One found this article one of the most revealing I've read in sociology:

"Negatively Sixth Street"

Gary Phillips writes: 

I've been on the road for the last 8 weeks or so, traveling the eastern seaboard with my wife and 3 of our 6 (call it a partial fill). While I had envisioned a trip worthy of Kerouac or even Kuralt, the eventual reality presented was much more griswoldian. Nevertheless, traveling by car does allow one greater freedom, the opportunity to experience extraordinary scenery, and the ability to capture the charm of small towns and the inherent individuality of its people. It also allows one to step back in time to a place where the only cracks visible are in the sidewalks, and not above the baggy trousers worn by rapper wannabes. And, it serves to remind us of the civility that once was part of the rich heritage of this great nation.

One used to receive a hearty "you're welcome" or "it was my pleasure" when one expressed gratitude. The contemporary response appears to be "no problem", as if your social counterparty was doing you a favor. I once believed the ubiquitous sense of entitlement and 'increasing narcissism" I encountered was and primarily contained among the members of generation z, but was disheartened to discover the casual disregard of manners crossed generational, regional, and cultural boundaries. This phenomenon has been summarily rationalized as the result of the internet's effect on the way people communicate. And indeed, social media may have conditioned individuals to be expert parsers of language, meaning, and authorial intent. Perhaps the brevity of discourse does not allow for a subtext of manners and humility. But is it really anybody's fault? "For a flow system to persist in time (to survive) it must evolve in such a way that it provides easier and easier access to the currents that flow through it". According to constructal theory, a written language evolves to "connect" better to the masses. If the elements that constitute a language are complicated, the language will take too long to write and will be more difficult to remember, and global resistance will increase. On the other hand, if the language elements are too simple, the users of the language will lack precision. The meaning of words will be misconstrued. The natural evolution of written language, then, must head for a balance between the complicated and the simple, and twitter seems to fit the bill. And as with the case with language, technological advances in information technology have caused markets to quickly adapt to anomalies and present traders with less and less opportunities. Nevertheless, one may still find an oasis of civility here and there if one looks hard enough and lucky enough, and the same can still be said for trading opportunities.



 I just computed the compound annual return of my IRA for the last six years, which is the period over which I have had it. I made what might be an interesting finding. Perhaps it is just chance, but I doubt it. When I stopped reading libertarian blogs about half-way through the period (3 years ago), my returns from that point forward increased by about 10% yr vs. the average of the prior three years. I was definitely not buying the regular staple of small cap, money losing miners headed towards zero that libertarian sites tend to recommend, but I do think it colored my perceptions in a negative way.

anonymous writes: 

Do libertarian blogs really recommend microcap miners? That sounds like more of a goldbug site. Just want to make sure us libertarian kooks aren't being lumped in unfairly with the goldbugs.

Ed Stewart comments:

There is a lot of overlap, at least on certain sites.



 I just computed the rate of return of the web mistress's account at Scott. She doesn't know what the p/e is or the balance sheet although she is very smart and she can climb a pole and make more money per hour than most. In any case, it's about 50 percentage points a year higher than mine, (one almost runs into the problem that idiot savants from academia run into where they can't compute a negative p/e and fail to note that an e/p solves the problems but that would denude their results). In any case she had a few 20 baggers, including Netflix and Tesla, Facebook, and Disney. You might think that it's because of a meaningless low denominator, but we're talking 7 figures. One is tempted to stop trading, give all one's meager funds to Toria, and with the underpluss, see if I can negotiate the Medallion fee down to less than 50%.



 I don't think history carries a tune, has any lyrics or rhymes, and it most certainly has no moral/political lessons–i.e. the proletariat will triumph. History is always and everywhere just a story about what people did, and one either enjoys stories or one doesn't. The problem with the schoolie versions of history is that they are always fictions with a purpose; the writer reliably distorts, ignores, lies about the known facts of what happened to fit everything to their version of a dialectic. It may not be Marx's but it always has the same presumption of inevitability. They may be "conservatives" like Carlyle or modern day liberals like David McCullough, but either way you end up with a sermon that the writer already knew he wanted to preach. (What makes Gibbon, the historian most often used for lessons in the 19th century, fascinating is that he keeps ignoring the lesson he has in mind in favor of finding the next twist in the truthful narrative. The story wins out over the moral/political lesson.)

This nattering is my apology for offering a historical comparison that today's anniversary brings to mind. On this date, in 1924, the U.S. Marines finally left the Dominican Republic (they had been there since 1916).

The United States has had thirty years of filibustering (not Senators talking but the other kind–adventuring with guns) in the Middle East. Nearly twice that long if you take away most of the guns and leave only the CIA and the American oil companies. By the time the Marines left Dominica, the filibustering in the Caribbean/Central America had been going on for almost a century, if you start with the Texas War of Independence. To this day the importance of all that chasing after sugar, tropical fruit and petroleum gets largely ignored, except by the Zinnistas who use it as yet another proof of the fundamental evil of the United States of America.

I have no doubt that the saga of Texans and others chasing Saudi/Iranian oil will be equally ignored when it comes to understanding what happened to America after Bush I became President. One can only hope that some day the Marines will go home once and for all.



 We're in the swing dance season where anything good for the republicans will be bullish for the stock market, (of course long term bearish for the individualist idea that has gone with the wind), but thank the Good One for the Supremes helping the Republicans by upholding the hateful law that has caused all so much misery, extra expense, and waiting endlessly in line, and filling out paper work rather than seeing your Dr.

anonymous writes: 

Anything that brings clarity to the level of corruption at the top such as important words being clearly interpreted incorrectly in full public view is long term positive. This counteracts the much more common gradual and deliberate shifting of those meanings to the point where everyone accepts them to be very different from what they were a few decades ago. This was an "emperor does have clothes because he clearly meant air to be considered clothes" moment.

anonymous writes: 

Every presidential cycle I break out Fear and Loathing on the Campaign Trail '72 by Hunter S. Thompson. It's like a checklist of how the campaign plays out. Plus, it's really funny. I'll start reading it soon once we know who is really running.

It was "the least factual, most accurate account" of the election, according to Frank Mankiewicz, Mr. McGovern's campaign manager.

I'm a big believer is in Hunter's and others' maxim that the truth is never told between 9-5 and this book just expounds on that.



 Here is a thought provoking chart that made its way to me this morning. Much in the literature talks about different distribution selection dependant upon the existence or otherwise of 'excess Kurtosis' inter alia. (k = 3 for normal distribution). Much online about this interesting measure. Debatable though if the higher moments are useful in the trenches– as it were.

Good weekend all.

P.S. Aliens have landed. No, not really, however - in news that has a similar probability of observation - London is set to have a run of two (YES, TWO!) consecutive days where the sky will actually be visible through brief partings of the oppressive, grey clouds . There have even been rumours on the internet that the temperature may scale the heady heights of 25 degrees centigrade. Like the perfect game, that last point may be an event too remote without divine (or at least Flexionic) intervention.

Steve Ellison comments: 

In the past year, I did some research on kurtosis to inquire whether there might be any predictive implications when the price change part way through a period of interest was in the "narrow shoulder" of the distribution.



 "James Simons Interview- Numberphile"

He changed his profession because of the St. Louis distributor.

Charles Pennington explains:

A helpful colleague alerted me that the business about the "St. Louis distributor" starts around minute 44:00. Short story is that Simons found himself the owner of a computer company of some sort in St. Louis, then was faced with having to have meetings with the "distributor from St. Louis", which he finds distasteful.

Stefan Martinek writes: 

Some interesting parts:

28:30: "Trend is an anomaly in data"

29:30: "There are no elaborate equations, some sophisticated math in the area of the last part – how to min. volatility of the whole"

It would be great to see a track record and run it against some benchmarks.

Paul Marino writes: 

Thanks for the video, Rocky.

Is it bullish or bearish that he wasn't chain smoking cigarettes throughout? Has he quit? I find it fascinating how people smoke when it doesn't compute with their life like doctors, firefighters, billionaires. 

Anatoly Veltman writes: 

It seemed half-way through Jim pulled something out of front pocket, and then (I speculate) came an editorial cut. Is your query due to personal experience? I, for one, wouldn't ask that on this site, although I was awestruck with the same thing in this clip.

I had the good fortune to sit on Jim's right shoulder during a five-hour (you immediately know it was ethnic Russian household) lunch. I was so uncomfortable because I haven't had one puff in 30 years so I asked, "Jim, I thought American males didn't smoke?" Jim didn't take more than two seconds to repartee: "you know, you're right on the whole, but the lower classes still do". Later he was less apologetic: "I just enjoy cigarettes too much to stop". I'm a little dumbfounded in this clip Jim credited his dad with bankrolling his investment debut. Can someone pinpoint the minute Jim commented on Madoff? I missed the sound bite.

Paul Marino writes: 

I had heard that he was a chain smoker for decades, still smoked as of last summer.

Not trying to demoralize him, I smoked for years myself, it is a tough habit to break, but in New York you're surprised by the type of smoker as I had mentioned earlier plus the city's war on tobacco, sugar, etc. At $13 a pack I guess you need to be a billionaire or doctor to afford to smoke these days here. 

anonymous writes: 

You could always tell when Simons was at a math department tea by the smell of cigarette smoke. No Smoking allowed in university buildings, but who is going to tell that to the guy who built the place?



 This chart attempts to characterize the decline in the technology adoption rate in the United States. (I.e quicker adoption of new technologies). One gathers there were many accuracy issues that the researches came up against but still, the negative correlation is likely a reasonable supposition. It does lead one to ponder if some type of 'technological singularity' approaches wherein some interface between carbon based life and 'technology' leads to almost automatic adoption of new technologies. Perhaps in some not too distant future we will approach the asymtote–as it were.

The more luddite interpretation might be that humanity may begin to rebel against technological adoption as the 'improvements' become increasingly marginal.

We shall see.

anonymous writes: 

An alternative explanation is technology diffusion, in which the diffusion time is inversely correlated with the ability to communicate the innovation.

Alston Mabry writes: 

The first thing I think of is how each technology laid the foundation for and accelerated the adoption of the next. Electricity took a long time because there were no wires to begin with.



 Will China liquidate its holdings of US debt to pay for the recovery?

"BLACKROCK WARNS: China's debt has lost its potency and is now 'turning into poison'"

Jordan Low asks: 

What would they do with the US dollar? Convert it back to RMB and hurt Chinese exporters? 

Rudy Hauser writes: 

To get rid of dollars they could import goods and services, make investments dominated in other currencies or buy other currencies. They could just invest in other U.S. investment possibilities (including equities, real estate, etc.) In the aggregate the only way foreigners can get rid of U.S. dollars is to buy goods and services. They can also make fixed investments, but the returns and proceeds upon sale would be in U.S. dollars, so they would not really have reduced their dollar holdings. They can of course make investments in the U.S. that decline in value. (They could also convert to currency and burn it, but that is not a logical choice.) An other alternative is to give the dollars to Americans as a gift, another unlikely choice. Yes, the Chinese could buy RMB for dollars if they find someone who has RMB to sell. To the extent Americans hold RMB that they would sell for US dollars, the gross positions would change but not the net positions.



 Will someone explain to me why news of Greece no deal is bullish for bonds, i.e what it has to do with the long term rate of inflation? And why news of a deal is bearish for bonds? Also while at it, why no deal is bearish for stocks and deal is bullish?

John Floyd writes: 

A market pundit might say (not a personal explanation): "if there is no deal in Greece that is bad for Europe and the ECB will have to do more QE and buy European bonds to get confidence up, growth up, and inflation up, that would be bearish for the Euro, the uncertainty around no deal is bad for stocks in the short term." On the next contradictory headline you can expect the mirror image response.

Alston Mabry writes: 

From the cheap seats: no deal for Greece, or even Grexit, means a mini-catastrophe, where lots of players will be looking to get out of certain positions and move to safety until the smoke clears and we find out if a Greek exit actually raises the possibility of Portugal or Spain leaving, too. So in this case, Treasuries = safety.

John Floyd writes: 

As I sit and watch the headlines on Greece I can't help but recall similar headlines and market reactions prior to the Russian default on August 17, 1998. Hopefully I have learned at least one thing since then. While not financially ruinous, and actually profitable in many ways, it was amongst other things a tiresome and loathsome experience getting up at 1 a.m. NY time to watch the latest headlines and developments.

The first lesson would be to attempt to recognize an untenable position from a macro economic and geopolitical standpoint in the medium to long term. A corollary is to not position investments with the thesis that an untenable position will be resolved in the short term and provide profits.

The wolf of the markets will at some point overpower such a short term view. The PIGS in the periphery perhaps might have their houses and building materials tested further. The wolf will have to be careful though as the cauldron waits in a house and may try and stymy speculative avenues.

Jeff Rollert writes: 

In a "normal" world, a large debtor defaulting forces participants via systematic transmission to add Treasuries/AAA bonds to portfolios to return to the prior risk/reward or VAR state for a window of time until asset recovery levels become apparent.



 I recently picked up Make: The Annotated Build-It-Yourself Science Laboratory: Build Over 200 Pieces of Science Equipment! to work on some science project ideas with my 7 year old daughter.

It was originally published back in 1963 when chemistry sets came with cool stuff that could hurt or maim the unwary. It has been revived and annotated by someone I have a lot of admiration for over at Evil Mad Scientist, Windell H. Oskay. He has done his best to modernize it with annotations, especially in the area of suggesting modern day ingredient equivalents or where to get some now harder to find chemicals.

It's a fantastic book that provides instructions on building out a home lab, while at the same time providing a ton of experimental questions to consider.

Anyways, I would definitely recommend checking it out. Here's an official blurb:

Raymond E. Barrett's Build-It-Yourself Science Laboratory is a classic book that took on an audacious task: to show young readers in the 1960s how to build a complete working science lab for chemistry, biology, and physics–and how to perform experiments with those tools. The experiments in this book are fearless and bold by today's standards–any number of the experiments might never be mentioned in a modern book for young readers! Yet, many from previous generations fondly remember how we as a society used to embrace scientific learning.

This new version of Barrett's book has been updated for today's world with annotations and updates from Windell Oskay of Evil Mad Scientist Laboratories, including extensive notes about modern safety practices, suggestions on where to find the parts you need, and tips for building upon Barrett's ideas with modern technology. With this book, you'll be ready to take on your own scientific explorations at school, work, or home.



I don't know whether to laugh or cry.

EUR drops 200 yesterday on nothing and TODAY Greek PM Tsipras tells the media that the creditors have not accepted the latest raft of proposals.

It is an outstanding example of flexionism. Or more charitably an efficient market discounting mechanism (yeah, sure!).

One decides that laughter should carry the day in this instance.



 Today was one of those days where you are both exhilarated and exhausted. The wife had trouble sleeping last night. When that happens, she tosses and turns all night. Her restlessness made it impossible for me to fall asleep. So I was awake until sometime after 2 am and up at 7 am.

So this may be a short report as there is a deck chair with my name on it and I am experiencing a serious "nap attack".

First a personal observation: We took a bus tour today. Although the tour guide was very knowledgeable, his grasp of the English language was not that great. And maybe we were spoiled in Gibraltar with a tour guide who went out his way to make everything interesting and personal, but that was not the case today. We often couldn't hear our guide because we were in crowd of 40 people. Couple that with other tours, and the noise was just too much.

If I do this again, I'm going to look into hiring a personal tour guide to show us around.

The history of Cartagena is fascinating. We were told that "he who controls Cartagena, controls the Mediterranean.

