Paddy Power, the Irish/UK bookmaker, has their current odds for the 16 election. With Hillary leading at evens odds and presumably she will stay close to this over the next year when will market participants react to her beating the drum on raising short term capital gains and how may that play out to benefit flexions and DC real estate in the guise of wealth redistribution?

anonymous writes: 

Stock Trader's Almanac 2016 sneak preview:

ONLY SIX ELECTION YEAR DECLINES GREATER THAN 5% SINCE 1896 Presidential election years are the second best performing year of the four-year cycle, producing losses of greater than 5% in only six of those thirty years. Incumbent parties lost power in five of those years. Five losses occurred at the end of the second term. FDR defeated Hoover in 1932 and was re-elected to an unprecedented third term as WWII ravaged Europe. Election year 2016 marks the end of the incumbent party’s second term, increasing the probabilities of a weak year.



 Anything of relevance?: "Rogue Wave Theory to Save Ships"

Stef Estebiza writes: 

Better than "of relevance", it is fundamental. The wave is only the visible part of the situation: "Artificial Surfing Reefs".

Pitt T. Maner III adds: 

Have you seen this video of a rogue wave hitting a tanker? The video is not, by any stretch, a rogue wave though. Those are large enough that their weight simply breaks the ship's steel.

Here is a picture of the damage from a rogue wave to Hornet from WW 2.

Steve Ellison responds: 

Yes, in the markets too there are infrequent "rogue waves" that can be catastrophic. A recent example was the move in the Swiss franc after the Swiss central bank abandoned the peg to the euro. If one is using leverage, such a rogue wave can easily be fatal.

The study of earthquake recurrences might also be fruitful. There was recently some media attention to the possibility of a magnitude 9 earthquake in the US northwest that would have many characteristics of the Japan earthquake in 2011, including elevation changes that would put some areas below sea level and drop others to within range of a tsunami. Such an event could occur tomorrow or might not occur until a later century.

Jim Sogi writes: 

A rogue wave can be a "hole" in the ocean due to random overlapping of normal size waves. Sometimes a hole forms big enough for the ship to drop into the ocean, and get covered up. The waves are not always "high" waves.

In the market, random and other forces can cause big air drops, or a no bid situation. I think these are the ones most damaging to traders. It's not just the big climax peaks.



 1. How many times have you taken a position in a market and had it moved against you, and then got out pursued by a debacle only to find that the market moved in your favor 9 or the next 10 days? Please quantify the situations and see if you can take the other side. Monday, July 24 spu????!!!!!

2. The Senator loves to find a market hitting a new x day low I believe at near the open and then going above some level (I believe the previous close or some such) as a great opportunity to buy. His Japanese acolytes took furious notes and wished to make him a national icon for this. How can it be quantified for individual stocks and markets?

Ralph Vince writes: 

#1 occurs ONLY when one has stops in the market of interest. Otherwise, it just doesn't happen that way– I am Cain (the market sees me, yes, me, there, in the shadows and trying to hide anonymously in the crowds).

I have to turn away, walk away in these situations, and look back at some as-yet unknown future point. "I'll be at the Coyote Motel, with it's missing light bulbs and wax bars of little soaps and the maids that never show. I will be eating cheese and day-old Reubens and watching the markets (now pointing with my index finger) and I will return when you can act like a lady."



 When I'm on the road and am hungry at lunch, sometimes I stop at McD's and order a hamburger and nothing else. They always ask, just a hamburger??? It used to be .99. Now its .83. That's quite a big drop.

If the McD's index around the world is some measure of value, is this a measure of deflation also?



 More snark from your 19th century correspondent.

1. The world still runs on the Parsons steam turbine.

2. When the New York Times' readers discover the collapse of the obsolete industry that fuels the brand new age, it is finally time to buy.


Stefan Jovanovich adds:

Rhino Energy LLC is a proxy for the Appalachian and Illinois Basin coal industry. The stock symbol is RNO. We do not own it and it offers zero trading opportunities, but it is the closest I have come to finding a public company that publishes numbers about what is happening in the eastern U.S. coal bidness. The news is terrible, as every reader of the New York times knows. RNO has just suspended its distributions, and its $10 stock from 4th quarter 2014 is now under a dollar. But, even as this particular canary continues falls over in its financial cage, operating margins increase slightly year over year and production is sold out for 2016.

The region now has a number of coal "start-ups" that are completely invisible to the public eye. Their registered public addresses are in and around Lexington, KY. They have taken over some coal leases and lands from the bankruptcies and forced sales of the historic companies that have been part of this depression and opened new mines. They have no legacy union contracts and - more important - no "history". None of the miners who work their operations has any thoughts about being owed anything for all the terrible things Mr. Peabody's company did to them or father or grandfather.

So, we have begun buying shares in Joy Global (JOY) on the Howard Hughes theory of investing - i.e. even as the depression in the oil business continued through the 1930s, people needed drill bits; and with the increase in oil consumption from WW II, they needed even more.

