the companies. The day's trading session is the race. Different issues maneuver for position. The trainers at the racetrack are like the corporate executives, receiving prizes for winning and fees for getting their horses in shape. The bookies are the brokers. And the punters in the stands… they're like us… the guys who pay all the fees and commissions. "People who know the facts of life have called racing "the poor man's opportunity". An opportunity, because it is always possible for a poor man, or a man who has failed at every other profession or business, to get started at race betting with mere "peanuts". It is always possible for him to go on and "run it up" into a sizeable fortune. Any race any day any track can lay the foundation of betting success! It is possible for any man (or woman) who has the required even temperament for turf operations to "get off to the races" with small capital. Perhaps with capital as small as a day's pay! THAT IS TO SAY, IT IS POSSIBLE….." [from the book of chapter one, page one , & first one and half paragraph] ‎

#1 Introduction to Objectivist Epistemology by Ayn Rand

from Doc Brett Steenbarger's blog:

Introduction to Objectivist Epistemology is an attempt to explain how the human mind is able to grasp reality. (Epistemology is the philosophy of knowledge). Central to Rand's account is the role of concept formation. "The ability to regard entities as units is man's distinctive method of cognition," Rand wrote (p. 7). This ability opens the door to both mathematical and conceptual reasoning. Rand defines a concept as "a mental integration of two or more units which are isolated according to a specific characteristic(s) and united by a specific definition" (p. 11). The formation of concepts requires abstraction–isolating certain attributes from others–but also integration: combining concretes into a larger category. When we form the concept of a "trend", we are isolating certain aspects of price and volume and integrating these on the basis of a definition. Through ever-widening efforts at abstraction and integration, we expand our conceptual universe and extend our grasp of the world. Ayn Rand understood that philosophy is the most practical of disciplines. Without a solid epistemological foundation, what assurance do we have that we're trading anything other than randomness?

p.s: I'm really sorry if you have found me to be disrespectful for not including books from such minor deities like Edward and Maggie, John Murphy, Ben Graham, Peter Lynch, boy plunger a.k.a Jesse Lauriston Livermore so on & so forth.



The value of commods varies so much with the attention the sector gets, and especially when there is so much money sloshing around, looking for an "investment", or players stocking warehouses full of copper as collateral against shadow-banking-system commitments, etc. The situation introduces so many orthogonal drivers of price beyond mere end-user demand.



 It is ironic in Sao Paulo, Brazil that the storage of rainwater during the recent, severe drought by citizens in open containers has lead to an outbreak of mosquito-borne diseases (dengue and chikungunya ) and may require the use of a genetically modified organism (GMO) to counter the problem. And that the testing of these GMO mosquitoes is being considered for the Keys in South Florida. A great testing ground for mosquitoes would be Flamingo, Florida in the Everglades Park.


Experiments already conducted in Malaysia, Brazil and the Cayman Islands have found that releasing bioengineered male mosquitoes can reduce the A. Aegypti population by 90 percent. For the past five years, officials in the Keys have been working with Oxitec to get approval from the U.S. Food and Drug Administration for similar experimental trials in Florida. Derric Nimmo, Oxitec's head of mosquito research, says only male A. aegypti are released in these experiments. "It mates with the females in the wild," he explains, "and passes on that gene to all the offspring. The female goes off and lays her eggs. The eggs hatch. But then they die before reaching adulthood."

2. Here is the Oxitec website and more on Florida project.



Rocky Humbert says: "Commodities belong in your portfolio when they are cheap and/or rising in price"

I agree. The question is are they cheap now? A very naive approach looking at Oil as a proxy for the group and compare it on a long term basis with stocks or bonds, you can say commodities are as cheap (relatively) as they have been in the last 20 years (bottom 10% of the range).

What other ways of assessing the 'value' of commodities are out there?

Alston Mabry adds:

The value of commods varies so much with the attention the sector gets, and especially when there is so much money sloshing around, looking for an "investment", or players stocking warehouses full of copper as collateral against shadow-banking-system commitments, etc. The situation introduces so many orthogonal drivers of price beyond mere end-user demand.

Alex Castaldo adds:

Here is a quote: "For commodities, we define value as the log of the spot price 5 years ago (actually, the average spot price from 4.5 to 5.5 years ago), divided by the most recent spot price, which is essentially the negative of the spot return over the last 5 years." (Asness, Moskowitz & Pedersen). So that is one possible definition, but I am not sure it is a satisfactory one since it relies only on price. To me value involves the comparison of price to something else.