It is a very strategically located port and that is easy to defend due to it's shape. The father (?) of Hannibal had a wall built around the city that became known as the Punic Wall. It was thought to be a great defense system that would protect the city. When coupled with the shape and location of the harbor, the city was thought to be a very safe place to be (which turned out not to be the case).

The geological wealth of the city, especially in the form of the silver mines grew the wealth of to fantastic proportions.

The wealthy of the city chipped in and built the great Roman Theater of Cartagena. It was very cool touring the theater and learning of it's history and architecture. It was amazing to me that the theater was lost from history until discovered by archeological digs in the 1980s.

They've been able to recreate most of the theater using (they say) 70% of the original materials and building blocks.

We toured the city streets of the area, walked into a small Catholic Church and took pictures of the statues. I'll try and post some of the pictures later.

The Punic Wall was very nice to see. We were told that we stood at the same place that Hannibal gathered his army to march across the Alps. Supposedly, 90,000 men and 100 Elephants.

Of course, while Hannibal was trekking to Rome, The Roman's used that as an opportunity to attack Cartagena (it was called by another name then…I don't recall what it was). The Romans conquered Cartagena. Hannibal was absent.

Not the best military maneuver on the part of Hannibal.

A few personal notes:

Try not to have elbow surgery a few days before you go on a trip. it limits your ability to do stuff.

I had an infected bursa sac and had to have some minor outpatient surgery. Apparently, there is an international law that says if you see Scott, you must find a way to bump his elbow.

There is a basketball court on the ship. So I went out to shot a few free throws. There are maybe 3 or 4 other people on the court shooting around. As I stand on the free throw line getting ready to see if I can go 5 for 5 from the line, SLAM, a ball crashed into my left elbow. Not my knee, not my back, not my butt, my freaking elbow. Of all the places the ball could have gone on that court, it hit me on the elbow.

The kid apologized hitting me in the elbow. I accepted his apology (he certainly didn't do it on purpose…at least I think he didn't ;-) and decided to try some other activity.

I tried to get a ping pong game going, but the tables were all full. So I came back to the room. My 16 year old, Hunter was sitting at his desk working on something. I asked him what he was doing, he said, "chemistry".

He set a goal of doing at least a little bit of chemistry or physics or anatomy study on the ship each day in preparation for his AP courses in those classes.

It warmed my heart!

Well, it's off the flow rider to watch the kids ride the boogey boards.

Take care, my friends!



 I was looking at this interesting take on the CAPM as it pertains to mutual funds from Stanford University over the weekend. They used mutual funds for their study but I found it promising that they use a fund's fee changes in the study.

"Assessing Asset Pricing Models Using Revealed Preference"

We propose a new way of testing the validity of an asset pricing model. Instead of following the common practice in the literature which relies on moment conditions related to returns, we use mutual fund capital flow data. Our study is motivated by revealed preference theory: if the asset pricing model under consideration correctly prices risk, then investors must be using it, and must be allocating their money based on that risk model. Consistent with this theory, we find that investors' capital flows in and out of mutual funds does reliably distinguish between asset pricing models. We find that the CAPM outperforms all extensions to model, which implies, given our current level of knowledge, that it is the best method to use to compute the cost of capital of an investment opportunity. Perhaps the most important implication of our paper is that it highlights the usefulness and power of mutual fund data when addressing general asset pricing questions. Mutual fund data provides insights into questions that stock market data cannot. Because the market for mutual funds equilibrates through capital flows instead of prices we can directly observe investors' investment decisions. That allows us to infer their risk preferences from their actions. The observability of these choices and what this implies for investor preferences has remained largely unexplored in the literature.



 "Widened Suez Canal to Open in August"

This is the first significant expansion of the canal's carrying capacity in its 145 year history.

Paolo Pezzutti writes:

The Panama Canal is also expanding. The size of ships has increased. They need important changes also to port infrastructure.

"The Panama Canal expansion project (also called the Third Set of Locks Project) is intended to double the capacity of the Panama Canal by 2016 by creating a new lane of traffic and allowing more and larger ships to transit."

anonymous writes:

This latest development is positive for Israeli stocks. The project was underwritten by Egyptian citizens and they are making a bet on the absence of events that will threaten the revenue from the widened canal like and Egyptian attack on Israel or a nuclear bomb exploding in the region. And the fact the Sisi's government decided to undertake it and declared it "military led" is a concrete (no pun intended) sign that their rhetoric of being business-oriented (as opposed to say oriented to destroy Israel).

anonymous writes:

Egypt is a military dictatorship, as such there is of course no "free will" exercised by "the people" of Egypt, but it's certainly a polity. Usually when a dictatorship wants to create an investment by someone other than the core clique it has two choices: coercion or guarantees of repayment of questionable quality. After all, they can change their mind at any time and all the guarantees will be gone with the wind. So observing a non-coercive investment process in a dictatorship is useful to estimate the confidence in the dictatorship by either foreign or local investors. Often large foreign investors have substantially more leverage since they can threaten a military or political retaliation via their own government. In this case, Egyptian citizens, of their own free will, trusted the military to repay them by buying the investment certificates that sold faster than expected. While this is certainly no example of Western property rights, this means that some relatively savvy citizens in a very impoverished country (thus no money to waste) trust their leaders. This is a useful datapoint in evaluating investment and other stability-related prospects in that part of the world.

Gordon Haave writes: 

What everyone is missing because (per our discussion last week) the watch and read US propaganda media is that last week the Deputy Crown Prince of Saudi Arabia, The Saudi defense minister, the Saudi foreign minister, and more importantly the Saudi Oil Minister met in Russia and inked 6 new deals including defense, nuclear, and energy deals with a goal towards a "petroleum alliance".

But hey, an Al Jazeera columnist was once quoted as saying something he shouldn't have 15 years ago, so by all means keep reading US media.

Gary Rogan writes: 

Gordon, as the likely target of the last comment, let me respond. While this bit of news from All Jazz TV is valuable in it's own right (and most certainly no propaganda) and is likely to have major worldwide implication from the war in Syria, to Russia supplying Iran, to Israel, to the Saudi relationship with the US, the price of oil, Egypt, and more specifically Suez Canal, it is unlikely to have had an impact on why the Suez canal project was started many months ago. If it did, the world is even more convoluted than I could ever imagine.



 Necessary conditions are not necessarily sufficient conditions.



22 June 2015

Editor, The Washington Post

Dear Editor:

Robert Samuelson correctly notes that CEO pay over the past three decades has become tied more closely to the value of share prices and that CEO pay today is generally higher than it was thirty years ago ("The CEO backlash," June 22). But crediting only lower inflation and interest rates, Mr. Samuelson errs in asserting that "CEOs had nothing to do with this" rise in the overall real value of shares - and, hence, "nothing to do" with the increase in their pay.

While improved monetary and fiscal policies are unquestionably boons (to everyone, and not just to CEOs), companies never manage themselves. Weak leadership, failures to anticipate changing consumer demands, imprudent decisions to expand, and hosts of other executive errors lower a company's market value - and often hurl it into bankruptcy - even under ideal monetary and fiscal conditions. Likewise, sound monetary and fiscal policies do not themselves spontaneously generate iPads, Amazon.com, Facebook, fracking, and the uncountable other goods and services that greatly improve our lives: these things - and the all-important means of making them widely available at affordable prices - require entrepreneurial vision, risk-taking, and hard work. Entrepreneurship, successful management, and wealth creation are not bundles of manna that rain down upon a land if only it is blessed with prudent central bankers and parsimonious budget officials.

Evidence of the continuing importance of the scarce resource 'executive talent' is found in research done by Steven Kaplan and Joshua Rauh. These economists find that (quoting Kaplan) "Analyzing some 1,700 firms, we found that compensation was highly related to performance: the companies that paid their CEOs the most saw their stocks do the best, and those that paid the least saw their stocks do the worst."* This conclusion makes sense to everyone who understands that there is nothing routine about starting and managing successful businesses, and that wealth requires for its creation active and on-going human imagination, enterprise, and effort.

Sincerely, Donald J. Boudreaux Professor of Economics and Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center George Mason University Fairfax, VA 22030

* Steven N. Kaplan, "The Real Story Behind Executive Pay," Foreign Affairs, May/June 2013



 I wonder if there is a point in time at which it becomes too late (unprofitable) to go against in markets. This is clearly under a time bound, like the day, the week, the month etc.

This needs to be analysed in two frameworks. Firstly, the road to some form of answer is different between 'bounded' futures markets and markets that trade in the fashion of spot currency markets whose short term higher number central moments are often very extreme.

Secondly, my work indicates that the 'answer' is not linear. It will not be a specific time of day. The proponents of the arc-sine work have some measure of empirical evidence on their side for the close as the best guess, but it is a blunt tool in this context.

A fascinating case study is the EURUSD spot market today- down almost every hour since London midnight with the total move of relevant statistical 'weight'.

In other words, you should study if a specific time and magnitude combination negates subsequent reversal strategies for the time period under consideration (regardless of the strategy's historical efficacy).

I'm starting to sweat as the EUR declines as I have a bet with an exceptional trader in the spec list that the EURUSD will trade its 1-1-15 level again before the end of the year. The prize is steak and lobster at The Palm in New York.



 It's like having a traveling hotel room that follows you around so there's no packing and unpacking. I'd prefer not to do the tours and experience the local "feel" on my own. But with a wife and 4 kids and the need to be back at the cruise ship on time being the paramount concern, we're stuck with tours for now. One nice thing about the tours is that they (supposedly) guarantee that they'll get you back to the boat on time or the cruise line is on the hook to get you back to the boat. I don't know if that's true, but Gwen seems to think it is.

And anyway, I'm not as adventurous as our world traveler Prof. Haave (although he did give me some great tips before I left for this trip.

Anyway, we're going to take a taxi tour of Gibraltor tomorrow and going to see the apes (I had no idea there are apes at Gibraltor).

So hopefully I'll have some moderately interesting tidbits to share with the group tomorrow.

It's now 0:45 am (that's the way they talk on the ship), so I'm off to bed so we can wake up at 08:00, eat breakfast at 09:00 and meet at the Royale theater for our tour group at 10:00.

Goodnight, Mateys!

Day 3: Gilbratar

Before, I get to Gibraltor, I need to give some color on the evening of the second day at sea.

First of all, I met an interesting couple. He works for an oil company, formerly Shell, but it was sold to middle eastern interest (a company owned by two brother….the name of which escapes me).

He gave me a breakdown of use of oil in cruise ships. Apparently, the oil used on ships is the "bottom of the barrel" stuff that would be used as tar if cruise lines didn't buy it.

It is very much like thick sludge and requires a lot of heat to make it function as a fuel. It is also not very emissions friendly…but supposedly, there are no emissions standards out on the open sea.

To top off our evening, we watched a comedian and a game show.

The comedian was Grunway Thom. He was British, but we could understand most of what he said. I enjoy a good comedian. Thom was better than good. He was enjoyable. He made us laugh without getting dirty. No obscenities, but he did have the occasional double entendre. He was a juggling a comedian. I don't know whether he was a great juggler or just an ok juggler, but I have to say that the best parts of the show were when he messed up his juggling act. He engaged the audience and involved those that chose to get up and go to the bathroom during his performance.

But the best part of his act was when people came in late and he would show them what they missed…and he would reenact 30 minutes of show in about 2 minutes.

If you ever get a chance to see this gentleman perform, please take the time out of your day to watch him. It was a true pleasure to watch a skilled professional ply out his trade.

After the comedy show, we stayed and watched the "Love and Marriage" show. Here they invite 4 married couples up from the audience and then quiz them very similar to the way Bob Eubanks did on the "Newly Wed Show".

Our kids desperately wanted Gwen and to volunteer to get up on the stage, but alas, there was no way we were going up there. Gwen had seen the show on other cruise ships before and knew what kind of questions we were going to be asked.

There is no way I'm gonna give an answer to, "Where is the strangest place you made whoopee" in front of my kids (BTW the best answer of the evening was given by a couple who had been married for 51 years. They made whoopee in a corn field while her mother slept in the car).

So on to day 3: Gibraltar.

First of all, I believe I made an error in one of my earlier posts when I mentioned that Gibraltar was part of Spain. If one were to look at a map, it would be easy to think that. However, Gibraltar is a UK overseas territory.

If you've never visited Gibraltar it is worth your time too see. The history of this vital piece of real estate is utterly fascinating. I would go so far as to say (apologies in advance to Stefan if he were to say to my forthcoming comment is hyperbole) that this piece of land is one of the most important pieces of land in the history of the world especially as it pertains to war and diplomatic relations between countries, especially England, Spain, and France.

The culture of Gibraltar is rich and diverse with European and African influences as well as Christian and Muslim influences with a bit of Jewish history mixed in.

Up to and even thru WWll, Gibraltar was (is) a strategic piece real estate. From Gibraltar you can guard and control the entire entrance to the Mediterranean. As a matter of fact, you can see Africa from here. There are even guns, dating back into the 1700's (maybe even earlier than that) that could shot all the way to Africa from the heights of Gibraltar.

During WWll, Eisenhower had a runway built so planes could take off and land. It is an interesting airport in that a street (yes a public street) crosses the runway. Let's just say that it's one of those red lights that you do NOT want to run. We crossed over the runway in a taxi (with a green light…..and little trepidation).

I believe the airport was built as a part of "Operation Torch", which (IIRC) was one of the first actions of the US military in WWll. (Stefan, jump in an feel free to clear up any of my historical inaccuracies).

We then drove thru the town of Gibraltar. It is a town of heavy English influence. English is the main language, but I heard a lot of Spanish speaking people. We drove right up the Spanish border and turned around.

The streets were very narrow and very much like you see in the movies. Although there were traffic law, stop lights and speed limits, it almost seemed that people kind of had an understanding about when they could go and not go. It would have been nerve racking for me to drive, but the taxi driver seemed very much at ease driving and giving us a verbal tour of the town and it's history.

Although we paid him for this specific purpose, I have to give him full props for a job well done. The cruise ship said that a tip was already built into the fee we paid for the tour, but when he dropped us off, I gave him an additional $50 (USD) tip on top of it. I don't know if that was too little or too much, but he seemed very pleased…and so were we.

Gibraltar is a growing town…but they only have one way to grow…out into the sea. So they continue to build and build and build further and further in to the bay, the Straits and the Med. We drove along "The Wall(s)" which were built at various times throughout history for defensive purposes…but the walls used to be where the sea was…and now the sea was about 1/4 to 1/2 mile away, driven back by the work and engineering of men!

We drove up the mountain (if you can call it that) nearly to the top of Gibraltar. Along the way, we stopped at some caves that were to be used for hospitals and other strategic war time activities during WWll.

Another interesting aspect of Gibraltar is that most of the online gambling in the world takes place out of Gibraltar. According to our taxi driver, most of the big buildings that we passed were owned by online gambling companies.

I tried to get a feel for how easy or difficult it might be to move to or become a citizen of a place like Gibraltar (not that I'm leaving the comfort of my home in STL), but I couldn't get a clear understanding of it from our taxi driver…I think the question was too much off the beaten path for him.

But he did talk about how safe of a place Gibraltar is. Very low crime. He said that if you tried to steal a car of a motorbike, there was no place to go with it. It was hard to cross the border with a stolen vehicle.

While on top of Gibraltar the driver pointed out other little cities that had sprung up over the years. There was one city called "The Line" (it had a Spanish name but I don't recall what it was).

The Line was set up because it became extremely hard for people to live in Gibraltar because it was becoming crowded. So they wouldn't allow people that didn't already live there to live there…..but they still needed workers. So this town, just over into Spain was set up to house these "less than desirable, but needed workers".