Full disclosure: In 2 weeks we are already down 5%; we expect the happy ending, if any, to come years from now.

Stefan Jovanovich further adds:

I am not an engineer and I don't play one either so these comments are even more questionable than my usual rants. But I did get the short course from my uncle, Aunt Mary's husband, along with the cook's tour of the gas and coal fired steam plants around Denver. Uncle Charley loved the prospect of direct use of gas combustion that Carder mentions. Perhaps because he was old and sick, he also saw the limitations of the brave new world he would not live to see.

Uncle Charley's lesson plan for his idiot nephew.

Coal is a poor competitor in HHV values. Where gas on average has 21k HHV BTUs per pound, lignite coal has only 8k and the highest grade coal - anthracite - 14k. On average the bituminous coal used for steam generation has only half the HHV/pound of natural gas. So, coal per pound has to be half as expensive as gas simply to break even on HHV efficiency.

That still leaves the efficiency of the turbines–steam vs. the CCGT. According to thermodynamicist folks at Mankato State steam turbines using coal can do close to 50% at best while CCGTs are, as Carder says, now at 60%. So, coal per pound has to be another 1/3rd cheaper still in order to stay even with gas on efficiencies alone.

Then there are the environmental costs, nephew. Put them all together and coal has to sell for no more than $.25 a pound when gas is at a dollar.

So people will stop building steam generating plants in North America and the rest of the world will keep building them because coal delivered by ship or barge can be had for fixed contracts for a decade @ 1/4th the price of current prices for gas while no one will be willing to bet on natural gas deliveries beyond a year or two at most.

I checked Uncle Charley's numbers before buying JOY.

the U.S. I.E.A. price history for residential natural gas

The current futures price for gas - $2.89 per 1m BTUs which converts to roughly $.09 per pound at the standard prssures and densities - and coal - $43 per ton or slightly more than $.02 per pound.

If Carder is right and Uncle Charley and I are wrong, natural gas suppliers will be willing to offer long-term supply contracts the way people in the oil bidness did before 1973; if Uncle Charley is right, California will have brownouts and demand the right to buy Kentucky coal fired wholesale power before the decade is out. We shall see.



Check out this amazing video: "The Operating Room of the Future - InSightec - Dr. Kobi Vortman"

The most amazing breakthrough in medicine possibly in the entire history of medicine? This can directly affect our lives: this technology is available now. The healing of humankind in the planet is this time emerging from Israel.



 If you pick a fight with a professional or an alpha everything moves in slow motion for him. After he defeats you, he can afford to be magnanimous and get you up, brush you off, and offer pointers for your next fight. I was an alpha in racquetball and paddleball for years and did the same thing. I made many friends by beating people and then giving them tips so they could do better against me next time to improve my game.

I recently reacquainted with a guy I used to spar with in wrestling named James Hydrick who was an alpha on the martial arts circuit and held a Guinness Record for breaking the most concrete with a single blow. His ring, street and prison fights are legend, numbering in the hundreds, and he lost twice on flukes. Many involved weapons and being outnumbered six to one. He would always get his opponent up after beating them, dust them off, offer tips, and become their friend.

In the same way, fighting in nature among animals is to establish a pecking order, particularly in choosing an alpha. If you pick a fight with an alpha, be prepared to fight to the death, or be brushed off and become a member of the pack.



 I am searching for a musical song that illustrates the constructal law.

The constructal law teaches us that anything that flows, which is just about everything, is 'alive' because it evolves as it flows. Life is the persistent movement, struggle, contortion, and mechanism by which animate and inanimate flow systems morph to generate better access for what flows. When the flow stops the configurations becomes a flow fossil (dry riverbeds, snowflakes, animal skeletons, abandoned technology, and the Pyramids of Egypt).

From Design in Nature

Victor writes to Rorianne Schrade: 

One wonders if there are any musical pieces that illustrate this idea.

Rorianne Schrade responds:

 Dear Victor,

I hope this finds you and all of your beautiful family doing well. My apologies for not getting to this sooner–you are always delving into such interesting topics. While I'm probably unqualified to comment in any depth on constructal law, I think music relates to ideas of flow in more ways than one could ever count. The first thing that pops to mind is the need to keep a single tone itself "alive" — something that in early music gave rise to all sorts of trills and embellishments for the prolongation of tones, the continuation of the melodic momentum, and the development of musical life in a composition or improvisation. Whole sets of variations could be used to illustrate this as well, the starting with a simple theme, the gradual building and elaborating all as a way of keeping the theme alive as well as creating new music. The "flow" may be interrupted with what seems like musical "death" (a "flow fossil" or "dry riverbed" as you mention– these are beautiful too, in their own ways) in the middle of a piece of music– but the flow somehow returns or survives until the end of the piece (and longer in one's mind) if I've got the right idea of what is meant here. Another illustration might be jazz improvisation on standard tunes … keeping it flowing in a single performance as well as keeping it "flowing" through the decades through variation and new interpretations… I must be oversimplifying, but thank you always for the food for though! love to you all, r.