 I recently purchased a convertible desk that allows you to sit or stand. I highly recommend them. In this first week I have been gaining stamina each day and now stand about half of the work day. It is great for the back, but more than that allows you to get a different perspective. Going from sitting to standing I think stimulates some energy or intensity and gives you an extra focus in your work. When you stand you mean business. For trading, I think the act of standing simulates the energy of the pits and whether real or imaginary is beneficial. I find I am getting more work done particularly in the afternoons when fatigue sets in. I have one from Varidesk. Ergotron looks like another good manufacture.

Tom Printon writes: 

There was many issues for me to contend with when transitioning from 25 years in the pits to an office, one of which was sitting. Purchased a sit/stand desk a few years ago (Geekdesk) and felt much better for all the reasons Mr Coker stated.



 What are the odds of playing Texas hold'em, getting a pat straight flush on the flop and losing to a higher straight flush? What are the odds of driving a new car out of the car dealer's lot and having it totaled by a truck? What are the odds of your wife, who has never made a bet in her life, sweeping nine trifectas in a row(3 of them paid four figures) at the dog track? What are the odds of seeing four people get bitten by sharks within thirty minutes while surfing at New Smyrna Beach? What are the odds of playing the best golf game of your life with a hole in one, three eagles, two birdies, yet still losing by a stroke? What are the odds of both grandmothers dying exactly a year to the day apart, same time of day, in the same hospital room? What are the odds of losing forty two copper trades in a row? What are the odds of standing in line to buy a scratch off lotto ticket, and the person ahead bought the same ticket the wife requested and it paid $120,000. What are the odds of going to Publix, and within ninety minutes, running into three people from different periods of your past? What are the odds of running into a guy from first grade while waiting for a train in Morocco? What are the odds of winning two first prizes in two separate drawings at the grand opening of a mall?

None of this is good luck, bad luck, or is unusual because people beat long odds all the time and it's easy enough to explain. Life presents thousands of opportunities/happenings/events every day. Multiply that by thousands of days, and there are millions and millions of opportunities/happenings/events every lifetime, and the total distribution will show a number that could be described as long shots.

One's chance of facing and beating long odds(for better or worse) in one way or another during a lifetime is near 100%. Repeating the mantra that beating odds is not always favorable, as failure has odds too.

The markets offer the player all kinds of odds, changing all the time, all day long, every trading day of the year. For every few thousand 3:2 plays, there will be some that offer 50:1, 100:1, 1,000:1 or maybe more. It is likely that the participant will stumble across many of these long odds scenarios in a career. Looking at the chart where an option traded for a quarter, it is important to remember that someone bought that option which immediately went to $85, and somebody also bought beans at $6.00 that doubled. Conversely, someone sold that option, and sold the beans which possibly caused them great harm.

All in all, it's important for the spec to develop good skills and learn to handicap everything in life and the markets. Although cliche, it's necessary to expect the unexpected. Keep to the high ground when the 100 year flood shows, and don't get cocky when three inches of gold unexpectedly rain down on the street.



Whether man-made or from nature, the more work done on a structure the stronger it should be. Thus inday trading there are many things that could knock over a juvenile formation, like flow or a breath of hot air. This together with the vig and blinkered vision to macro events (and the inability to accumulate willfully) generally spells disaster.



 Join us for a special junto event this Thursday.

It will be an Oxford Style Debate between Whole Foods co-CEO John Mackey and investigative reporter Nina Teicholz.


Date: Thursday, March 5, 2015

Time: 7:30 p.m. - 10:00 p.m.

Free admission, no RSVP required

Hosted by Victor Niederhoffer's "Junto"

Moderated by Barron's Economics Editor Gene Epstein

A before-and-after vote will be taken in the audience to declare the "winner" of the debate.


20 West 44th St., ground floor

New York City

 March 5, 2015 - Debate: Nina Teicholz vs. John Mackey

"An animal foods/low-carb centered diet is unhealthy compared with a 90+% plant-based diet that excludes sugar and refined grain products."

Mackey takes the Affirmative and Teicholz the Negative.

 Teicholz, an investigative reporter, spent nine years researching nutrition science for her book "The Big Fat Surprise: Why butter, meat & cheese belong in a healthy diet," a NY Times bestseller. A "Best Book" of 2014 by the Economist, Wall Street Journal, Mother Jones, Kirkus Reviews and Library Journal, also "The Most Memorable Healthcare Book of 2014" by Forbes. It's received rave reviews.

Mackey is working on a book about healthy diet. He's co-CEO of Whole Foods Market. His stores often have Dr. Fuhrman's Nutrient Density numbers on items on the salad bar. Fuhrman says 90% of the daily diet should be nutrient rich plant foods.