Then there was another town (it's name escapes me) that was set up because those that didn't convert to Christianity (a long time ago) were expelled as well. So they went a few miles over into Spain and set up their own town and life went on.

There was a 15 year period from 1969 - 1984 where it was very difficult, if not impossible for a citizen from Gibraltar to travel into Spain. Everything was cut off by Spain because Gibraltar refused to "reunite" with Spain.

Apparently, Gibraltar had a election about reuniting with Spain the election came out something like 1000 No's to 14 yes's. That apparently aggravated Franco, so he shut out the Gibraltar's from access to Spain.

That lasted until Spain applied for membership in the EU. There was a treaty with Britain and the borders opened.

Here's an unexpected anomalously for you (at least it was too me)….did you know that there are MONKEYS on Gibraltar? I was shocked to learn that myself.

And they are all over the Rock. As we drove up, we ran into more and more monkeys…..they were everywhere. The weren't Ape like, they were much smaller even than chimpanzees.

 Here is what they looked like.

We were told not to feed them and not to approach them especially if they had babies. However that didn't stop other tourist from feeding them. One tourist had a bag of potato chips, when out of nowhere this monkey (with a baby on her belly) ran up and snatched the bag away. The tourist tried to get the bag back, but (as you may have already guessed), the monkey was having none of that.

Here's a hard fast rule that might (loosely) have some trading applications: If a monkey has your bag of potato chips and doesn't want to give it back to you, there is NOTHING you can do get those chips back.

So Rule #1: If you don't want to lose your chips, don't reveal to monkeys that you have chips…..if they know you have chips, they will get your chips.

They have a feeding pit for the monkeys up on the Rock. We visited the pit and all that was there was a very big monkey (big my Gibraltar standards), sitting there, in a pile of fruit and vegetables, spread legged looking like he'd stuffed himself to the point of discomfort.

As a side note: He was obviously a male monkey.

Apparently, someone behind my 18 year old daughter opened up a bag of chips (please note rule #1 above) and the monkey made a beeline for the chips.

Unfortunately, my innocent daughter Abbey was between the monkey and it's chips.

Rule #2: Do NOT get between a monkey and potato chips.

As far as the Monkey was concerned, my daughter was just a prop in it's stealthy ninja like plan to get his hand on those chips.

He ran up to my daughter grabbed her shirt, pulled himself in close to her (I'm guessing to conceal himself form the person holding the chips), then he swung around her, using her clothing (and skin) as a swing to sling shot himself after the person with the chips.

When the monkey got up close to my daughter, she didn't know what do to, she just kinda froze (because it was the biggest monkey we had seen so far), When it drew itself close, my daughters eyes got as big as saucers (keep in mind, that all of this happening in mere seconds).

But when the monkey sling shot himself around my daughter, she let out a yelp (not really a scream….because she didn't want to scare the monkey) and when she felt his grip come loose, he she took off running hearing nothing but screams behind her.

Whether the monkey got those chips or not is a mystery to us……we were all freaked out by the unexpected monkey attack……but we did keep moving on, hoping to find more friendlier monkeys further up the road.

When we got back to the cruise ship, I sat on one of the upper decks eating a chocolate/strawberry ice cream cone looking out over the Bay of Gibraltar watching all the barges and boats dump rock into the water building new places that would likely become docks or maybe house a hotel or apartment complex someday.

As I sat there, I reflected on all the strife and turmoil that surrounded this strategic piece of land over the years. All the countries that coveted it (and still covet it), it's strategic importance as a military base and the economics this land.

They are under British rule (I hope that's the right phrase), but they do not pay taxes to the Brits. As a matter of fact, they pay very low taxes here (at least that's what I was told).

With the advent of the modern air forces around the world, I'm not sure that Gibraltar holds the same strategic military influence that it once held, but then again, I could be wrong.

Much of the worlds oil has to pass thru the waters between Gibraltar and Morroco, and I would guess that he who controls Gibraltar and the Suez Canal controls much of the worlds oil supply. According to our cab driver, Hitler wanted to gain control over the Suez and Gibraltar (again, I'll defer to Stefan on this if it needs adjustment or elaboration).

Regardless of it's strategic importance it is a place worth your time to visit.

The beauty of the old world, the history and the excitement of new construction makes it a must see for any trader, historian or sightseer.

That's all for now.

Take care, my friends!



I haven't read this story because it's in the Times, but it would seem that with all the centrals and internationals hovering about with all their flexionicism in play, and the US backing them, (the agrarian chair from Brooklyn stated there is a contagion effect) to signal where we stand, that somehow a few billion of emoluments will be found, printed, or funded.

"Dealbook: As Deadline Looms, European Central Bank Plays Key Role in Greek Crisis"



 I like the part of The Boys in the Boat where the freshman coach pretends that Cal can beat them handily. The necks of Cal swell even further making it even for Washington to cut them off. I followed the same principle in squash, and never admitted that I had a chance to win. I also never admit to a profit in the market for the same reason. It will be interesting to hear what Mr. Rafter has to say about The Boys in the Boat because he has won many national rowing championships. In particular the wisdom and ability of George Peacock, the world's best boat builder, whose materials in wood have now gone with the wind.

David Lillienfeld writes: 

The beauty and terror of baseball is that there is no clock; and the second you stop thinking about the next pitch, you are on the way to losing no matter how big a lead you have.  What made last year's 7th game so good is that neither team ever once lost that focus; the game score was as close as one can be, but neither team ever for a moment got "tight" thinking about the end result before play was over.

Alston Mabry writes: 

Yes, in games like basketball or football or soccer, you can work the clock. But baseball and tennis have that exciting element of the game not being over until it's over.

anonymous writes: 

I have had the pleasure of seeing some true greats in action over extended periods of time in the markets. The only time these guys really lost any money was when they ignored time.

A fixed clock on any speculation in the organized macro markets is vital in my opinion and experience.

Unlike most things we discuss, the addition of fixed clocks (or predetermined holding periods for individual speculations) is actually countable and its efficacy is testable.



From my limited experience, assessing equity from balance sheet information can be a non-trivial exercise. An issue is the company's assets. Specifically, what are those assets? How were they acquired? What was the accounting treatment?

I've been involved in situations where companies debated the merits of expensing capital costs and capitalizing expenses. Accountants tend to see this question as a black and white issue. Financial officers tend see it as a strategic issue.

The issue frequently arises in project finance. In particular, long-term capital improvement projects tend to finish with complex cost structures. In my experience, capitalized costs can represent half expenses and half assets (bricks and sticks). Some of those expenses include officer salaries, professional fees, corporate allocations and other distributables. In the end, retirement accounts prorate those costs according to the strategic need of the parent company. Once the accountants retire the plant (that is, allocate final costs across company retirement accounts), the asset capex strategy is locked in.

The issue also appears in operations and maintenance. Sometimes replacing expensive equipment is expensed. Sometimes it is capitalized. Often, there is a combination. Again, accountants tend to see this as a black and white issue. Financing, legal and regulatory people understand it as a strategic issue.

The issue pops up in special cases. It is common for utilities to create regulatory assets out of expenses. They do this with the knowledge and approval of their respective state regulators.

I've found the accounting of assets is not consistent within the utility industry. Policies change over time and by geography. They change as economic conditions change. They also change as corporate administrations change.

Finally, there are the subsequent issues of asset depreciation and mark-to-market values. While depreciation appears simple, it is not. How depreciation schedules are developed and used is complex and difficult [impossible] for third parties to analyze. In addition, the depreciated value of the asset is often uncorrelated to the asset's mark-to-market value.

For me, assets can be fuzzy numbers. Any analysis using asset values as a critical component can also be fuzzy.

Ed Stewart writes: 

All good points Carder.

Another issue is when a company clearly has very valuable intangible assets that are almost completely unrepresented on the balance sheet. Consider Nathan's Famous, best known for its flagship hotdog restaurant and sponsorship of the eating contest. They build on top of that brand value to create a licensing business. Last year (ending march 31) they did 18M of this business, which is almost pure pre-tax profit as they just get a % of sales, renting the brand to a manufacturer/distributor. Capitalize that at a reasonable rate (licensing revenue streams usually valued at a premium) u see it is worth quite a bit of money. Yet, on the balance sheet intangible assets is only something like 1.4M, which is absurd from an economic perspective. 

Stefan Jovanovich writes: 

Accounting was developed to catch internal fraud; the whole point of double-entry was that it required two different people to keep track of every transaction. As long as enterprises were family businesses, single-entry worked just fine (as, for example, in the Rothschilds' books well into the 19th century). In that sense, all "book" numbers will be maddeningly disappointing in terms of their economic logic.

Rocky Humbert writes: 

S-man makes an excellent point. To wit, some of my worst investments have been in insurance company stocks that were trading at significant discounts to their stated tangible book value. What seems to happen (with annoying regularity) is that the company "discovers" that they under-reserved for claims and they write-off massive amounts of tangible equity — leaving the stock at a premium to book value. Hence I view a substantial discount to book value as a warning sign of impending bad news rather than a blue plate special. Mr. Market may go through bipolar episodes, but he's quite astute most of the time.

Ed Stewart writes:

Ive seen another situation beyond unforeseen markdowns that can cause trouble for an investor looking at book value to find undervaluation. The issue occurs when an investor marks book value assets "to market" and finds a supposedly huge undervaluation. The first problem I have seen is that it is very easy for a bad or even mediocre business with a good asset to somehow encumber or use that asset in a way that is not helpful to shareholders - feeding a lousy "growth initiative" or simply mortgaging an asset to fund continued operations. It's amazing how many "value bloggers" write about truly crappy, sketchy businesses because they think they spot this type of situation.

In the case where the business is decent, that by no means the business is going to realize the value of the asset over any reasonable time frame, which means that the value must be discounted far off into the future. So far and so uncertain it might be impossible to assign much value to it at all. In this second case, it might add some positive option value to a decent business that is otherwise worth considering, nothing more. My conclusion is that without an activist situation or change of heart by the CEO or some similar circumstance, undervalued assets are not always what they are cracked up to be.

Gary Rogan comments: 

A bet on undervalued assets IS a bet on an activist situation and/or if not "change of heart by he CEO" change of the CEO. Undervalued assets will not of course suddenly start performing by themselves. That's why "undervalued" cash on the books or undervalued assets combined with a substantial cash flow are so much better than an "undervalued" steel plant or similar: cash is easy to understand and reuse and attracts activists, acquirers, and CEO replacement.

Andrew Goodwin writes:

Not sure why the talk on ratios attracted so much interest. In a group that favors scientific modeling, why no thoughts on finding the significance of each industry valuation ratio through regression studies? 

Charles Pennington writes: 

Stefan, what's your definition of "soft jobs"? Do you have an opinion about which companies out there are wasting their money on "soft jobs" and which are acting more wisely?

Stefan Jovanovich replies:

This is a feeble answer to your question, Charles, but it is all I have. Cantillon wrote that nations got into trouble when their tastes for what he called "luxury" outran their capacities to make enough money to pay for them in foreign trade. He was not a mercantilist, but he thought that nations had to accept the verdict of the foreign exchange market when it went against them. They could not use "Chinese paper" (Singleton's phrase for puffed-up securities) when their counter-parties expected coin. As Cantillon put it, nations cannot use use finance as a substitute for commerce and they cannot indefinitely leverage their credit so that rich men's wives could continue buying more lace. For at least some of the time, even the wealthy have to endure being less rich until trade once again comes into something approaching balance.

It seems to me that many, many companies are now like Cantillon's luxurious nation. David's drug companies are one set. Their profits are projected to continue to grow enormously even as the savings and earnings of the hospitals and governments and individual paying customers have stagnated and even begun to fall again. The drug companies' happy futures are based on the assumption that the centrally-banked remedies to the world's savings "glut" can somehow be transmuted into continuing demand without anyone having to endure even temporary insolvency. There is no arguing that the plan has worked up to now (cue John Hussman's explanations of why he has missed the last 5+ years). But, as the Orioles and other clubs regularly demonstrate, the last innings can be very rough even when the guys coming in from the bullpen have had such sterling records.

P.S. Ignore all monetary puns; this is not a recommendation to buy gold.



 David got home from his two year church mission on June 10th and is off to BYU-Idaho in the fall. Abbey has graduated high school is embarking on her life journey.

Hunter is off on his mission next year after he graduates. Lydia will still be home for a few more years.

We figured this would possibly be our last chance as a nuclear family to go vacation together. So I surprised everyone with a few months ago by announcing that we're taking a 2 week Mediterranean cruise.

First of all travel.

The St. Louis airport is kind of rat hole. Very old and drab.

We flew out of STL to Toronto on a small plane via Air Canada. The plane was cramped and uncomfortable. On top of that, it was hot. VERY HOT. They kept turning the air vents off. Not a very good flight except I sat next to a nice women (the family was not able to sit together for this part of the journey).

We arrived in Toronto late Friday evening and it was like stepping into another dimension. The airport was modern and comfortable and looked alive. I was very impressed. The only down side was the bathrooms. They were not very clean. But outside of that, it was a delight to wait in the Toronto airport.

We then boarded the Air Canada flight to London Healthrow. It was a big plan, but not huge. seats were 3 3 3 in coach. I was going to upgrade to business class, but with a family of 6, it was a bit pricey for my lower middle class frugal south St. Louis upbringing to swallow.

So I settled for upgrading to exit row seats for the boys (the girls got regular seats and did just fine).

I have to say it was nice being able to stretch my legs out. Also, having the head rests that have the sides that close in and hold your head stable were nice too. The seats were a bit hard and the only thing that kept me from getting more sleep on flight was the fact that my butt kept waking me up from the hard seat.

The stewardesses were really nice and a bit more international than we're used to in the states. But it was pretty interesting talking to people of such diverse backgrounds.

I managed to get around 3 - 4 hours of broken sleep on the plane, so I felt pretty good when we arrived in London.

A few observations about the flights.

1. The bathing habits of some passengers left a lot to be desired.

2. The parenting habits of some passengers left a lot to be desired. There was this one baby that cried and fussed all night on the plane. It turns out, he wasn't a baby, but a toddler. The reason that I learned this is because the crying would get closer and closer, then further and further away as the parents let the screaming crying fussing child run around the plane while they did NOTHING to stop the child.

Luckily, the child was far enough away so that it never got too bad for me where I was sitting. If I had been sitting closer to the child, I'm sure I would have done something or said something to the parents. I can guarantee you that I would I have made sure the parents were awake the whole time if they insisted on letting their kid run around screaming and fussing. Yes, believe it or not, the parents were actually sleeping most of the time all this was going on. (I went back and checked as I was looking to give the parents either assistance or a very dirty look…or even a few words of "encouragement").

Once we landed in Heathrow, we disembarked into a modern looking airport and friendly staff.

The wait for customs was a bit longer than I expected. But it wasn't bad.

Once out, we found our cruise line and loaded up. They said it was an hour to 90 minutes to get to South Hampton. It was a bit over 2 hours and it was, by far, the worst part of the travel day..sitting on a cramped bus with a bunch of exhausted people who hadn't bathed or brushed their teeth in at least 24 hours wasn't too terribly bad. The worst part was the fact that the exhaustion of not getting enough sleep in the last 24 hours was really setting in.

However, even through all of that, nothing was going to take away from the excitement of taking my family on this wonderful trip.