Alston Mabry writes: 

Here are some musical pieces that I find illustrate constructal flow/order/disorder.

Starting off with the more challenging stuff:

Iannis Xenakis: Metastasis

Edgard Varese: Ionisation

Richard Carrick: Dark Flow - Double Quartet

And the more accessible:

Claude Debussy: Dialogue du vent et de la mer

Stravinsky: Le sacre du printemps

John Luther Adams: Dark Waves

Oregon: Yellow Bell

Cliff Martinez: Is That What Everybody Wants

Scott Brooks:

Here are two metaphorical songs about the flow of life's progressions

"Wasted on the Way
" by Crosby, Stills and Nash

"Nether Lands" by Dan Fogelberg

Both of these songs are two of my all time favorite.

I am especially fond of two sets of lyrics in Nether Lands where Fogelberg sings…

Anthem's to glory and anthems to love

And hymns filled with earthly delight

Like the songs that the darkness composes to worship the light


Once in a vision, I came on some woods

And stood at a fork in the road

My choices were clear, yet I froze with the fear, of not knowing which way to go

One road was simple acceptance of life

The other road offered sweet peace

When I made my decision my vision became my release

As I think about those lyrics, my mind wanders to the progression of life and how we end up where we are today. I think of many of the decisions, good, bad (and non-decisions that I wished I had had the courage to make) that I've made. I don't focus on how I would be happier or my life would have been different had I made other choices in my progression. For if I let me self start the "second guessing game", it will consume like a cancer.

Instead, I focus on what I've learned from all those decisions and how I can apply them to my progression going forward and, hopefully, improve my life, the life of my family, my clients and my friends.

I think that's what progression is all about.

Gary Rogan comments: 

Couldn't think of anything totally appropriate but this may come close (and it's The Surfer's favorite band)

"Natural Science"

By Rush

When the ebbing tide retreats
Along the rocky shoreline
It leaves a trail of tidal pools
In a short-lived galaxy
Each microcosmic planet
A complete society

A simple kind mirror
To reflect upon our own
All the busy little creatures
Chasing out their destinies
Living in their pools
They soon forget about the sea…

Wheels within wheels in a spiral array
A pattern so grand and complex
Time after time we lose sight of the way
Our causes can't see their effects

A quantum leap forward
In time and in space
The universe learned to expand

The mess and the magic
Triumphant and tragic
A mechanized world out of hand

Computerized clinic
For superior cynics
Who dance to a synthetic band

In their own image
Their world is fashioned
No wonder they don't understand

Science, like nature
Must also be tamed
With a view towards its preservation
Given the same
State of integrity
It will surely serve us well

Art as expression
Not as market campaigns
Will still capture our imaginations
Given the same
State of integrity
It will surely help us along

The most endangered species
The honest man
Will still survive annihilation
Forming a world
State of integrity
Sensitive, open and strong

Wave after wave will flow with the tide
And bury the world as it does
Tide after tide will flow and recede
Leaving life to go on as it was…



"If you aren't in over your head, how do you know how tall you are?" -T.S. Eliot

"Many people never connect with their real talents and fail to attain their potential because they don't push what they do to excess" -Rod Junkins in "The Art of Creative Thinking".

Though it is quite prudent to compromise and maybe aspire for a success which is realistically feasible, failure proof, and safe, risk and loss aversion do not allow you to fully achieve your potential. Each time you grab the crumbs that market banqueters leave under the table.

The emini yesterday moved steadily down gradually forcing dip buyers to give in and therefore driving prices even lower in a 4 consecutive down days streak, which occurred last time at the end of March. Mean reversion would start at some point and it would likely be triggered at some point approaching the close of the last day of the week.

I counted previous similar situations and 90% of the time, prices moved up from 1500 to the close with a stunning profit factor and a reasonable number of events. Eventually the trade ended up with a very amateurish scalp that brought very little improvement to the P&L as prices moved up 9 points during the last hour of trading. (I have a good excuse as I was at home with screaming and fighting kids around me).

You should always have a feeling of respect for any amount of money made. However you must fully exploit your edge in a highly competitive environment where the most brilliant (and sometimes evil) minds fight for their share of profit.

You must be aware that the day you have a loss you might return most of the meager profits made over past several weeks. The day your edge starts fading you might give back a great deal of the profits made by the time you realize that the approach followed is not working any more.

Pushing your limits allows you to know yourself and understand who you really are. It allows you to measure your value as a fighter. Champions in all sports, heroes in all fields of combat situations are those who push to the limit their obsession for planning and training. Strong with their conviction and self confidence built on thousands of hours of hard work, they face situations with boldness and courage in order to win a decisive victory over the adversary. Not just a win on points in case of boxing, but a knock out.

We all know, however, that though this method may lead to the most outstanding victories, such a full "risk on" approach also leads to dramatic falls and defeats. History is full of episodes of great personages that relied too much on their ego and we should also not underestimate the importance of luck.