Whole Food Market's healthy eating.



  I think ultimately the biggest hindrance in trading, if not the biggest hindrance in anything, is oneself or one's own mind. Your thinking is your opponent.

Is the market mechanistic or competitive? I think it depends on the situation. I tend to imagine that the market has the following participants in any day:

1. bulls and bears

2. primates.

The former are big and have their views decided for that day or the following period. They mostly fight fiercely. The latter are small and are simply ready to join either the bulls' camp or the bears' camp at anytime depending on their own views of which side is stronger.

The fight between the bulls and the bears are competitive. But for the primates in this case, it is not competitive (or at least not in the same sense). To them, it is simply making a choice.

The bulls and bears both understand the nature and tendencies of these primates, so they try to take advantage of the latter whenever possible. So, in this case, the primates have to compete with the big ones. This might only be possible when the two big sides are not fighting fiercely between themselves.

The primates are controlled by their innate nature of fear and greed (let's just say that the bulls and bears are less prone to fear and greed), so their combined behavior is quite predictable. So when either the bulls or the bears (when one side is absent or subdued) attack the primates, it is quite mechanistic.



This is a very interesting paper: "Grand tree of life study shows a clock-like trend in new species emergence and diversity"



 Humor from Yellen:

"The economic and financial news has been grim," she told colleagues at a mid-March2009 policy meeting, according to the transcripts. "Things are now so bad that I actually open the Greenbook with greater trepidation than my 401(k)." The Fed's so-called Greenbook is its official summary of economic and financial conditions.



 What does a good trade look like?

Continuing in my vein of only speaking about areas in which I possess a modicum of understanding of and experience in, I shall stick with the shorter term end of the holding period spectrum, say minutes to 36 hours.

There isn't anything necessarily predictive about any of the following, but it certainly opens areas of research. After an enumeration of a large sample of recent transactions I think the 'feel' and visual manifestation of a 'good trade' includes the following:

1. Imagine a car hitting a very thick wall. The energy of the car flows into the wall and is 'reflected' back into the car which then jumps back away from the wall. Rather like hitting a ball on the half-volley. Buying into mini Armageddons and selling into mini Elysiums can have this 'feel'.

2. There is almost no 'shown' liquidity (Ha!) on the depth screens of the DMA access point.

3. As one is not a silicone based life-form (Yet! Just waiting for the compulsory cybernetic transformation over coming decades in the name of 'security') an analysis of ones thoughts as a dealing level approaches is interesting. Although the effect in me personally is much less than two decades ago, I still note my thoughts and I find the following:

- If the decline or rally leading to my execution level is caused by news or the ramblings of a politician, then one tends to magnify its importance.

- If there is a round near then that may also increase anxiety.

- I bet Kovner and Druckenmiller are the other way around… All three mental phenomenon are nonsensical, distracting and negatively correlated to trade success.

Another related matter is the battle between trying for perfect execution of strategies or just getting them on. On balance, and in the context of high numbers of transactions, I think it pays to go for something very close to perfection (self/ strategy defined) Even though this sometimes leads to periods of noticeable inactivity as I personally experienced last summer.



 "Hey, red pants, old man, whats trading like in America?"

Everyone plays it off the announcements. But not the way you'd expect. If the economy is weak, say the unemployment is up, that's very bullish because the Fed will do more QE or they will keep interest rates below zero for longer and interest rates will stay down and then stocks will go up. But then interest rates go up regardless. But stocks go down anyway. And the opposite happens when say the Manufacturing is up. That means less QE. And interest rates will go up. And that 's bearish for stocks, but then interest rates instead go down. But instead of interest rates going down they go up. But stocks go up anyway. Almost all the announcements are ephemeral. Meaningless because of seasonal adjustments, or in case of manufacturing, they only take account of 15% of the US economy for one month, or even worse in one region. But still they effect the market by 1 or 2%. You want to throw up your hands and say, "this isn't right, or as good tennis players used to say when the opponent stayed at the baseline and pushed, "this isn't tennis". But it is the market. Why are things so topsy turvy and volatile after meaningless numbers? To get people to do the wrong thing. To lean the wrong way. To trade and dissipate their wealth through commissions, bid asked spreads, and fear.



Remember the story of Anthony Morse who along with Flowers used to bull all the canals and trolleys up. He had quite a pool behind him. But then when Flowers died, he couldn't bull them up anymore and got caught in a few panics. His friends left him and he lived on the Bowery where my dad might have had to take him to the morgue if he were working in that era. But then bedraggled, he came to Trinity church to beg for a sandwich, as it were in exchange for a tip. But someone recognized him and just the remembrance was enough to cause an enormous bull move on the board. Of course when the move peetered out, he was alone and desolate, a man who was financially and morally belly up as it were and had to go back to the Bowery again.