Once on the ship, we decided as a family that we were going to stay awake till a normal time, get a good nights sleep and be on local time to fight off jet lag. We were pretty successful in our endeavor to stay awake….until we ate dinner. As we sat there eating, we made plans for what we were going to do all evening. The kids wanted to do the flowrider, Gwen and I talked about a show…a few of the wanted to "yonder" (a family word for exploring the ship and wandering around)…all good ideas…until we got our belly's full.

As dinner progressed and our belly's got full, all we could think of was the blissful release of sleep.

By the end of dinner, Gwen and I gave up on the plans to go out that evening, and headed back to our stateroom. We figured we'd sit on the balcony and watch the stars and waves go by. The kids decided to "yonder" a bit, but only lasted about an hour (at least that's what Gwen told me…because I didn't even make it onto the balcony.

I slept from 9 pm till 7 pm the next morning…the most I've slept since college…and it felt great. One more good nights sleep and I think I'll be good to go.

In the meantime, I'm gonna relax, get a massage and maybe take in a show with the wife.

One more day at sea and then we hit Gibraltar.

We hit ports in Spain, France, Portugal, Italy and England. I think two ports in each country. I'll update the list as to observations as I am able.

Bon Voyage for now, I'll check back later!

 Day 1:

We left Southhampton, went through the English Channel and then into the Sea of Biscayne.

Made friends with random people at meals. Sat with a couple from Wales. He works in IT with Unilever, I don't recall what she did. They talked about how Brits get much more "Holiday" than we American's do…at least 6 weeks.

They also gave me a breakdown of the UK and what was ok to call someone from the UK. Being from Wales, it was perfectly ok to call them English or even British (though they preferred English). Apparently, the Scot's and the Irish do not think of themselves as English and can be offended if you refer to them as such. They are, apparently, a fiercely independent lot.

We met a small group from the Isle of Wight at our Muster Station. Very pleasant group who went out of their way show a little kindness to us (letting us out ahead of the crowd as they were in wheel chairs and/or blind…so they got first shot at the exit area…and let us go ahead).

For dinner, we met a couple from Manchester who were very talkative and interesting. She was a retired postal worker and he was a semi-retired "weight station operator" who had his own business verifying the scales at weigh stations on the highways.

The couple from Manchester were very interested in asking us questions about our children and America. They wanted to understand the gun culture of America. They had both grown up in the day's prior to the prohibition on guns and remember having guns in their household.

Their impression of America from the MSM was that it was a semi-wild west with shootings all the time. Of course they suspected that it wasn't that way at all as they had been to America a few times and never saw a single gun while they were here.

The variety of people on this ship is amazing. One might expect such multiculturalism from the crew (and they are), but the passengers are from all over the world. And the best news is that most of them seem to speak at least a little English. We've no problems communicating with anyone…well…almost…

It takes a while to pick up on the accents. Even when speaking with someone we share a common language with, I'm finding that it really takes concentration on my part to sift through some of the thicker accents. Couple that with strange phrasing and colloquial words, and it can be a bit of a task at times picking up on the message that is being communicated.

Makes me wish I had watched more Monty Python or Fawlty Towers when I was younger.

Well, it's after 1 am here, so I'm gonna call it night and try and report more tomorrow. Hopefully, I'll be able to have some financial conversations about local economies to report on soon.

Chris Tucker writes: 

One reason youngsters tend to scream aboard aircraft is failure of their inner ears to equalize to the pressure change. Typically, when cruising in an aircraft above 28,000 ft, the cabin is pressurized to about 10,000 ft. above MSL. This is why your ears pop when climbing or descending. If you have a cold or any inflammation in the sinuses or inner ear, then some cavity within might have some air from sea level pressure that can't escape, creating blinding pain in the skull. An old trick to remedy this, quite effective, is "hot cups". Many older flight attendants will instantly know what you mean if you ask. They will take two small paper or foam coffee cups, stuff a napkin in the bottom, soak it with boiling water and then place them over each ear. It will frequently (not always), provide some relief.



 Oeyvind Schanke runs Norges Bank Investment Management in Oslo. They own about 1.3 % of the global equity market apparently.

The Singapore business news carried an interesting quote from him:

"We could choose to wait four days before we execute in the hope that during the course of these four days we will find a natural counterparty to cross this up with".

The article was bemoaning high frequency front running. Of note is that the comment made by Mr. Schanke is eminently testable. They believe that opportunity costs are less than getting stuffed by front running.

What is the question they have asked? Likely something resembling:

Given an expected high frequency rip off factor on our execution, how many days (or some other time period) is it best to wait that allows us to benefit from the normal variability of the market in question.



Two weeks ago in Chicago I presented the anchor leg of three different presentations on How to Identify and What to Pay for True Alpha.

Jason Roney of Bluegrass Capital Management and Marat Molyboga of Efficient Capital preceded me. Marat brought forth a very impressive presentation on assessing if manager skill actually exists and Jason showed how despite having a lower sharpe ratios, understanding a managers "regime robustness" is critical when making an allocation.

I concluded by presenting an incentive structure which one may use after they believe they have found an active manager worthy of investing in. My idea is "Risk-Factor Compensation". It's meant to be a very simple way to contextualize the profits a manager generates against not only the volatility the account had, but how much predetermined risk said investor was willing to lose. The resulting ratio then corresponds to a chart which tells what percentage incentive fee the manager is entitled to given their "Netto Number".

The bottom line is the current compensation structure of 20 percent of all profits without having a mechanism to contextualize how the return relative to drawdown or how much actual risk capital was at stake is woefully inadequate. I will post the link to the video when Terrappinn makes it available.

Given the sophistication of this group, I would like to hear anyone's comments on either the current 2 and 20 pay structure in hedge funds or my idea to have a score which balances out the focus between both the numerator and denominator as right now the only thing which matters when a manager gets paid is the numerator.

Here is the formula:

Profits / (Risk Budget + max negative drawdown/2)

So if someone made 400k and they had a risk budget of 800k and max negative drawdown of 400k then it would look like this

400k/ 600k

Which would equal .66. A Netto Number of .66 equals a 13 percent incentive fee, or 52k for the manager vs the traditional 20 percent of all profits, which would be 80k. So the investor saves about 28k in fees based on a lower Netto Number.

Now if the manager makes 1 mm and the denominators are constant then he has a Netto Number of 1.66 and now earns 32 percent of profits or 320k. But either way the investor wins because in order for a manger to get paid that the investor receives a SUPERIOR risk-adjusted return on a net basis.

I can email anyone privately the complete presentation upon request.



 As I continue on my arduous journey for selecting and also constantly keeping traders at their A-game, I was wondering if Vic, Brett or others on the list have any experience with how Sports Psychology could be used with Traders.

A competing athlete goes through pretty much the same psychological challenges that a trader goes through…and I was wondering if any research had been done on this subject.

Mental training helps athletes perform more consistently, find the zone more often, keep a winning streak alive, and learn how to think well under pressure. Or, as one sports psychologist put it, mental toughness is "the ability to consistently perform toward the upper range of your talent and skill regardless of competitive circumstances." As psychologists debate the roles of genetics, environment, and learned skills in determining mental toughness, they do agree (along with athletes and coaches) that high levels of mental toughness are associated with athletic prowess and success. In fact, mental toughness (or "grit") may be the defining factor between finishing at the front of the pack and not finishing at all.

Any thoughts from Specs would be welcome.

Victor Niederhoffer writes:

One would turn to Galton as one should on most areas involving human faculty. The key to athletics success is the sports gene. A key to trading success is intelligence. I would also look to the circle of friends, colleagues and influencers that a prospective employee has. Is he benevolent or a hoodoo. Beware of the hoodoo, and stay with the ones that create benefits for those associated with them.

John Netto writes: 

Sushant. I would read Market Mind Games by Denise Shull. It's excellent and will be a nice resource on your journey. Good luck.

anonymous writes: 

Ability to learn from and then put losses behind them. The inevitable mistakes being made are then analyzed, learned from, improvement sought, and then move on without negative baggage and lament about what could have happened.

Longevity. Injury, early retirement, or large losses do not afford one the ability to succeed.

Independent thought. A Zen like ability to follow one's own methodology and ideas in a non-conformist fashion, yet to balance with the ability to absorb appropriate outside information

Simple hard work. The will to stay out on the field longer than anybody else. Think Jerry Rice, Marcus O'Sullivan, Patrick Kane, Michael Jordan. 

Brett Steenbarger writes: 

Frankly I think the best writing on the topic is your account of your racquetball career. I agree that mental toughness is important, but all the toughness and repetition in the world won't be helpful if a person is working on the wrong things. I continue to find that good trading makes for good psychology just as often as the reverse.

Larry Williams writes: 

The mark of all greats is the ability to come back from behind.

Hernan Avella writes: 

From Handbook of Sport Psychology. Gershon et al.

"Personality traits like dispositional self consciousness, reinvestment and trait anxiety have been associated with predictors of performance failure. Research has also demonstrated that giving athletes practice at dealing with the types of attention demands that performance pressure induces can reduce sill failure when the stakes are high. Also, that preventing athletes from acquiring the type of explicit knowledge that pressure may exploit to begin with may also help to quell the negative effects of stress at high levels of performance."

Paul Marino adds: 

I had a long discussion today with my father regarding choosing the humble person over the boisterous kind of person in any of of life's dealings, from the dry cleaner or barber to your doctor or broker. I tend to get less agitated around the humble and have an easier time speaking my mind. If my physician was loud I might not tell him as much about my life and habits as I should. It's what works best for you that counts, like in any system, trading or otherwise. "Know thyself" may be the best known and least used maxim of all time. 



 10 questions to ask about Greece:

Does the recent outflow of deposits and collapse in growth and tax collections make the patient too sick to rescue?

Do the Europeans proceed without the IMF, at least to extend in the short term?

Do Merkel and Tsipras acquiesce to common ground and still keep their electorate placated?

Do the Greeks hold a referendum and or election given the factious nature of the ruling party and need for popular support?

Does the deal being contemplated even make a difference as all signs point to it being a repeat of the current deal which has been unsuccessful?

Does Italy raise a concern for contagion?

Does a Greek exit matter?

Does Greece resemble Puerto Rico and vice versa?

Do upcoming European elections continue on the recent track of anti-Euro sentiment?

Does the great Euro experiment ever work or is it a flawed concept?



 If pride goeth before the fall, what is the opposite for the individual spec?

Re-discover humility and endurance before the win…

Russ Sears writes: 

The logical contrapositive to "if you have pride first then you fall" is "if you win then you had lasting humility". I believe this is what most of the great coaches teach. For example, Wooden, and Bobby Knight both espouse you have to prepare and practice like your team is the least talented and least "gifted" players or team out there. Then come game time believe your players/team is the most prepared confident in execution team on the court. In other words, practice is the time for the players to think and work and believe in the coach's system. Game time is the time to enjoy the flow and automatize and let the coach worry about the thinking. For runners I would say have a plan, believe in the plan, stick with the plan and then the racing is easy.



 Those of us in the bleachers remain bewildered. We had assumed that the ECB, like the Fed, had control over the actual printing of money. Wrong.

"The ECB does not have a cash office and is not involved in any cash operations."

Where the U.S. Treasury's banknote printers have only one customer - the Fed, the production of Euros harks back to the days of wildcat banking in the United States. Each central bank in the Eurosystem that uses a different language has both the responsibility and the legal authority for printing its own Euros.

Since 2002, euro banknotes have been produced jointly by the national central banks (NCBs) of the euro area. Each NCB is responsible for, and bears the costs of, a proportion of the total annual production in one or more denominations. The annual production of euro banknotes needs to be sufficient to meet expected increases in demand, such as seasonal peaks, and to replace unfit banknotes. It also has to be able to cope with unexpected surges in demand. Production volumes for the years ahead are calculated on the basis of forecasts provided by the NCBs and a central forecast made by the ECB, thus combining national expertise with a euro area-wide perspective. The figures calculated need to be approved by the Governing Council of the ECB.


The comparisons with the Cyprus bank crisis are likely to be wrong for one very simple reason: the Greek National Bank can print as many Euros as it likes. It does not need to go to exchange controls; people can withdraw as much as they want as long as they take it in Euro notes.

In April 2001 the ECB's Governing Council decided that the production of euro banknotes should be decentralised and pooled after the initial cash changeover. Therefore, since 2002 each national central bank of the euro area has been allocated a share of the total annual production of euro banknotes in respect of certain denominations. The respective bank bears the production costs for the share allocated. In September 2002 the Governing Council decided to establish a Eurosystem Strategic Stock (ESS). This stock is intended for use in exceptional circumstances, i.e. when logistical stocks in the Eurosystem are insufficient to cover an unexpected increase in the demand for banknotes or in the event of a sudden interruption in supply. The logistical and strategic stocks ensure that any changes in demand for banknotes can be handled at any time by the national central banks, irrespective of whether the demand comes from inside or outside the euro area. The logistical stocks meet the demand for banknotes in normal circumstances in order to replace unfit (poor-quality) banknotes returning from circulation; accommodate an expected increase in circulation; meet seasonal fluctuations in demand; and optimise banknote transportation between central bank branches.

How exactly does the Eurosystem evict a member national bank simply because it has lousy collateral? I have been chewing on that one for a few days now without finding anything in the bottom of the Cracker Jack box.



Ratio used to be a favorite of value investors and is still used to separate growth from value in some metrics, always showing that growth beat value on a prospective basis. The return on capital is a much better metric. As compounding works wonders. P/b has been the standard since 1970, and has caused almost as much mischief and wrongful, hurtful studies as pairs trading.



 Dr. Spector makes some interesting claims in his new book. Gut bacteria are all the rage at the moment but fermented foods do seem to have positive health benefits. The phantasmagorical apparition of the rocket man may be able to quaff Kriek lambic and eat a piece of Bleu d'Auvergne with celery without ill effect.

Tim Spector, author of The Diet Myth, is professor of genetic epidemiology at King’s College London — and famous for leading the Twins UK team that compares identical and non-identical twins to untangle the genetic and environmental influences on disease and physical appearance. He also leads the British Gut Project and is currently using DNA sequencing to study the microbiomes of 5,000 twins. Spector’s book is the most comprehensive of the three, with dietary advice detailing what is known about the impact on the microbiome of different categories of food ingredient (fats, proteins, carbohydrates, fibre, vitamins and sweeteners) as well as alcohol, caffeine, antibiotics and other drugs.



See picture enclosed.
























 My current challenge is onboarding approximately 200 new traders in the next three months. While we have built sophisticated tools, systems, risk models etc., I have been becoming a bigger believer of the concept that "Who we are as individuals is how we trade in the markets'. I have compiled some of my own weaknesses and strengths and am trying to build a matrix of self-cognition for other traders to follow. It would be great to get the groups feedback on the thoughts below.


Makes and follows long term business plan


Will ignore long term business plan


Will handle times of market volatility and make smart decisions


Will panic when markets are volatile and make stupid decisions


Strictly follows Stop-Loss rules and Protects Trading Capital


Will not be diligent with Stop losses and will risk trading capital


Handles losses and down times in markets


Gets depressed when facing losses and makes poor decisions


Daily updating charts, indicators, business plans, Economic calendars

•Disorganized Too many charts, irregular updations, too many instruments


Willing to change view on market based on where the market is going


Sticks to own views and will fight the market even if he is wrong


Puts in the hours required for daily research, trading and journaling


Trades based on mood, not bothered with daily research and journaling


Accepts his mistakes made while trading and tries to improve


Does not accept his trading mistakes and blames the market


Understands and acknowledges that every day is different in the markets.