One thing is for sure. You need to give yourself an opportunity to succeed, to emerge, to realize your potential. Otherwise you will continue to drift without the ability to stay the course or, at best, to be a below par trader. But this is not only about trading. It is about the way you live your life, it is about who you really are. We have a duty with respect to ourselves, which is to do our best in our life to fulfill our talents.




Hope you are well.

I've been writing many posts over the last two years on high school and home school debate topics. And though the topics have been good for explaining market concepts to students, they haven't seemed to me to be very investment or speculation related.

Here are the "Astounding Ideas" blogs for current and recent debate topics. Posts include many links to pro-market books, articles, and videos:

Federal Court Reform

China/Japan/SK/Taiwan Trade

Middle East/Freedom/equity


Ocean policy

However, I've been thinking about Apple computer and the upcoming launch of iPhone 6s.

Apple is of course doing very well, but my sense was that part of the huge success of the iPhone 6 last fall was that Apple was so late with large-screen iPhones. I remember a year ago a friend struggling to figure out how to use his new Android phone. He just couldn't stand waiting with the small screen iPhone 5. Another time, about a year ago, I saw someone with an iPhone and couldn't at first figure out what it was, because it looked more like a music player than a phone.

So, Apple finally came out with large screen iPhone 6 and 6 Plus last Sept. And not only got their usual sales, and expanded sales overseas, but also had a lot of sales from people like my friend who quickly switched back to an iPhone.

So now that boost is over and Apple is preparing for huge sales of the iPhone 6s modest upgrade.

Maybe it will do just fine, but there won't be a similar sales boost from Apple's long-delayed larger screen iPhone 6.

Apple had $26.5 billion in off-balance sheet commitments at the end of the June quarter — a massive year-over-year increase that suggests the company is planning for a record breaking launch of its next-generation "iPhone 6s."



 In my lifetime it has been a fool's errand to bet against property in Central London.

One non predictive anecdote caught the eye this morning: In 2014, 3900 homes in central London were sold for a value exceeding £1 million ($ 1.55 million).

Apparently there are officially 54000 (fifty four thousand) Central London properties being built or redeveloped from commercial to residential use whose sticker price will be £1million or above coming to market by the end of 2017. It all likely reflects the sharp narrowing in the geography of wealth in the obvious global hotspots that is becoming more acute. (It reminds one of stock indices making new highs on the back of just a few stocks, which may or may not 'mean' anything).

For my money, it's Point Piper in Sydney. (Google some images). Funny how the market works.



 July is creeping toward an end and I'm starting to see the first back-to-school ads pop up on television. Before you know it, it will be September and then the beginning of fall.

Before moving to Florida, I always had mixed feeling about fall. While you have the start of football and pennant-race baseball along with the release of the fall/winter book catalog by most fiction publishers, it also meant that winter was on its way. Since relocating, weather changes just mean I might have to wear shoes at some point in the next six months, so I look forward to September more than ever.

This year, however, I view autumn's approach with a twinge of trepidation. In addition to baseball playoffs and football, this year we will see another season begin. Election season will soon be upon us and the advertising barrage will begin anew. There will be so many political ads here in Florida that folks peddling erectile dysfunction pills and adult diapers are going to have a hard time getting a sales pitch in edgewise.

It will be the same for much of the country as the primary elections, especially on the GOP side, are going to get ugly quick. Without straying too far into politics, I have to say that I fully expect the Democratic primary to get just as ugly before all is said and done, too.

There is a huge profit opportunity in this barrage of ads. Local newspapers and radio stations will see a significant pick-up in business as candidates attack each other and single-issue PACs push their various initiatives. There will be more chatter about this as we get closer to year-end but the time to consider buying the local TV and radio stocks is now while everyone is focusing on tech earnings and Chinese growth rates.

The Hispanic vote is going to be very important this year and Spanish-language stations and papers should reap a bonanza. "Spanish Broadcasting System" (SBSA) owns 20 radio stations located in the top U.S. Hispanic markets of New York City, Los Angeles, Miami, Chicago, San Francisco and Puerto Rico. The company also owns MegaTV, a television operation with over-the-air, cable and satellite distribution and affiliates in the U.S. and Puerto Rico, in addition to websites and apps for Spanish-language news, entertainment and music. The stock is reasonably priced right now, with an enterprise value/EBIT ratio of 6, but sales and earnings should see an enormous boost next year.

I am a big fan of A.H



 The following observations are based on my 2 campaigns for the US Senate, both primary and general election campaigns as well as friendships with more than a few Senators and Congressmen.

To begin, all candidates need $, more now than ever before. In my state, Montana, in 1978 we spent a little less than 1,000,000. Today's races they are >10,000,000. I refused all outside the state PAC money as I thought money "buys" politicians.

I was right…and wrong.