Okay, just at the height of the bond rise yesterday, the bedraggled and discommoded and man of ill repute who haggled over bonuses for his colleague and publicity, and who has been leading the read for years like Morse came out with his usual that stocks were in an unsustainable boom and bubble, and that the Fed was likely going to do something about it. If only instead of his yoga mat on the beach he could go back to the Bowery when he touts his bearish views on equities similar to those he had at Dow 6000 and talking his book on bonds.

Alex Castaldo notes: Anthony Wellman Morse (active 1860's, described in Markham's Financial History of the United States as "specializing in the cornering of railroad stocks") is not to be confused with Charles Wyman Morse (October 21, 1856 – January 12, 1933) who cornered the copper market in 1907.



Hearkening back to weather stories from edspec, I saw on twitter: a Chilean volcano erupts.



This is an excellent article on deception with many applications to our field where deception is needed at all levels to stay ahead of competition.

Gary Phillips writes: 

We're not only susceptible to being deceived by the narratives of others, but by ourselves as well. We take a linear view that doesn't lend itself to the complex systems described above. We see something happening in the market, and we can't help but create our own narrative to explain what's happening. Traders are very good at linking cause and effect, often incorrectly; thereby unintentionally deceiving themselves.

However, you can't understand a complex system, by simply looking at it's individual parts. There are multiple heterogeneous agents that make independent decisions that evolve over time. These agents will interact which leads to emergence i.e., the whole becomes greater than the sum of the parts. and, emergence will disguise cause and effect. Therefore, it may be difficult to determine if deception would have an effect on the outcome, or not.

In hindsight, it's often the hidden factors that one did not anticipate or even consider, that were the drivers behind a move. So, even a move built on the back of deception or misinformation, may still be an actionable event, if one if one practices good trade management.

Jeff Watson writes: 

I remember back in the pit days when I'd want to shake out some weak hands by trying to fake a rally…..I'd start, then after 5 minutes I'd start believing my own fake out.



 There are a google of factors affecting this company, all seemingly electroaffinitive to the observer from the grandstand, leading to the question of whether companies hit hard by currency depreciation versus the dollar are good buys. Talk about bad luck. This company hurt by currency depreciation to the us and currency appreciation to Europe. How often has that happened to you in your trading and life.

"SodaStream Maker Thwarted by Currency Troubles"

Anatoly Veltman writes: 

I find this a prevailing factor 2015 in the Orlando Resort market. Strengthening US currency worldwide is a double whammy: first the resorts see reduced foreign tourist flow. Room Occupancy figures languish, and shrinking top line eventually feeds into a deficit bottom line. How long can a resort in an over-built market like Orlando operate at a loss? So the seller will become progressively more distressed as we move from 2015 seasons into 2016. I see a brief period looming when properties will be given away. Chinese or other foreign investors will be priced out of US bidding by their own depreciating currencies. The Chinese were purchasers of over 25% of all hotels sold in Australia this year - and that's thanks to AUD devaluation by 20%. Similar devaluation is on the way in EUR, CAD and most other open to foreign investment regions…So bargains of our generation may well be abound in US resort property market, and that's something worth heed and preparation for a speculator these days



The history of deception in war. Very applicable: "All is Fair in Love and War" by John Chomeau

Steve Ellison writes: 

"Find out what the enemy is predisposed to believe and to reinforce those beliefs while at the same time altering your plans to take advantage of these reinforced false beliefs."

Many participants in the market are predisposed to believe that a catastrophe is just around the corner, judging from the perennial success (in selling subscriptions) of bearish newsletter writers. A whiff of actual bad news may get them selling in earnest.



At BEA. Okay, she's one of us. Let s not embarrass her talk. Gives her room. But let's not make it too high either. We're getting a lot of flack from those who say that 10% of GNP is actually negative like the defense. But not too low either. The election's coming up and we need to keep our girl in. Feather the nest so to speak. The rates have been going up. Keep it down a little. Stocks can handle it. They're near a high. They're estimating 2.0. Lets go with 2.2. Okay. Let the dem caucus know so they can alert the cronies and lobbyists. All agreed? Fine.

anonymous writes:

I would add it is a universal truth that when the word jobs (employment) is uttered by an agent of government the conversation in no longer without partisanship.