Tries to treat every trading day as same and forces his trading style


Follows a strict daily trading routine based on market hours and economic releases


Irregular with trading hours, does not strictly follow economic calendars


Understands why markets are trading up, down or sideways and trades accordingly


Will focus on personal profit or loss to determine trading strategy


Grounded and humble after making good profits - knows that he can lose it all


Thinks he has 'figured out the market' and feels he can always beat the market

•Not Envious

Focuses on personal trading results and how to improve his own trading

•Envious, Jealous

Is troubled by the results of other traders and loses focus on improving his own trading


Has the ability to maintain an inner peace and composure during extensive market moves


Is constantly agitated at every up or down move of the market and keeps fighting the market


Keeps trying no matter what happens and does not give up till he starts becoming profitable

•Quitting, Fickle

Gives up too soon if faced with trading losses and blames the market for his failure


Because he is polite, he can learn from other traders and benefit from expert knowledge


Because he is rude, he is unable to build a network of successful traders and misses out on the learning community


Realizes that he needs to do whatever it takes to support himself and his family and trades systematically


Thinks only of himself and takes rash trading decisions - often willing to gamble it all.


Understands that trading takes time to become profitable and plans his personal expenses accordingly


Is looking to reap profits in trading from day-one and cover living expenses - makes rash decisions


Will only trade based on defined entry and exit rules


Will trade based on mood, greed and fear


Will ensure that he trades less to keep the commissions low


Will overtrade and land up giving up all the profits in commissions


Builds a consistent track record of trading profits and can raise outside funds to manage


Inconsistent track record means no one will give him additional capital to manage


Realizes that all the trading results are of his own making and does not blame markets


Will revenge trade the markets in order to recover losses


Follows all the rules of trading and DOES NOT find excuses for breaking the rules


Willed Breaks trading rules often based on feeling fearful or greedy


Always analyses profits and losses and accepts where he got lucky and where he made a profit based on his strategy


Does not differentiate between getting lucky and making a profit based on trading strategy


Sushant Buttan
Founder and CEO

Brett Steenberger writes:

Interesting! The internal research we did suggests that cognitive variables are more important to profitability than personality variables. Personality variables had a strong relationship to trading style, not necessarily to trading outcomes.

Pitt T. Maner III writes: 

You are looking for professionals who respond to what seem to be the characteristics shared by most successful traders. But you can not standardize a trader, it's not a HFT robot.

For example, this morning I found this:

Bridgewater's Ray Dalio Simple Advice For Success: "Think Independently, Stay Humble"


"machine learning is the new wave of investing for the next 20 years and the smart players are focusing on it.

"Bridgewater Is Said to Start Artificial-Intelligence Team

Sushant Buttan responds: 

Thanks for the feedback. Much appreciated.

The responses are interesting and in some cases the qualities of a good trader seem to be diametrically opposite to the qualities in the list I posted…definitely food for thought. Vic, please feel free to post on the Daily Spec…would love to get as much feedback as possible. Thanks.

Victor Niederhoffer writes: 

Mr. Buttan's List is a good list for a spouse I think. As to whether they are good for traders' success, one would not know. Some of the best salesman and traders are totally disreputable. I would think that one key thing for Mr. Buttan to do is to do as much of the trading in house as he can, thereby eliminated slippage and bid asked spreads and capturing profits for the house. Indeed if Mr. Buttan were to make his trading floor a central exchange for all Mideast trades, so that he can capture the spread, I think his idea might work. MFM Osborne always wanted to create an automated market making system, and it would be great to see that developed to ones' profit. I have a query for Mr. Buttan. Does he want me to put his list up on daily spec. It's a seemingly useful list, and it might get him some helpful feedback. Galton always said the most important qualities for success were health, persistence, organization and a modicum of ability. One would recommend reading his work on eminence, which Jeff seems to have readily available. A good library would be great as a foundation for his traders.

Brett Steenbarger comments:

Yes, persistence in particular is important. The research on "grit" is relevant in that context. It is not necessarily the case that positive personality traits are associated with successful trading. Some of the highest Sharpe ratio PMs I tested score surprisingly high in negative emotionality. It is their fear/concern with the downside and overall vigilance that helps them achieve good risk-adjusted returns and avoid overconfidence biases. I would think putting the list on the Spec List would indeed generate useful input.



 Can one predict with all the trillions swashing around, and the ability to print money, and all the countries meeting to save their perks and flexionism, and the Greek stock market vigilantes down 15% in a week to make sure there is a deal, that a deal will be made. And it will be flimsy one. That as soon as it's made, it will be like the two 8% drops that occurred back to back when the bail out deal first was missed and then was made.

Jeff Watson writes: 

Greece's GDP is a little over half the size of the Dallas-Ft Worth Metroplex GDP. As far as the total Eurozone GDP is concerned, the Greek GDP is a metaphorical rounding error. If France and Germany are going to get screwed, they control the ECB and can print some more money. But news and concern about the Greeks suggests that the flexionic cowboys driving the herd this way, then that way, their Border Collies nipping at the heels of the herd.



 "When by extraordinary chance, one has gained some great advantage or prize and actually had it in ones possessions and been enjoying it for several days, the idea of losing it becomes insupportable."

Thanks to Richard Owen for augmenting my book collection with My Early Life describing the feelings not of making a speculative coup and fear of giving it back, but of elation at being rescued and fear of capture by secreting oneself on a train.



HFT, from anonymous

June 19, 2015 | 1 Comment

 NANEX.net (the modern day Robin Hood of high frequency information dissemination) has a couple of absolute 'doozies' on the website lately.

I won't go into the specifics but all should read the latest from the site once or twice a month. It's great entertainment. Kind of like a celebrity gossip site for people in the game.

Just one thing to note with a comment:

Quotes for Large Stocks and ETF's are cancelled in less than 100 ms 35-45% of the time and cancelled in less than 1 second in 55-75% of the time.

Intriguingly, a notably lower percentage of quotes are cancelled for mid to low priced Etf and stocks.  I wonder why that is. I gather there is an institutional reason to do with the infrastructure. In the blink of an eye (takes 200 ms — twice the time in which 35-45% of quotes cancelled). I feel my blood temperature rise.

But, where we once had the horse and cart, we now have the Maserati Quattroporte! And as such we need to move on. (take a look at microwave technology's entry into data transmission in markets if you want to be really disheartened).

If your view is that you cannot beat them then there are ways to join them. Virtu is one such and there are plenty of shops out there.

We shall see if this activity is stopped or lessened by regulatory activity in due course (I don't see how, when many from the regulatory field have left to join the party).

I thought that Virtu going public, and magnanimously allowing ordinary stockholders to join in the fun, would lessen the future returns from this activity in true 'Baconion' fashion…I guess we shall have to wait and see.

It certainly would be the apogee of Bacon's "coppering the public".



A rumour that is interesting


You’ve Been Warned: Central Bankers Turning Less Market-Friendly
" by Simon Kennedy

Anatoly Veltman writes: 

I think the point to ponder is WHO planted this rumor on the eve of the fact. And the fact indeed was and is: what actual hike can be contemplated while faced with the emergency of keeping Monetary Union? Absurd. So, again: everything is done to prop the impression that hikes are imminently contemplated, while they are not even possible. Which loops back to the suspicion that articles are planted

anonymous writes: 

This is not a new thought for central banking and other authorities, pre Bernanke’s speech that in part caused the taper tantrum, and the Fed to back off, this was a hot topic within said circles and in part instigated his speech.



 The Phillies this year stink. Simply stated, they can’t get out of their own way. The team is off on so many different dimensions, it would difficult to overstate just how bad things are. And there comes a point where the random sorts of things, like injuries, maybe aren’t so random given that players begin to push well beyond what they should out of frustration. Case in point, the injury to Williams, pitching on Tuesday in the Os vs Phillies game. (And that was why I took a look at the Phillies.) Granted, it was just a blowout, but a 19-3 blowout isn’t just a matter of pitching batting practice for the opposing team. On Tuesday, it got so bad that a position player was brought in to pitch—and he did at least as good a job as the real pitching staff. Or at least no worse. Perhaps in a nutshell, that communicates why this team is at .333 this late into the season.

Yesterday, the Phillies entertained the Os just up I-95. I thought that as the home team, the Phillies might hunker down and make a good game of it. A good enough game that the tedium accompanying a good 40 minutes on the bike at the gym could be relieved by watching the game. Fat chance!

The Orioles won 6-4. The score doesn’t sound so bad, right? Perhaps, but consider this: An American League pitcher with a career batting average of 0.115 (from his time at Colorado) not only legs it out for an infield base hit, but also rings up an RBI! That’s pretty bad.

I guess the question now is whether Ryan Sandberg (the Phillies’ field manager) makes to the All Star break, or is he fired in the next few weeks.

I gotta feel for Phillies fans. I’ve been there, and it’s not much fun.



 I thought it would never happen but it did. One person in this humble trading operation bought at a price, and the other person sold at the same price. Thus, we were guaranteed to lose, and the brokers were guaranteed to win. I suggested that if this were to be a template, we would be guaranteed to go bankrupt and the brokers would become infinitely wealthy. I would ask the brokers to send us a fish dinner to encourage us and reward us for this terrible thing, but I don't think they would get the drift of why it's so great for them.

Russ Herrold writes: 

Certainly, IBKR understands and matches quite intentionally 'crosses' in house at once, before ever exposing the net delta in position to an exchange. It is part of their disclosures

In designing my order management system I also set it so that it flags an exception event when short 'trading' positions, would cross against long term 'investments', and offers a simple journal entry to avoid the commissionable 'trip'.

Victor Niederhoffer writes: 

To say nothing of their ability to take the other side of trades when their customers are stopped out for margin. According to one list member, they proudly acknowledge this in their conference calls. And one often sees huge bids below the market when the market is down big, and assumes that it is such an entity on the other side. In all fairness, however, I know from others that they give you a warning of 2 seconds or so and you can forestall being stopped out if you get the wire for your new margin to them within that 2 second window albeit, you might have as much as 2 minutes if you receive the margin call in the evening when the banks are closed. 

anonymous writes:

Yes, they might consider handing out copies of "duel momentum" to all of their advisor customers, particularly the ones utilizing portfolio margining. 

Stefan Martinek writes: 

BTW, momentum made D. Harding (Winton, AUM ~30B; track record) one of the richest guys in the UK. (Harding on momentum) .The other point is that the "dual momentum" = absolute + relative momentum is used by traders since eternity, "discovered" by academics in 70s, and discovered again in 2014 by Mr. Antonacci. 



I participate in Taoist meditation at night. I find it calms my "monkey mind" and I sleep more soundly, get up earlier and refreshed. It has helped in every facet of life. I drink less coffee, lost 20+ pounds and I haven't tested this but my trading has improved.



 How would President Trump and the Dow react if he runs, and if elected?

Shane James writes: 

Reagan, Eastwood, Schwarzenegger…Trump? Why not! 

Stefan Jovanovich writes:

Ronald Reagan was President of a Union in the 1940s; he was, as the journalists put it, "active" in politics for more than two decades before he ran for governor in California. (To this day I find it wonderfully funny that the Brown clan thought that Reagan - the supposed "amateur" - was an easier opponent than William Knowland.)

The comparison with Clint Eastwood is pretty dodgy. Eastwood is a movie star who can green light any project that interests him, and he has had that power for 4 decades. Reagan was a talented actor who never starred in anything with more than a "B" budget and never made any money in Hollywood at all. Unlike Reagan Eastwood has always been a Republican.

As for Trump, he is the Colonel Sanders of contemporary politics–a recognizable name for a brand that is all signs and no voters. 



 One grows tired of not possessing a concise, very readable and practical text covering the majority of known statistical tests.

Despite the last edition being 10 years old, I believe that the book 100 Statistical Tests by Gopal K. Kanji is the very best book of its kind–period.

Each test covers no more than 2 pages. The author suggests when to use it, shows a practical worked example and some other info with tables in the back of the book.

If one wants more detail then a deeper text can be consulted elsewhere. But as a grab off the shelf, check the index for your test and then see how it is done tool, this book scores very highly with me.

William Hughes writes:

Here is a downloadable pdf link for the "100 Statistical Tests" book you were discussing.

Jeff Watson writes: 

In addition to that excellent book here is a great probability and statistics cheat sheet.  



A partisan politics chart from the Fed.



IBKR is up nearly 60% since it sprained its ankle on the Swiss Frank in January. Imagine how much bigger the skid and relative low might be in the future if the "dual momentum" catches hold in a bigger way as the most important book in investment history: "Limiting risk is a no-brainer, after all".



Looking at JNJ daily Closes from January, 2014 though 12 June, 2015
(arbitrary dates): JNJ went from a 46 handle up to a 109 handle,
crossing 63 whole number prices. If we look at Close-to-Close moves
where the price crossed one or more whole numbers, we find that out of
2880 tdays, there were 1337 whole number crosses (if a Close-to-Close
crosses two whole numbers, then it counts as two crosses, etc.).

One simple analysis:

63 whole numbers crossed with 1337 total crosses = 21.2 crosses per
whole number.

Pull out the tens "rounds": 50, 60, 70, 80, 90, 100 - 6 of them with a
total of 110 crosses, or 18.3 crosses per round.

The rounds:

100 - 36 crosses
90 - 11
80 - 1
70 - 9
60 - 49
50 - 4



 Every kid in college in Mumbai, who is either paying for fees by loan or by leaning on parents, has an iPhone on hand.

Has the 'me too' club become full or are there more pockets for Apple Inc. to keep taking out more dollars from still?

The phone heats up. Accessories pucker. You can't upgrade the memory. There is more loss per phone per dollar in Apple than Android etc. etc.

In 2009, if you didn't have a blackberry or two you were not good enough. In 2014 if a college kid doesnt have an iphone he is not good enough.

What is the thing for 2019? I want to buy the stock of the company that would put a 'me too' in the hands of every college kid in Mumbai in 2019, by next year.



When the numbers look too good, there is an analogy for when one hires a specialist doctor (based on mortality/morbidity stats) or a lawyer (based on courtroom win/loss stats). If a doctor or lawyer has stats that look too good, it is often because he/she doesn't take the toughest cases.  

Ed Stewart writes: 

I wonder to what extent this applies in trading or evaluating traders. Do extraordinary numbers imply something is not what it seems. Certainly the obvious (fraud). but what about situations where it is not that. Do numbers that are too good at times suggest no real money is being made because no risk is present in the program? Reverse engineered to "look good" by metrics but not actually make any money.   

anonymous writes: 

There is a certain quantitative fund led by a renowned mathematician who has supposedly generated persistent returns in excess of 30% for many years.  That fund is not open to outside investors and is (supposedly) available only to employees and partners of the renowned mathematician.  The principals have a number of other funds which are open to outsiders, which have billions under management, and which have produced unremarkable results.

If one were going to set up a clever marketing scheme  one might use this sort of model. One would use the internal fund (with word of mouth only / no audited returns) as the bait.  And then sell the public fund which is vanilla to gather assets.  I am not a lawyer and have no opinion as to the legality.

Another scheme uses the survivor bias:  A manager sets up a series of funds and then closes the worst performing ones. The surviving ones have stellar track records. The manager then markets new funds using the track record of the surviving one. If the funds are segregated, it also produces large amounts of fee income.  A former Salomon Bros forex trader based in Connecticut got in trouble with regulators when he took this to the extreme by opening separately capitalized hedge funds that ran offsetting positions. When one of the funds blew up, the creditors sought to grab assets in the other fund.