Regardless of your politics if you can't fund a campaign you will not get elected, so you need money. The typical view, as Stef has expressed, is that votes are bought and paid for. Not really.

There are 2 functions a Senator performs:

1. to represent a political view (liberal, conservative, wobbly or a wonker)

2. BUT that is not the main job…the primary job is to help your state and proved great constituent services (this is what gets you re-elected). Thus there are 2 types of money 'political view' and state interests.

Soros or the Koch's don't buy votes…

What happens is they find and support like minded thinkers who generally support their ideas of more/less, etc government. That is all they can 'count on'. They know money talks and contributions will at least get viewpoints listened to. That is not to say a few politicos tumble to the tune of money, but by and large they do not– and contributors well know of Willie Brown's quote when asked how he could take money from a PAC and vote against them replied, "If you can't take money from them one day and vote against them the next, you should never be in politics".

So while 99% of people on this site and in real life think lobbyists buy votes they are right about 2% of the time. The guys they contribute to already agree with their agenda. They are politically congruent, on the same side. Lobbyists can be very helpful in getting data for your staff to look at, and a good staff listens to lobbyists on both sides of the issues.

While we focus on the politics/agenda of candidate, an effective representatives work is representing his states interest and helping citizens there in a myriad of problems and opportunities for him or her. And, that's what gets you re-elected. When Mrs. Jones says you saved here SS check, or a business guys got help you get votes. That's why a liberal state and can have a conservative congressman.

Most folks confuse the job of their reps. They represent them and the state's interests.



What is the significance of companies breaking from above 100 to below and vice versa vis a vis future performence. A study inspired by sportscasting where the number of 300 + hitters versus 299 is disproportionately high, and similarly for earnings beats.



 One of the most loved presidents of India has died. He was a leader with zero haters in India. Here are a dozen favorite quotes of his:

"All birds find shelter during a rain. But eagles avoid rain by flying above the clouds. Problems are common, but attitude makes the difference."

"Only when you have the courage to lose sight of shore, can you discover the oceans."

"Do not wait for something big to happen. Start with whatever you have now."

"There is no greatness without simplicity, righteousness and truth."

"It is very easy to defeat someone, but it is very hard to win someone."

"A dream is not that which you see while sleeping, it is something that does not let you sleep."

"Suffering is the essence of success."

"Thinking is the capital, enterprise is the way, hard work is the solution."

"Sometimes it's better to fail a class and enjoy your friends, because when I look back now, marks never make me laugh, but memories do."

"Once your mind stretches to a new level it never goes back to its original dimension."

"A big shot is a little shot who keeps on shooting, so keep trying."

"Ask yourself: what will I be remembered for?



 There have been hundreds of fights over time and these are the most memorable:

1. 1988 Sir James in Huntington Beach‏

In 1988 I was living in Huntington Beach, CA doing demonstrations on the beach and under the pier in preparation for my attempt to break 100 inches of concrete at the Ed Parker National Karate Championship. I was in top shape, and had a buddy, Joe, who was small and got picked on. He came up to me one day to report that some guys at a beach party had disrespected him. I hopped on the back of his moped and we rode into the party. I got off and there were no words. They knew why I had come. Two guys came flying at me and I dropped them with a left and right to the chins using their own momentum to knock them out. Two more came and I forward jabbed them in the faces knocking them out. Two more came and I spinning back kicked one in the face and in the same motion back fisted the other, and both were knocked out. They started calling me, Sir James, and one of the six reported, 'Sir James is a dangerous man. He knocked six of us out in 13 seconds.' Actually there was a seventh who came on slowly, alone. He had some boxing skills and we fist fought. He had speed, but I was a little faster, so I slowed down and took a few blows to see what he had. Every good martial artist should to take strikes to know what his opponent is made of, and out of respect. I kept him in it for a long exchange, backed him up against a wall, and said, 'You are one touch youngster' and he hit me in the face drawing blood in the corner of my mouth. I liked that, and walked away from him, but the Sir James name stuck.

2. 1984 Graniteville, SC

In 1984 some local toughs called the Moss brothers catcalled my sister in the Graniteville, SC market parking lot and wouldn't leave her alone. When I came on the scene she was in near tears with two of the brothers on the lot and the oldest in their pickup. They were rough guys, but not gangsters and probably were picking on sis to test me. Sometimes I think people started fights with me just to watch the performance at the price of getting their asses whopped. One came up to me and said, Rambo (my nickname in the south), what are you going to do if I hit you with this bat?' I said, 'Hit me and find out'. He reared the bat over his head and I threw him the pitch. It was a spinning back kick to the chest with so much force he flipped head-over-heels and landed out cold. His brother was moving forwarded but hesitated, and I whirlwind swept him with a spinning squat with one leg out taking his legs out from under him. I helped him up and asked, 'Want to go again?'. He shook his head. I walked to the oldest brother in the pickup and asked, 'Do you think that was a fair fight?' He said, 'Rambo, there is never a fair fight with you,' and rolled up the window.' My sister swooned, 'Oh, James!', and I became friends with the Moss family after that. You have to defend family but can't embarrass someone in a small town and expect to ever relax. It's better to make friends of your enemies after you beat them up.