One has been looking for a long time for a good reference to the part of gestalt theory developed by Fechner that covers the just noticeable difference phenomenon where if you put a frog in boiling water he'll jump but if you heat it up he won't. It came to mind with the recent moves of gold. Here is a great reference very readily quantitative with much qualitative significance. Highly recommended. We must tip the hat to Irving Redel on this as he first brought it to my attention 35 years ago, and used it often in his forays into gold where the small moves were designed to keep you in and the disruptive moves to get you out.



 The best health related book I've read recently is The Long and the Short of It: The Science of Life Span and Aging by Johnathan Silvertown. It's relatively short but packed with good information and a good rhythm outlining the history of the field. The book is organized in short sections: Life Span, Aging, Heredity, Plants, Natural Selection, Suicide, Pace and Mechanisms.

The key evolutionary concept to understand is that at some point in the life span, because of the diminishing contribution that individuals make to future generations as they grow older, natural selection loses it's power altogether. Before that point, natural selection fixes the weakest of the big 4 links (immune system, the resistance to cancer, the resistance to oxidative stress and efficient insulin signaling), ensuring that cellular function is not vulnerable to failed maintenance.

There's also a nice chapter on plants and two major takeaways. First, there seems to be a correlation between slow growth and longevity. The book shows a nice experiment where they stress fast and slow growing plants and see how they fare afterwards. The other takeaway, particularly relevant to systems, is about the advantages (for longevity) of plants modular design.

More related to our field, It could be interesting to look at the concept of 'senescense' or deterioration of biological function as it pertains to the longevity of market moves. The book introduces Gompertz Law, which states that after certain age, the mortality rate doubles at a constant rate. Perhaps a line of research can include some counting of market moves older than X and see whether there are some patterns in the mortality rate (>50% reversal). Alternatively, instead of 'age' of the move, one could look at size, given the strong relationship between them both in nature and markets.



John Cochrane explains it:

"The Fed may have deliberately dug itself in a hole. By buying lots of long-term bonds, the Fed will take big mark to market losses if interest rates rise, and stop remitting money to the Treasury. This is a precommitment not to raise rates. So, a good answer to "how did QE 'work'" is not just by implicitly promising to keep rates low for a long time, but by making it very hard to raise rates!"

and the sequel: 

If "respectable central banks" have agreed that no exchanges between them will be refused, then the primary risk of domestic "easing" has disappeared for those countries. Their banking systems can simply accept central bank transfers instead of customer deposits as the base on which to issue credit. The problem for the unrespectable countries is that they cannot rely on foreign counter-parties to take their IOUs. They can, like all other countries that lack a weight and measure definition of money, have their central banks redeem their outstanding debts by issuing reserves; but they can't sell their new debt to anyone but themselves. When Bagehot wrote that the Bank of England could draw specie from the moon if it raised the discount high enough, he was assuming that the Old Lady's credit rating - its ability to redeem paper with coin - was unaffected by the change in rates. If, as Cochrane argues, reserves that pay market interest rates have no monetarist effects for prices, then credit creation is now being rationed even in the "respectable" countries not by reserves but by uncertainty about repayment by anyone not already a member of the primary dealer club.



 The Chair talks about trees often. I find them interesting as well. Tree roots emit an unknown chemical that attacks competitors roots, but supports their own species roots or symbiotic plants. Trees in Hawaii predate other trees and choke them out. I've seen that in the Amazon forest also.

Companies such as Microsoft and Google design their programs so that other companies apps and programs do not run well or at all on their systems, but allow their own apps and programs to run well, or those of cooperating companies.

Countries obviously help their own companies survive and create barriers for companies of other countries thru tax incentives, tariffs and regulations. Politicians look after their own state's, and their own supporters interests.

Various market exchanges make is harder for orders coming from other sources to execute and give preference to their own dark pools, and cooperating brokers. Brokers give preference in execution to their own proprietary traders, over their own clients or outside orders.

This idea of looking after your own and torpedoing the competition has far reaching implications at many levels. The flexions, and the military industrial complex are just two broad examples. Knowing how this works is important to succeed in in business and trading.

Steve Ellison writes:

Jim, I remember asking you about the roots of the banyan trees when I was in Hawaii. I had never seen anything like them. Some roots dropped from branches to the ground.

In northern California, there are mistletoe plants that are parasites on other trees. The mistletoe roots bore into the host branches. When deciduous hosts drop their leaves, it is easy to see the evergreen mistletoe.



I found this article very interesting:

"Killing the Ball: People & Power investigates how a match-fixer and his syndicate corrupted global football"

Focus on the weak who are allowed involvement in major competitions for the sake of being global, and rig away. What markets could be similarly placed?

keep looking »


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