A final scheme is what private equity and VC folks always do.  They segregate each series of fund.  They harvest fees from the winning funds but don't give back fees on the losing funds.  Of course if their track is dismal, the game ends. 

John Netto writes: 

Having spent many years living off of my P and L and working closely with quite a few in the Chicago Prop community who have done the same, there are simply strategies which lend themselves to personal wealth generation b/c they have significant capacity constraints and don't scale well. The reality is if you tried to run these at a higher scale it would decay the returns significantly and potentially alter market behavior around those respective trades.  I can say personally that when I'm trading an event with low liquidity getting out a 25 lot on the euro FX futures has a much different dynamic than getting out of a 1,000 lot. A trade which can make 20-30 ticks on the yen can have it's risk-reward profile altered considerably when factoring in liquidity and the velocity of trades around that liquidity.

Also, by exposing the strategy to the public and allowing for the returns to be analyzed you now open the possibility for the Intellectual Property to be compromised through reverse engineering.
So when I hear stories of funds or traders having return profiles like this I'm not surprised at all, even less surprised when they are not available to the public. Analogous to paying $25 for twitter on it's IPO when it traded in the 40s.

Stefan Jovanovich writes: 

What John wrote (thank you!) made me think about its truth regarding war. The big deployments usually produce terrible returns while the small units win the battles.

In the American part of the D-Day landings the mass bombings of the air forces were utterly useless (except to kill French civilians who, to this day, have been remarkably generous about not mentioning the stupidity and honoring the Americans' graves).

The "plan" was to have amphibious-enabled Shermans breach the fortifications. But only half of them even made it ashore; the rest foundered. Of the 66 tanks, 32 made is ashore (27 on Dog, only 5 on Easy). Against those 75 mm barrels the Germans had a roughly equal number of artillery and anti-tank barrels; the problem was that theirs were in reinforced concrete bunkers and pillboxes. Still worse, the artillery was supplemented by 40 rocket-launchers and 85 machine gun nests; against those the men on the beach had only their M-1 Garands.

For an hour and more after landing (H-Hour was 0630) the 1st and 29th Divisions were literally shredded because the Shermans and the combat engineers could not find a way to get them past the fortifications. What saved them was the fact that some individuals followed John's Rules. Even though all naval gunfire support was supposed to end at H-Hour, the 5 destroyers that were part of the Amphibious Assault Group - the Frankfort, McCook, Doyle, Thompson and Carmick - were ordered to close to the beach. (The order could easily have gotten the Destroyers' commander Sanders and the overall Group commander Hall fired for insubordination; under the assault plan all naval gunfire support was to end at H-hour.)

After the battle, James Knight, a Sergeant of the 299th Combat Engineer Battalion, wrote a letter to James Semmes, Captain of the Frankfort: "There is no question, at least in my mind, if you had not come in as close as you did, exposing yourself to God only knows how much, that I would not have survived the night. I truly believe that in the absence of the damage you inflicted on German emplacements, the only way any GI was going to leave Omaha was in a mattress cover or as a prisoner of war." The Chief of Staff of the 1st Division, Colonel S.B. Mason, confirmed as much in the report he wrote after inspecting the German defenses. "I am now firmly convinced that our supporting naval fire got us in; that without that gunfire we positively could not have crossed the beaches."…

Sometimes, good deeds are rewarded. When Hall, the Amphibious Group Commander, retired in 1953 he was still ranked only a Captain, but Eisenhower had him advanced to Admiral "in recognition of his battle honors". To Eisenhower Hall was "the Viking of Assault" (and a fellow football player). Eisenhower undoubtedly knew that, without Hall's, Sanders', Semmes' and the other Navy men's actions, the American part of the landings would have failed.



 "There is no reason why they should not be used by all momentum investors." :"Momentum and Stop Losses"

All traders are invited to the party.

p.s. Don't forget to send a thank-you note.

anonymous writes: 

This guy is making quite a name for himself of late. Book has been well received by Quant community. I had an advisor tell me that he thought Dual Momentum was the most important book ever.

Victor Niederhoffer writes: 

There is hope with useful idiots like this.

Ed Stewart writes: 

My thoughts exactly. More juice for the sprained ankle trades of all kinds, among other things.

anonymous writes: 

If you look in the mirror often enough, you will actually believe you look good for your age, until you see a photograph of yourself, and realize how much you've aged. This perceptual bias may be the result of the repeated exposure phenomenon. I see myself in the mirror everyday while I brush my teeth, and shave. My glances into the mirror are incidental and repeated on a daily basis. On the other hand, I rarely look at photographs of myself. No facebook, no selfies. The resulting effect is a psychological phenomenon by which people tend to develop a preference for things merely because they are familiar with them. Therefore, I have developed a bias due to the frequency of exposures to my image in the mirror. It has been determined that changes in affect that accompany exposures do not depend on subjective factors such as the subjective impression of familiarity, but on the objective history of exposures, and even more interestingly, when exposures are subliminal they are frequently liked better. It's not difficult to become subliminally seduced if one allows themselves to be exposed to a myriad of mumbo-jumbo.



 Hi Victor,

Here is a new discovery that may be of interest to your readers at Daily Speculations, and which may serve as introduction to my Junto presentation on 3 September:

"Why humans build fires shaped the same way"

It has generated a wave of interest on the web during the past few days.

Here is an excerpt from the Abstract:

Here we see why humans unwittingly build fires that look the same: edifices of fuel, as tall as they are wide. I show that the hottest pile of burning fuel occurs when the height of the pile is roughly the same as its base diameter. Key is why humans of all eras have been relying on this design of fire "unwittingly". The reason is that the heat flow from fire facilitates the movement, spreading, and survival of humans on the globe.

With best wishes,


Adrian Bejan ( MIT ' 71, ' 72, ' 75 )
J.A. Jones Distinguished Professor
Duke University
Academy of Europe

Gary Phillips adds: 

I wonder if there are corollaries from the abelian sandpile model that are relevant to the ways fires are built and subsequently burn.



 A turn to the Origin is always good to put the moves of the markets most beautiful and wonderful and often circling back to the beginning according to the fixed laws of gravity, constructalism, and flexionism after a week where SPU begins and ends at the exact same level.

It is interesting to contemplate a tangled bank, clothed with many plants of many kinds, with birds singing on the bushes, with various insects flitting about, and with worms crawling through the damp earth, and to reflect that these elaborately constructed forms, so different from each other, and dependent upon each other in so complex a manner, have all been produced by laws acting around us. These laws, taken in the largest sense, being Growth with reproduction; Inheritance which is almost implied by reproduction; Variability from the indirect and direct action of the conditions of life, and from use and disuse; a Ratio of Increase so high as to lead to a Struggle for Life, and as a consequence to Natural Selection, entailing Divergence of Character and the Extinction of less improved forms. Thus, from the war of nature, from famine and death, the most exalted object which we are capable of conceiving, namely, the production of the higher animals, directly follows. There is grandeur in this view of life, with its several powers, having been originally breathed by the Creator into a few forms or into one; and that, whilst this planet has gone circling on according to the fixed law of gravity, from so simple a beginning endless forms most beautiful and most wonderful have been, and are being evolved.

-Charles Darwin

Stefan Jovanovich writes: 

The tangled bank is Darwin's theology; no one, certainly not John Murray (his publisher), forced Darwin to insert and keep the phrase "by the Creator" into the 2nd and subsequent editions. Blaming "popular pressure" is a libel on the pubic which embraced Darwin; the demand from the public is what caused Murray to print another 3000 copies (what would be 300,000 now). The criticism of Darwin's views about God and Nature came entirely from the schoolies.

There is no question Darwin ceased to believe (if he ever did) in the literal truth of Jesus' resurrection. In that regard he was following a hundred years of apostacy going back to George Washington and Voltaire and Hume. What he believed in was the miracle of life itself, what Washington called Almighty Providence. As to the origins of that miracle– as opposed to the laws that governed life's evolution, he declined to offer any opinion and was happy to have his remains left in a church with the memorial markers conventional for that time and place.



At what point in the day do stocks reverse direction? The Chair mentioned after lunch. In theory it should be when there are more buyers than sellers, or the momentum of buying over whelms the downward pressure of sellers. Traders, like many other organisms, tend to move in herds, or try to follow. Whether it follows through to a reversal, like just now, or whether it is a head fake prelude to further drops is important to distinguish within one's time frame. It is important to catch the turn at the cusp rather than after confirmation when it is probably too late to capitalize efficiently. The data can signal those points in real time but there seem to be about 3 or 4 things or more going on at once in terms of forces at work or data streams to consider and factor in. It seems also to be a computational capacity problem and data flow issue. That's why I've always thought a 3 dimensional approach would be helpful.

The other big problem is to weed out the big trend days and not get caught under the falling knife. One thing I use to try weed out those trend days are the 10:1 updn signals that Marty Zweig talks about as signals, but not in the same way.

Kurt Sprecht writes: 

Untested on my part, but if the morning has been somewhat variable (i.e., no large increase or decrease at the open which holds in a tight range), there often is a reversal during the Eastern time zone lunch hour. My apologies for lack of specificity or corroborating data. 

Paul Marino writes:

My insomniac tendencies have noticed liquidity changes at the 3am euro open for S&P globex. Really starts at 1 am but by 3 is when it gets over 5k volume per 5 minute bars as Europe opens. An anonymous smart speclister had mentioned a couple months back the different openings in the FX throughout the day. I concur and see it in the S&P too. 1 am, 2:30 am, 3 am, 8 am, 9:30 am, 11:00 am, 1:30 pm, 3:50 pm, 4:05 pm, 8:00pm.

Paolo Pezzutti writes:

I find Paul's observation very relevant and I have noticed that at least some of these time of discontinuity have regularities. The activity picks up some minutes before. There may be predictive value in it but likely very short term.

anonymous writes: 

In response to "traders move in herds": You have the herd, yes, but then you have the cliff. More and more "optimal execution" algos for firms running large money are actually designed to spot the short term herd and use that to get into positions in the opposite direction. I'm under the impression that this has become extremely prevalent in equities, and is the main cause of much of the new normal price movement characterized by many traders as having "lack of follow through". I've recently used the understanding of this characteristic in my own design of algos with good success. (I am a discretionary, short-term hedge fund trader and newly turned quant).

anonymous writes: 

There is a lot of variation between markets. As we know, futures and equities are very different beasts. Even between equities there are large distinctions. In the less liquid stocks I like to accumulate intermediate to long term positions in, I have found that the algorithms that exist to exploit small orders (what appears to be Market makers blocking competing orders) and accumulate position algorithms are extraordinarily stupid. The only issue for the trader is, if you note this and take advantage of it systematically, it is almost certain to be some form of criminal act. As we have seen, the manual trader is not allowed to exploit or beat the dumb algos of big firms. One other thing I have found is on certain days it seems that relatively small aggressive orders can change the trend of the day as (it seems) some algos look for others to establish a bottom level that amazingly they then seem to defend and even accumulate from. Note this is not really short term trading stuff, more notes I've made when buying my list of stocks. 

anonymous writes: 

This trader has the questionable habit of buying at the highs and selling at the lows to see what kind of (paper) is around. I've never been able to follow the herd, instead I try to re-direct it in my market.



 One believes that the properties of random numbers with the variance = to the duration times the initial variance is not only why fires have a height equal to the breath but why 99% of observers see trends in time series when they are properties of random numbers.

anonymous writes: 

Not unlike the sandpile. If one randomly drops grains of sand of onto a sandpile, the pile will grow and the slope will build up until the slope exceeds a specific threshold value, at which time the sandpile will begin to collapse.



 I like LinkedIn as a company – it's oriented about a useful business service (jobs and business references) rather than being purely social. They also recognize that once people get a job they have less reason to visit the site, so they're developing programing to draw people to the site other times. I bought the stock for these reasons – and because my high-performing granddaughter (Yale summa, Baker Scholar at Harvard B School) chose to accept a job there rather than return to McKinsey.

Jim Sogi writes: 

I like FB.  Did you read Dataclysm?  It's all about getting personal private data…big data. That's what Goog is about.  Very scary is the info they have and what they can do with it.

Quants take the data they give and package it for us but there is so so much more data available to some and at different times. That's Chair's flexion beef. Creativity should be directed more at data and sources than chewing over the same old data feed. Satellite live data, crowd cloud data, twitter data, goog data. Buy a data stream from them for market turns. There have been a few failed hedge funds trying this idea and it sounds interesting. 



 What brings an end to an exuberant speculative driven market? The government changing legislation or changing the playing field first and then a trigger kicks?

Take the Australian property market. After explosive growth in its capital cities, particularly in Sydney and Melbourne, they're now reeling in unlawful chinese buying in their residential property market, with an initial 200 home purchases being investigated and this being mentioned as the tip of the iceberg.

It may be worth looking at what transpired in Singapore some years ago, and whether the same forces are at work in different ways in Australia. Singapore ended with a 40% top to toe haircut after their government made significant changes over time and then the Asian crisis hit. Will the same occur in Sydney, Australia?

anonymous writes: 

Your post is titled, "this is the end" and it is substantively similar to the useless idiots who warn others to exit the stock market before it "crashes" … But your logic is arguably worse because a home is a consumption good that has a store of wealth value with substantial transaction costs.

If you want to contribute something useful to Speclist, might you share with us the rate of return on average Sydney/Melbourne home prices from the top tick in 1996 to the present time? I'm certain you will find that it's significantly above the rate of inflation. I'd also guess that you don't own a home.

I have recently done some simple studies of the prime/average Australian real estate market. I find the local pundits to be ignoring the cost of comparable real estate in other world capitals. The typical story says that average prices are 9x income. But the way those numbers are calculated are completely bogus — including taking account of mortgage rates that have declined from >8% to 4ish%. The Australian market looks rich compared to its historical valuation, but it's not rich compared to its peer markets. Since its been the marginal foreigner buyer that is making the headlines, the peer markets need to be considered as the benchmark.

I am not making a call on the Australian real estate market. But if the market value of my home is going to decline 40%, why should I care? But if you think the National Bank of Australia is going bankrupt, then there's a trade there. But that's not what you said. 



 About a year ago I clicked on 'Al Jazeera America' with the preconception that I'd be treated a glaring example of biased journalism, but instead found their news coverage was presented from a middle-of-the road perspective and clearly not US centric.

Marion Dreyfus writes: 

Al Jazeera acknowledges they no longer hove to the neutrality/journalistic vantage they promised years ago they would. There is a major lawsuit afoot where the failings are bruited–discrimination to non Arabs, women and hirelings, as well as an abdication of following news that is not pro-Arab and involved almost wholly in Arabic and Arabist affairs. It pretends to a journalism it simply does not follow. People of integrity have abandoned them as they noted this falloff.

Stefan Jovanovich writes: 

Much of what passes for today's journalism is, depending on the publisher/broadcaster, disturbingly and unapologetically, skewed one way or the other. I find myself visiting Al Jazeera regularly - so, too, with Russia Today, NPR, and HuffPo. None are particularly congenial to my world views but each provides in its own way, the dialectic missing from those with whom I find favor. Once upon a time it was recommended that for a view from the right one had to check out the Chicago Tribune, for a view from the left, the NYT, and for a straight account with little or no clever manipulation of adjectives or adverbs, the Christian Science Monitor.

Most other news sources still provided enough of an editorial mix to escape being pigeon-holed. Perhaps the worst thing to happen to print journalism (and with a knock-on effect to the other branches) was Woodward-Bernstein. Hailed then (and still now) as journalistic heroes, their work brought about substantial changes in "straight" reporting. College J-grads increasingly aimed for opportunities to break the next big expose - straight reporting became a dull backwater.