#3 1985 CCI in South Carolina‏

Central Correctional Institute (CCI) in Columbia, South Carolina was a dangerous place in 1985, especially for me. I had a rep as the toughest guy in this oldest Confederate prison in America. The main hall was called Death Tunnel with several cell blocks on both sides. I had just come out of Metal Shop into the Tunnel and two guys came at me. One was holding a 16" pipe and a 7" knife and the other had murder in his eye. For them to have those weapons here must have been a setup by a guard who either wanted to see a good fight or to have me killed. There was a guard standing next to me as the two advanced, and I asked, 'Well, are you going to do something?' He was frozen with fear, so I eyed the PR4 strapped to his hip which is what the correctional officers call a swivel baton that martial artists call a Japanese Tonfu. I was an expert with the Tonfu. The guard saw me eyeing the baton in his holster, and said, 'Rambo, don't do it', and as he spoke I grabbed it and faced the killers. The one with the pipe and knife muttered, 'Rambo, we're going to beat your ass and kill you.' As he swung the pipe I thrust the Tonfu out from under my shoulder in a fake strike and did a spinning back kick into his solar plexus that knocked him ten feet back and he lost both saddles and dropped the knife. I knocked the knife out of the way with a foot. He got back up with the pipe, and i said, 'You'd better do it quick 'cuz the cops will be swarming in thirty seconds.' He swung and missed, and I stepped in and hit him with the baton with a series of serious strikes. There was blood all over, so I wiped off the baton, slid it back across the floor to the guard (so I wouldn't be accused of attacking him), and the cops were all over us. We were surrounded by inmates chanting 'Rambo' who explained to the cops what had happened. They dragged the attacker away with a broken jaw, orbit, fractured skull and missing some teeth, and his partner had fled. The guard got fired, and I never got bothered again at the prison.

4. 1994 Corcoran Shoe Scopaletti

Corcoran State Prison in CA was called the 'most troubled state prison in America' by the *Los Angeles Times* when I was there in 1994. It was more trouble for me as a sexual offender because the Brand Aryan Brotherhood was murdering sexual offenders right and left. You cannot house convicts and sexual offenders in the same facility and have peace. Over a period of two months, of the Brand had eased into a relationship on the SHU (Special Housing Unit) yard where we would slap each other on the shoulder and do the prison routine of walk and talk around and around the yard. One day, I sensed something in their mannerisms that was suspicious; it had been a set up. They took a killers' stance around me like a pride of lions. One named Dennis 'The Mongoose' Scopaletti clapped me around the shoulder, and I felt a sting in the front of my neck. It spun my head and I continued into a spinning back kick that caught Scopaletti in the temple that crashed into a cement pillar. Blood and gray matter oozed out, and he sunk to the ground flopping like a fish, already dead. The other three ran away into the razor wife. Alarms sounded, red lights blinked and I started to get pelted from the wall by wood bullets. A Big Bertha block got me in the leg, and I knew the next shot would be live, so I lay still on the ground while the responders surrounded me. They dragged the Mongoose off and the guards got me up and asked me if I was alright. I said, 'Yeah', but was having trouble swallowing. A welding rod I hadn't noticed stuck in my neck, so they walked me like Frankenstein to medical where they pulled it out and sewed me up. The yard camera had caught it all, and the guards said I was safe now because the Brand had sent their best man the Mongoose to kill me and he had failed.

5. James Doc Holiday

Had I known that James 'Doc Holiday' was the General of the Black Guerilla Family (BGF) and leader of the Symbionese Liberation Army (SLA) when he patted my ass and said, 'Welcome home, boy', our fight might have lasted more than one second. When he started that in the shower room I finished it with a foot in his temple and he went down out cold. Three guards rushed up, asking. 'Do you know what you just did?' 'He started it, I finished it.' I said. 'Gather your clothes, one ordered. They slapped on a K-10 Red Bracelet on my wrist that is the most sensitive custody. I was crowned 'King of the LA County Jail' by the inmates, guards and staff. It was 1978 and I was only nineteen. Doc Holiday and I made up in High Power maximum security but in every facility I entered after that someone wanted to test the 'King'.

6. 1992 Rolling Pin at Ely, Nevada

‏When the California prisons (CDCR) couldn't hold or protect me any more in 1992, they transported me to Ely, Nevada State Prison. That warden wasn't happy with the responsibility because I was a marked man as a celebrity martial artist and sexual offender. Soon after the transfer, two Aryan Warriors came at me with a typewriter rolling pin and screwdriver. As the rolling pin crashed the back of my head I spun into high caps and hit the Warrior four times with my elbow in the face. In that instant, the other stuck the screwdriver in my forehead at the hairline. I backed him up against the wall as a wave of guards rushed us. Now they made we walk the gauntlet between the guards and the jeering convicts who might have it in for me. The screwdriver was jiggling up and down as I did a sidestep on my own blood through the hallway to the clinic. They unscrewed the driver, and then put me in solitaire. I was so mad I kicked the door until the walls started cracking and the hinges bent out. The guard screamed for backup, and they had to torch the door open. The warden called California and told them, 'You come get this guy. No cell here can hold him!'

7. Sixteen Officers Down‏

In 1978 at the LA County Jail third floor chow hall a guard smacked the back of my head for no good reason. Guards do that to get themselves in hot water so the rest of the guards can jump in and beat up an inmate. The guard smacked me and said to, 'Hurry up,' and I went off verbally. In seconds, my buddy Virgil Kim and I were surrounded by five shouting guards. They didn't count on the backbone of Virgil Kim, a Korean who was an expert in open hand Karate. Back to back, we fought the charging guards until the Goon Squad arrived with their nightsticks, shields and riot gear. That made it even until one dropped his nightstick. I grabbed it and hit them so fast Virgil's eyes were spinning. Then I tossed him the nightstick and he beat the ones nearest him. We used their shields and helmets, passing the baton and hitting them with everything in the chow hall including the coffee pots. Sixteen officers were down! Sergeant Bullis and Brother Gerald, the Catholic chaplain, came in quietly and approached us with palms raised. I had great respect for both of them, and when Bullis said, 'Calm down, and this won't happen again,' I believed him. We piled all of the riot gear next to the unconscious cops, and Virgil and I got our pictures taken wearing their black helmets, and the officer who slapped me got fired.

8. Mexican Standoff‏

Unit 3100 in LA County Jail is called the 'soft block' and I was there as a first time offender of any law of the land and had not yet been declared 'dangerous'. This was my first and last fight in a soft tank because, after it, I would go on to knock down James 'Doc' Holiday and the third floor chow hall 'Sixteen Officers Down' and from then on be housed in special units because either I was dangerous or someone dangerous was after me. But in 3100 in 1978 I was minding my own business in the day room when six burley Mexican's decided to test me. They walked up and said, 'We hear you're good. Let's see how good you are!' I always give people like them a chance to walk away, an out, so I replied, ' Are you sure?' The response was two advanced from the front and two from the back, while two stood at ready. I always take care of what's behind me first, so the ones in front can watch and have a chance to leave. I saw the ones in back in my peripheral vision and used Bruce Lee sounds like, 'Ooh! and Hah! to distract them. I took them out in one motion with a kick to the chest and leg swept the other. I spun, and did the same with the ones in front. The two others had just seen poetry in motion, and didn't want to be the next stanza. I helped them up, asked them if they wanted to play it again, and they said, 'No Mas!' The test was over and we became buddies. You never hit anyone in the face who's trying to test you or establish a pecking order because it's more of a handshake than a fight.

9. Brush at Wasco

In Wasco State Prison in 2009 an inmate came at me with a toothbrush with a razor blade fixed in the handle. He was out to brush my teeth, waving it in my face to intimidate me. I asked, 'Are you sure you want this? I don't want you crying about it later.' He raised the razor, and I right forward kicked his shin. I usually defend against prison weapons with a kick because it would have to hit an artery to do any damage. Then I follow up with punches. My kick broke his tibia that stuck out through the skin like a splintered stick, and then i closed with an elbow across the face that knocked him out. They call assassins like this 'Torpedoes', but he never touched me.

10. Chinatown Street Fight‏

In San Francisco's Chinatown in 1981 I was contacted to fight the ranking world street fighter, Jimmy Tenaca, a Japanese from Seattle, in what the Japanese sometimes call *Kumite*. The modern version of this is Ultimate Fighting where *Kumite *often takes place inside a ringed area similar to that of a boxing ring. In this case, they led me at dawn into Chinatown where the shops were closed on both side of a street that was blocked off, and no cops. It was illegal, high wage street brawling. Tenaca was ranked #3 on the street fighting circuit and this was my first fight. He was cocky and muscular, known for his hand and foot speed. I was a backwoods, self-trained and also known for hand and foot speed. We were surrounded by about 130 people including many Japanese Triad in their sleeved shirts and old Chinese gentlemen smoking. Dozens of kids perched on the shop roofs as Tenaca and I did the pre-fight bow and moon-sun hand-in-fist 'handshake'. He instantly moved in with punches and kicks, while I dodged his attack to observe. I saw he was a traditional fighter trained in a dojo, so I took a free style position. I began throwing punches and kicks using mainly Wing Chun for close combat. My blows landed hard on his arms and shoulders causing him to wince. The Chinese in the crowd murmured to acknowledge their impact and the kids on the roof clapped. After three minutes of exchanges, Tenaca waded into me with hands held high, and by a fluke he raised one to throw a punch just as I released a front snap kick that went under his arms into his advancing chin. Down he went, but not out. They stopped the fight as I walked away the winner out of Chinatown with $7000, I was invited into the USA street fighting circuit but it wasn't my style. I only fight for defense or to aid a victim. It will sound strange, but my best techniques are lethal and can't be used in street fighting. I didn't want people to know what I could do, and wished to remain a free spirit.