It didn't take long for TV to pick-up on the trend (a liberal trend) which went largely unremarked if not un-noticed . Then Limbaugh and others created some pushback with "talk radio" - which didn't go unremarked, but received a considerable amount of flack - from print and TV…with which I had no complaint…at least initially.

However, what was once a battle between rich publishers with conflicting world views, moved from the Op-Ed pages into the rest of the publication and, eventually, it became increasingly difficult to find a "news story" that didn't, in one way or another, skew the narrative into one that reflected the views of either the author and/or publisher - whether that manipulation occurred during the writing of the article or during the editing process has remained a matter of contention. That question is no longer germane as media outlets increasingly hire only those whose views conform to readily identifiable "values" (to be fair, it is an unusual applicant who applies for a position at an organization hostile to his views.)

Unfortunately, this absence of dialectic has spread to the one place where it should be most strongly championed: the university. No better example can be found than the recent pronouncements of Bettina Aptheker (now Professor Aptheker), an admitted "red diaper baby" and one of the notable participants in Mario Salvio's noted "free speech" crusade at Berkeley - an event whose 50th anniversary will be "celebrated" later this year. Unfortunately, though not unexpectedly, Aptheker has had an epiphany. I quote:

"Freedom of speech is a constitutional guarantee, but who gets to exercise it without the chilling restraints of censure depends very much on one's location in the political and social cartography…We [Free Speech movement] veterans … were too young and inexperienced in 1964 to know this, but we do now, and we speak with a new awareness, a new consciousness, and a new urgency that the wisdom of a true freedom is inexorably tied to who exercises power and for what ends."

A growing number of California's public universities have instituted restrictions on free speech. Sic transit gloria mundi.

A final comment. For somewhat different reasons I have a problem with a List issue that came up some time last week. Rocky has regularly challenged the veracity of Zero Hedge's reporting; others throughout the Net have made similar observations. However, as a source regularly referenced by many other commentators/posters, I find it unwise to not keep abreast of their "contributions." However unmeasurable, they do have an impact - one I believe that should be monitored rather than ignored.



 A strange thing happened to me this year in Omaha. I attended the Berkshire shareholders meeting, as usual. I normally stay in the Sheraton, which is a short walk from the conference centre and quite good value. On the morning of the meeting, whilst using the bathroom facilities, I found an unusual note pinned to the wall. I pulled it down and read it with increasing dismay.

I initially thought to keep the contents to myself. However, on finding it again this morning, I have decided to transcribe it. I feel the author may have some serious mental health issues that need addressing. If you think you know who wrote it, please get in touch and I'll try to coax them towards the appropriate professionals. I do apologise for the profanity below but someone's sanity appears at stake.

[Found pinned above the urinals in the Omaha Sheraton, scrawled on hotel notepaper.]

Look down at what your holding: is it tiny and limp? Think about that before you head to the conference centre. What, you've already turned off your blackberry last night? Gonna boast to everyone who'll listen you're not paying attention to prices today? Give me a break. You build a position and hope the stock price goes down as you do it? Did you hope your wife started cheating on you the day after you were married too? You disgust me. Pious pr*ck with your book value and slide rules. So what if your accounts compounded up in some small caps? Over a decade plus? BORE OFF. Did you ever try putting on some portfolio leverage and taking a visit to FAT CITY? How about you go home to the 'burbs and your Mrs Doubtfire looking wife and climb up on that once a month for a minute's gasp? If you get permission! I'll be the one in Tribecca taking some fresh head nightly off of a pair of teenaged Latvians. Did you ever go toe-to-toe with the centrals? No. Did you ever try putting on a spread once in a while? No. Stick your non-recourse where the sun don't shine and try some real margin for once. I'm talking hardcore repos, tick-for-tick, bleary eyed at 3am. Pull that f**king trigger for once, you b*tch. What, you've STILL got 10% of your funds in Berkshire? M. U. G. So what if I had to fold my whole hand. Just 'cos you never went bustid don't mean you don't bore everyone to death. What, you hung up on yet another broker? Made it oh-so-politely clear they shouldn't call? How about I put an army of sell-side families in chicken dinners and new suits with my vig. And then took them for some cocktails and burlesque at W28th for good measure. Try maybe spraying it around once in a while? Don't make me YAWN with your ten minute pitch on some obscure mittlestand engineering concern on 5x EBIT. How about growing a pair and getting five times your equity in cable already? Try tasting some euphoria once in a while. Look down your nose at me running 25% in some 20x sales nubile which is gapping up? Go f**k yourself you motherless f**k. Are you getting the point yet? Anyway, its time you scuttled in to see Warren. Good luck with that. But let me first make it crystal: f**k all you value investors. Now shake it off and zip that embarrassment away.



I just learned about this type of (ETF?) fund traded on Chinese stock market.

The fund's total asset, while being invested in a certain set of equities, is divided into two sub-funds, Fund A and Fund B. Both sub-funds (closed-end in my understanding) are separately traded on the exchange as ETF's. However, Fund A is a fixed income fund to its investors. Fund A's downside risk and dividends are assumed by Fund B. While Fund B takes Fund A's responsibilities, it also inherits higher returns (and also higher risks) associated with the underlying equities. The operator of the fund adjusts asset ratio between Fund A and Fund B whenever Fund A's market price drops by 10% (and perhaps rises by 10% too). At the adjustment, both sub-funds' market prices get revalued, and Fund B's investors may get certain number of shares of Funds A which can then be sold to the market at anytime.

Fund B sounds somewhat like the 2x or 3x ETF's in the US, but it does not re-adjust its asset everyday while the 2x and 3x ETF's do.

What do you see the pros and cons of this type of funds? Does it sound very lucrative for the fund operators? What strategies would allow investors to make money with it?



 In January of this year Forbes published a piece by Michael Lingenheld of Cup & Handle Macro reciting the known knowns about the new car business:

1. Average duration new car loans - 5.5 years
2. Sub-prime borrowers are the debtors on roughly 1/4 of total outstanding car loans
3. Delinquencies for car loans made in 1st Qtr. 2014 as of November of that year - 2.6%
4. First year delinquencies for car loans made in 1st Qtr 2008 - 3%

IBD has a more recent story with the same "news".

ALLY, the largest auto lender in the U.S., just had its most recent flooring loan Master Trust rated Aaa by Moody's.

Russ Sears writes:

While this is true is it anything new? Aren't auto dealerships and manufacturers like farmers–prepared for a few bad years and if the cycle is deep and broad enough the Feds have a history of stepping in?

Stefan Jovanovich writes: 

The "everybody knows" history Russ refers to is remarkably short: 2009 is the one and only time auto manufacturers and auto lenders were rescued, even though the depth of the cycles in both 1919 and 1929 were far, far worse. And the difference was?

Here, for those of you who remain curious, is a brief history of GMAC (what ALLY was before its rescue):

Founded in 1919. Initial capital: $2.5M. First branches opened in New York City, Detroit, Chicago, San Francisco, and Toronto. The following year a branch was opened in Britain. By 1928 GMAC had made 4 million retail car loans. 30 years later they had made 40 million; to celebrate, they entered the home mortgage business. 1999: Record earnings, buys Bank of New York's commercial lending unit and forms Commercial Finance Group. 2001: Further record earnings: $1.8 Billion Celebrates 150 millionth car and truck loan, totaling more than $1 trillion in total financings over its history. 2002: Another record: $1.9 Billion. Now lending in 41 countries. 2003: Earns $2.8 Billion 2004: $2.9 Billion, 10th straight year of earnings growth, begins lending in China, opens GMAC Automotive Bank 2006: General Motors sell 51% to Cerberus Capital Management
Rocky and the other pros can carry it on from there.



 "A look at Chinese infrastructure worldwide: China Is Building the Most Extensive Global Commercial-Military Empire in History"

Larry Williams writes: 

I will be speaking there in a few days so did this forecast of their market. Still looks like more rally to come.

Bud Conrad writes: 

I spoke at a huge mining conference last fall and was amazed by China: BIG, teaming, gets things done, has all the latest technology, awful pollution. Despite many warnings from Western economists of Impending real estate implosion, Local government debt, Shadow banking, and Unregulated shark loans; China has kept its momentum. I think optimism on their stocks that may lead to a bubble that exceeds 2008 is likely.

anonymous writes: 

China is positioning themselves to be the world's primary source for commercial nuclear power technologies. They bought their IP from the French and the Americans. They improved on that IP to form their own brand. In the process, they lowered construction costs. Of course, they will attempt to make it on operations and services.

It appears China's biggest competitor is Korea. Their next biggest competitor appears to be Russia.

While painful to acknowledge, American and European technologies are not competitive.  




Directed by Paul Feig

Desk-jockey CIA analyst Susan Cooper is the unassuming eyes and ears behind superagent Jude Law, the svelte Bond-like asset of the CIA's most perilous missions. When partner Brad Fine (Law) departs the scene and a second top banana (intensely self-mocking Jason Statham) goes into major snit mode, "Coop" takes up the challenge despite the objections of CIA head Allison Janney and cohort). She goes deep undercover –in depressing dowd regalia– to infiltrate the deadly nuke-dealer underworld and (all together now–) prevent global Boom.

We are tipped off early about the nature of this spoof: After Law dispatches a phalanx of baddies–all in tailored bespoke suits– he catches himself in some reflective surface and pats down his hair to its usual perfection. The change here is that many of those lurking oppo guys are tripped up, catapulted to death in calisthenic postures rarely seen, the extreme yoga of dead and dying. What we call nefarions. Everyone has his unique limb stricture and back semi-roll. Hurts to contemplate. But we are on the move seconds later to bigger and better assignments.

For the discerning, "Spy" has its longeuers: Though it packs in the action stunts, the distasteful running gags (mice in the CIA subbasement, right after absurd bats flying around from some ceiling roost) and caustic one-liners we expect, director Feig falls too frequently for the expletive-laden simplistic slur to advance the story and plotline. Landing the joke shouldn't take precedence over the protagonist's developed character, and one-too-many profanities becomes tiresome for those of us who would like to just enjoy the proceedings rather than cluck over the mountain of gross 4-letter pile-ons. Some of course might enjoy the slanguage.

"Spy" is a refreshing modal shift from the usually crude and unlikable characters played by McCarthy, whose persona is becomingly modest and unassuming, a CIA analyst-diva in a Langley vermin-ridden outpost occupied by a sea of similar unheralded and unrewarded. Allison Janney, in Mach-2 sergeant at arms mode, is the head honcho at the Langley HQ, trying to wrest peace from a plot involving sale of a hydrogen bomb, etc.

The vulgarity quotient rises alarmingly, to uncomfortable levels, given her earlier sweetness and tractability, which shatters the kid-friendliness of this amusing romp. Still, it's a hoot to have the avoirdupois dish it out as good as she gets, from the insanely ferocious but gorgeous Rose Byrne, playing Bulgarian diabolical plutocratess Rayna Boyanov, who must be accorded kudos (as can be said for the entire ensemble) for not cracking a smile in the face of hilarious comebacks and insult-mulligatawny from Coop and droll UK comedian Miranda Hart, McCarthy's wingman at the Agency, a giantess. In addition to a welcome presence on the funny-femme circuit.

There is a larder duke-it-out routine McCarthy vs. Byrne, that reminds us of our fencing championship period. It's choreographed masterfully and seemingly in real time. The thing does for pots, pans and center islands what "Crouching Tiger, Hidden Dragon" (2000) did for flying aerial swordplay.

Caveats include a steeplechase, between motorcycle and car, that's too long, an occupational hazard for the genre. But we forgive the evident stunt doubles that inflect these sequences. We love the fact that McCarthy's a dead-on shot, even if Annie Oakley couldn't have made them, while riding in traffic, falling off, and so on.

A subtlety that is not lost on women is that though many casual insults and backhanded offense is launched, the undercover-overweight mistress of the situation doesn't become unhinged. Instead, she gives as good as she gets, undaunted by slashing put-downs about her unflattering garments or whatever else passes for civil discourse among the privileged and slim. As with the vast success of the weight-worried Oprah, the audience will happily root for this sweet, tough, capable, unexpected non-sylph heroine.

Though the film could have a quarter-hour haircut, Jason Statham does a running gag send-up of kickass Chuck Norris-Teflon and grouchy imperviousness. If it were a Jackie Chan vehicle, Feig would show outtakes, which one suspects would have been particularly terrific.Like 007 films, film starts with an overdone but beguiling homage to all those husky, sexy singing paeans to male mastery, with color explosions and sliding montages in silhouette and neon contrapuntals, weapons and action figures highlit and backlit. The whole nine yards. We were in no mood to laugh, at all, but soon melted in the face of all the over the top vulgarity part-way in. Not suitable for young kids, despite the inherent draw of LOL reversals and spoofery. Had the director toned it down 5 or 10 notches, teens might have loved this. As it is, viewers should be forearmed with a cineaste's background that lets them compare the originals in cool kill-methods and spycraft with this current iteration.

The mood is admirably sustained: McCarthy does not, as she did in both "Bridesmaids" and "Identity Thief," irritate viewers by her crass and malign personality. But even in horrid roles that make her the butt of Hollywood notions of her 'sin' for being not paradigm perfect, she manages to squeeze out laughs, though her personae have been so vulgar.We like her for much the same reason millions liked Oprah. Heart. Also, of course, outside of the major metropoli, the average female is not Bulgarian heiress "birdy" tiny. Melissa McCarthy typifies many movie-goers more than does Sandra Bullock. Bobby Cannavale, oleaginous but less evil than the beauteous Byrne, is always fun to watch, whether on The Great White Way in a Clifford Odets revival, or in Nurse Jackie as an officious hospital director. Statham here is a pissed-off pisser, but keeps a straight face as he goes into more and more outrageous derring-do that he clearly derring didn't.

The overall film caveat is that, despite the affability of the protagonist, her earlier sweetness is belied and negated by her blue verbiage and attitude as she warms to her nick-o'-time rescues and captures. One prefers she maintain the character of humility and self-abnegation she started with. She's so tough when she's tough that it suggests she could not have been so sweet to begin with, earlier.

Byrne usually plays the upright damsel, innocent, betrayed or alarmed, so this is a fun stretch. The beauteous Byrne rises to the occasion as well as did the evil Stepmother in Cinderella, usually likable Kate Blanchette.Quite the best part is that no matter her non-U amplitude, this comedic heroine scores in accuracy, smarts, self-deprecating humor—succeeds where those more typical of Hollywood's ideal "perfection" sag, big time. For just $65 million, a pittance nowadays, director Feig wrests a mostly hilarious, high-return comedy-actioner out of these ingredients.

Girth-girl, finally, gets the goods. No joke: How revolutionary.



This is a great article on John Wooden: "Be a Coach First, Manager Second"



It would seem from the example set by the drift that a more conservative approach in the markets is the winner. However in other areas of life creativity must be present for technology and the world to move forward and develop. Is that a contradiction that many people cannot understand, may not know is even present, yet ultimately rules their very existence? It's possibly an issue that faces every trader wanting to overplay every point, an innate sense, which could be gladly taken advantage of by the understanding few.



 I have much respect for many people I have come across along my travels since executing my first transaction in 1992. (For the record it was buying 71 SPI Futures on the Sydney Futures Exchange. I got it wrong and sold them. My superior at the time, an incredible trader and strong protector, made me stand on one leg for 10 minutes practicing the hand signal in front of everyone while they all threw sell tickets at me! Funnily enough it worked and one did not make said error again. Lessons like that handed out to a junior today would see you lose your career in this HR obsessed environment.

I digress. Anyway, I have noted four styles of trading that I have observed over extended periods of time on large assets. As with all styles, they are subject to Baconion cycles and survivor bias but put that aside for one moment. These styles are of varying degrees of 'quantifiability' and I do not use any of them oneself, but in respect to other ways of doing things I thought it might be interesting to list them:

1. One person divides history into regimes, starting with the Fed's stance amongst much else and then uses statistical analysis on each of those regimes to see what worked and what didn't work. He would then take current conditions, look for the closest historical 'regime analogue' and trade accordingly. All of the factors used to create regimes were the same. So, for example, if there were 10 factors that created a regime, then each of those 10 factors must have existed since records began. My guess would be he is 90% quantitative and 10% discretionary.

2. The next style is not really a style but rather a way of getting into trades. Quite simply, this personage ( a brand name in the macro space) takes a trade at the level where his stop loss is. So, for example, if if likes a market at 10 and wants to to risk 3 then he will only take the trade if it trades down to 7. This works for the person concerned as they are very active. This strategy and be quantified fully and combined with some probability work to great effect I believe.

3. A purely discretionary process wherein the protagonist decides what holding period the 'market' has at this point and then ensures that she has a bigger risk profile and longer time frame than the market. I.e she seeks to outlast the short term price fluctuations with wider stop losses and longer holding periods. More than a little horse sense in this. I have quantified half of this, but the other half remains elusive.

4. A pure quant who ensures me he still has no idea what the difference is between a bid and an offer uses a very intriguing approach - he treats each new futures contract as a brand new beast. He assumes that on the first day of trading the market has never traded before and starts amassing high frequency statistics from the get go of the new contract. He says that this allows full objectivity.

One hopes a few things can be taken from each of these.

Have a great day and weekend.

P.S. The U.K. has experienced a record breaking 2 days (yes TWO WHOLE DAYS) of blue skies and moderate (but not warm) temperatures. Apparently the old and the young are dying. Relief is at hand though. Massive thunderstorms are on the way to relieve these temperatures that at one point nudged up against 70 degrees Fahrenheit.



This is an interesting video about a journeyman boxer who used to create the kabuki track records of contenders. He has had ~200 fights, mostly losses. He fights many weekends, has had few serious injuries, but once won two fights in a row and therefore didn't get any work for six months. He makes a month's wages for 12 minutes or work.



 The surfing grain trader's post brings to mind the fine performance of Guys and Dolls one saw at the goodspeed last Saturday, as well as the sordid life of Titanic Thompson on whom the character of Sky Masterson was developed. And a bit of counting inspired by the surfing grain trader.

Given we were NOT red or NOT green or NOT yellow or NOT blue yesterday,(lets call that a failure ), what is the duration until the next occasion of a success.

Duration to next success after a failure yesterday of 4 colors 2007 to date:

     after green   4.7 days
     after red     8.4 days
     after blue    3.6 days
     after yellow  3.0 days

Green is both up, red is both down, blue is bonds up, S&P down, yellow is  bonds down, S&P up.    The unconditional chances of green, red, yellow, and blue were
respectively, 0.21, 0.12, 0.30, 0.33.

One leaves it to the reader's judgment whether this sort of counting can compare in its utility to that of the surf grain trader.



Since first touching the SuperRound of 150.00 basis September Futures on the 3rd of June, the Bund futures contract has fluctuated within a 1% range either side of the SuperRound. This after a prodigious decline from the last SuperRound at 160.00 in April.

It is interesting to consider this 'arabesque', as it were, about 150.00 for predictive possibilities, particularly and coincidentally in light of the bullish reaction of bond markets today in reaction to allegedly bearish for bonds retail sales data.



 We were sitting in a clubhouse at the track last weekend when the big gambler of our group started bragging about his winning game of blackjack. He mentioned that he was the best card counter around and that he played a near perfect game of blackjack. I smelled an opportunity and told him that I consider myself to be the best card counter on the planet. I added that I know where every card in the deck is, and I would gladly put my money where my mouth is. I told him that he could shuffle a deck of cards as many times as he wanted and then start turning over cards in front of me, at about a 5 second per card pace. When he got to the last card, I would tell him what it was before he turned it over. I would not touch any cards at all and only he could handle them. I offered him 2:1 to get him to bite, and the other two guys sitting at the table also wanted some action, so I helped them out as a benevolent gesture.

My friend shuffled the deck 7 or 8 times, cutting the cards several different times. He started turning the cards over in front of me, and I stared in deep concentration. When we got to the last card I took a breath and said, 2 of hearts. He turned the last card over and it was the 2h. The guys asked me how I did that, and my reply was that I am a savant when it comes to cards.

The key to this surefire bet is that one must assign a number value to every card in the deck. I do it this way….Ad is 1, Ah is 2, As is 3, Ac is 4, 2d is 5, 2h is 6 and on an on until the Kc which is 52. If one adds all the assigned numbers in the deck, the sum of 1+2+3+…..52 totals 1378. When playing, every time the dealer flips over a card, one simply adds the assigned value to the running total. At the last card, if the sum is 1372, that subtracted from the total of 1378 gives it an assigned value of 6 which makes the last card the 2h. Another example, had the total been 1327, the bottom card would have had a value of 51 which would have been the Ks.

To be successful with this prop bet, it takes some practice, requires discipline, a bit of mental math, and a quick memory to recall the assigned values of the cards as they are turned over.

There is no such thing as a new prop bet. Everything has been done before….the aforementioned prop bet is a variant of another bet that is at least 150 years old, maybe older. However, my buddies thought we were playing one game, but I was playing a totally different game. Despite the fact that all prop bets are very old, people still fall for them. My friends did not even know that they were being victimized by a prop bet, and that's the best kind of bet. The market offers hundreds of prop bets a day, and there is no shortage of suckers lining up for the sure thing. In the markets, the suckers think they are playing one game, but another game is being played on them entirely. The prop bets that I offer are no different in end result than the prop bets that the market offers…..and I have been known to bite on those market bets from time to time. The market does the best job disguising the fact that the opportunity offered is a prop bet, and that is why it's so easy to get crucified. One can walk away from one of my sure thing bets……it's not that easy as far as the market is concerned.

Whenever I think of walking away from prop bets, Runyon always comes to mind, Sky Masterson specifically. He said, " One of these days in your travels, a guy is going to show you a brand-new deck of cards on which the seal is not yet broken. Then this guy is going to offer to bet you that he can make the jack of spades jump out of this brand-new deck of cards and squirt cider in your ear. But, son, do not accept this bet, because as sure as you stand there, you're going to wind up with an ear full of cider."



"The lenders and their mortgage servicers do not foreclose on seriously delinquent properties in the largest city in the nation."

"Why the Housing Market Collapse is Set to Resume"  by Keith Jurow



 HK Stocks Retreat as Fever Case Sparks MERS Speculation - News Item

Chinese Stocks Drop for Second Day After MSCI Defers Inclusion - News Item

Many areas of interest in this article: "a woman in China is being tested for fever". And after a 100% rise it's scary that "Chinese stocks drop for a second day".

Andrew Goodwin writes: 

The Chinese quickly move to quarantine entire towns as they did in Yumen.  When they find an illness, you get trapped if you do not flee on the rumor.  The practice of mass quarantines raises the spectre of a panic if rumor gets to too many ears before they perfect the envelopment.



 It's lots of money, but it doesn't sound like any of the debt is held by banks: "A judge ruled Argentina owes $5.4 billion, not $1.7 billion — now here's the freakout everyone expected"

anonymous writes:

The basic problem is that there is no international bankruptcy court. The reality is that the vast majority of the bondholders accepted the restructured notes. Had this been a domestic bankruptcy with that many noteholders accepting a deal, bankruptcy court could have been used to force the others to accept it as well.

anonymous writes: 

Argentina offers great travel value with exchange rates, I'm guessing here, on street of probably close to 20 pesos to the dollar. They're hungry for the dollar. The wine is very very good,the food very tasty. The countryside is beautiful. The mountains big and snow covered. So their problem is our opportunity. It is much more cosmopolitan than I had imagined and there are many lively young people. It is much more European than Mexico and many of the people have European ancestry and it retains cultural affinity with Italy and Germany in some areas, hence the good wines. 

anonymous writes: 

There is a black market for US$ as well as a blue market, even better rates for yanks. Easiest way for us to change there earlier this year was at casinos that were substantially better than black market. Their rate, of course, on the bet you would wager so we took the bet at their excellent rate and walked happily out of the casinos. Mendosa is a must for wine and foodies.

anonymous writes: 

Agreed with Larry.

If I had to give it all away and go somewhere, I would move to Buenos Aires in a flash. Buy a motorcycle and travel the country on a motorbike.



Trend days are the exception rather than the rule. We are looking for are rules, but is it possible to find the exceptions also? Trend days are something to avoid for mean reverters who get caught in a trend day or multiday trends. However, if one stays long all the time, its been found that a large percentage of the overall increase in value comes on a few days. Just playing the long side probably helps the odds in the long run. On the other hand, the big jumps in volatility and big moves on occasion are to the downside. The only thing I can see that sets up a big trend day is when buyers or sellers are totally outnumbered exponentially right from the open. Big up trends days can set up after big declines but its a matter of being positioned and hold long enough to catch the big trend days that can make your year. One must also avoid being caught the wrong way that can end your career. The Learned Professor posits the opposite: that fat tails are the rule and that the exception eventually swallows the rule. Statistically one must hold the defined period at the defined leverage to realize the normal expectation. My common error has been to try to beat the expectation which apparently is not possible over time. In conclusion, it appears that one can only follow the rule, not the exception. The problem however is in reality the actual variance has and will exceed the expected variance.

Larry Williams writes: 

There are 2 things that help define trend days.

First, they are hard to know in advance, but trend days (large ranges) almost always close at the high (up trend) or low (down trend) so best working strategy is to hold to the close if it looks like you are in a trend day.

Secondly, trend days are usually proceeded by small ranges and small open to closes.

Stefan Martinek adds: 

Once we are in a high range day, usually more is coming in the same direction (vol. clustering with a drift). To overcome the cost of trading, it seems that 3-5 days (bars) holding or some combination is preferred. Regarding the point below "Just playing the long side probably helps the odds in the long run.", it is maybe correct in equities. When we trade on a basket of futures, not just ES, eliminating short trades usually damages risk adjusted returns.



 I often think about the concepts in the title of this post. So, while waiting to have my positions decimated by a 'tape-bomb' from the embarrassing, puerile discussions between the Greeks and their creditor protagonists, a brief discussion might be in order.

Shapes: When looking to predict markets using information from other markets, my experience is that it may not be too deleterious to use triangles (in some very complex relationships the square or rectangle may be helpful).

So, for example, I might use a triangular shape with the three corners consisting of two predictors and one market to be predicted. The use of the rectangle or square adds another predictor but I believe in this case that too many cooks may spoil the broth (at least in terms of the out of sample testing before entering production/ live trading).

Intriguingly, the techniques that make money in the triangular framework are decidedly non-linear relationships between the three markets. In this context 'non linear' would mean that the chart of the predictive function would not resemble a straight line but some other look.

Univariate versus multivariate question:

It is my contention that futures markets whose underlying asset is something such as stocks, gold, oil, bonds (i.e not currencies) have characteristics such that prediction is best done by looking for multivariate relationships. For example, you might try to predict stocks using bonds and oil rather than just using past SP500 futures information to predict the future SP 500 futures movement.

Of note, and perhaps why currencies are considered so difficult, is that multivariate prediction in currencies, in my experience, comes a very distant second to univariate prediction (i.e using a currency's previous data to predict it's future movement).

The above reflects my experience and that which I have observed since the early 1990s. Many of you may have had different observations and results.

The univariate call in currencies is much stronger than the multivariate suggestion in non-currency markets.

The univariate nature of currency prediction DOES NOT HOLD for emerging market currency pairs.

Before 2005 currencies and multivariate prediction fared well, since then it has been very poor. A major change in some hidden 'Baconion Cycle' occurred then.

I am talking here about minutes to 2 days rather than anything longer.



 I'm reading an interesting book, Sapiens by Yuval Harari. In making rather blunt conclusions he theorizes that it was the new ability of Sapiens developed only about 70,000 to imagine non existent things that allowed the development of larger organizations of humans such as large tribes, countries, corporations and religions. It is through the larger organizations based on myth that man's accomplishments occurred only recently rather than in the 2.5 million prior years of homonid history. The conclusions are speculative because there is virtually no record and the very scant archeological evidence shows little of what and how ancient prehistory man thought, did, acted, believed. He discounts the importance of tools on the basis that man had tools for 2.5 million years and did not accomplish much and was no more distinguished an animal than the other apes.

In an interesting take on agriculture, he discusses how foraging man spent 4-5 hours a day working to survive, then hung out the rest of the day. Contrast modern man's long work week. He explains some of the stress comes from the fact that man is designed for 2.5 million years as a forager, and that his reactions built in haven't evolved to accommodate recent civilization only in the last 5000 years.

The timeline is interesting with 2.5 million years of not doing much. Then fire was discovered and has been used for 300,000 years; Agriculture for about 9000; Civilization less than 5000 years. Other species of humans existing until about 10,000 years ago. The recent genetic evidence seems to point to some interbreeding with humans having Neaderthal genes. Humans seem to have wiped out most of the large beasts wherever they went in short order.

I have not finished the book ,but I fear for his conclusions at the end.

Peter Grieve writes: 

Around 71,000 years ago, Mount Toba exploded in what is now Indonesia. This was the second-largest volcanic eruption in the last 450 million years, displacing 4,000 times as much earth and ash as the Mount St. Helens eruption. The result seems to have been six years of "volcanic winter", which not only triggered an Ice Age that lasted 1,000 years but also caused massive deforestation, famine for all animals, and a major die-off of human beings. According to genetic studies, the human population might have been reduced to about 2,000 people.

That certainly might have been just the kind of environmental stress to induce a major advance in human capabilities merely in order to survive.



The lords in the Fed have a dilemma. On one hand they wish to keep the agrarians in office. And they know that if they raise rates, the economy will slow. On the other hand, the longer they keep transferring wealth from the “total” to the holders of short term wealth, the greater the ultimate rate of inflation.



Below is a plot of year-by-year Kentucky Derby times. It surprises me to see that from 1950 onward there hasn't been any progress in reducing the times. Don't these horses know about doping?!
















 A lesson that the worst error you can make in business is to get in over your head. Whenever Tom Wiswell was in a complicated game, he'd say, "I'm in over my head. I better simplify." Tom was undefeated world 3 move champ for 25 years before retiring. I also believe that if you start a business or trade with a flimsy foundation, it will lead to a debacle. I have had experience making both errors frequently.

What brings this to mind is a visit to the Peabody museum where they had a nice exhibit on the life of the Samurai. They tell the story of the 47 ronin very well. I have subsequently read a few books on the story and find that the thing that caused it all was the Shoguns edict to ban killing of any animals, especially dogs. When they died they were buried with honors and transported to their funeral on a Pallatine by loyal servants. This caused widespread famine, and unrest among the samurai. And it led to daimyo Asano getting so disgusted that the Kira insulted him one last time (one story has it the romance was the last straw), he struck Kira with a dagger leading to the whole tragedy.

It should be noted that the loyal retainer, Oishi, planned the revenge when he wouldn't be in over his his head. A good story, some good lessons and a good book by John Allyn.

keep looking »


Resources & Links