Victor Niederhoffer writes: 

What's your opinion on how the former 'world's greatest martial artist, escape artist, and psychic fared with fists.

Jim Sogi adds: 

I've been reading a lot of Lee Child's Jack Reacher series. It's pure pulp fiction, but surprising captivating book after book after page after page. Great mystery also.

Jack fights a lot, street fighting. He uses the head butt, which people don't expect, and the forehead is strong against the nose, and eyes.

He also does a lot of low kicks the the knee, and elbows to the face, and punches to the solar plexus. Punches to the face often result in broken hands so are not effective.

His motto is get your revenge in first, and don't fight fair. Of course he's 6'5' and 250 lbs which makes the punches more effective.

A great guy, I really like him.

I question some of the reverse and spinning kicks the guy talks about in Vic's post. Such kicks in reality are much too slow, and give the opponent way to much time to kick you in the balls while your legs are up in the air. Real fighter don't use high and spinning kicks. It's movies stuff.

Anton Johnson writes: 

Hi Jim,

Thought you might enjoy this video clip, even though it may be a set-up.

Jim Sogi replies: 

In a real street fight the idea is to incapacitate the attacker instantly and permanently, then walk away quickly and not gloat over the attacker.

People think "put up the dukes" and picture Bruce Lee high kick and don't expect the low fast kick to the knee. A big low kick to the thigh can prevent the attacker from chasing when you run right after also.

If you train and can do it size wise, broken finger by hitting attacker hands with a weapon is good. Some sort of weapon is also helpful and advised. Timing is important, don't wait those first beats, strike first.

Now I'm too old for that type of thing anyway.

Trading lessons abound. Strike first, strike hard. Don't necessarily wait for regular hours. Hit and run.

Chris Tucker writes: 

An old friend, Mike, was Marine Force Recon–astonishingly huge guy–arms bigger than my thighs, was hanging with some friends from Seal Team 2 in Honolulu, stepped out of the bar with one of them and headed down the street. A huge Samoan dude hails them from an alley "Hey Bra", "yeah??", "why don't you give me your wallet now?" Mike reaches back for his wallet, winds up and slams this guy in the chin with a roundhouse. The Samoan, a head taller and even larger than Mike, touches his chin and smiles down at him. The Seal, a medic and only 170 pounds wet, gently pushes Mike aside and says "Let me handle this". He steps in front of him and darts past the Samoan, slamming a wicked kick with his heel into the side of his knee, putting him down instantly, screaming in pain. "I told you to let me handle this stuff, you big dummy".

Ralph Vince writes: 

But the problem with a kick, a rear kick or a sidekick is they need to pretty much be standing still. It's very difficult to do if someone is moving around, at least for most mere mortals or fat guys like me.

I've given a lot of consideration to the idea of "getting out of there," after a confrontation, or during it, or if there are multiple attackers. I think you have to stick around, no matter what, and I think there are a number of reasons for this. (I had an episode, a possible entanglement, just last night, that I thought might be trouble, late night in Buenos Aires, with the wife, and the thought occurred to me).

Assuming you are NOT the aggressor (and old fat guys like me never ought to be), then you have to consider several factors, all of which suggest you need to stick around the scene after a problem.

For one, you're probably captured on video somewhere, so if you leave, there's video not only of you, but that you left, which is not something innocent people should do. Secondly, there is a good chance you will be with a female, and a good chance she is in footwear not conducive to getting out of there. Third, I'm too old to run away, and not much inclined to no matter what the younger aggressors might have in mind. Of course, this is why you always need to have multiple, non-redundant weapons with you (and an extra clip of ammo. Look, if you have to shoot someone, and stick around, and you better, they likely have friends, or family nearby, and they may be armed too).

But then there are situations like last night, where you cannot be carrying weapons, and you're at a tremendous disadvantage, especially against potentially multiple aggressors.

Hydrick had some interesting stuff in that post. I think he mentioned something about not being afraid of other boxers or grapplers or martial arts kinds of guys– and you never should be, at least in my opinion. Those are different sports altogether than a real fight. They need their footwear or their clothing or whatever to be comfortable, and they are used to certain rules, etc. If you look at someone you can get a pretty good idea of how they would fight, based on their build and physiognomy. Just because someone has a lot of boxing in their background doesn't mean they have an advantage in a real fight.

For example, it's not uncommon to see a lot of boxers move into a position down and to the outside of their opponent in a sort of "crouched" position, with, if the two opponents are right handed, has the crouchee with his left hand almost against his tummy, his right hand up, not unlike the very popular-of-late "shoulder roll" position, the latter being far away, the former where the aggressor wants to get inside.

But that position (and I contend there are only 8 positions your head / body can viably be in in any fight and have a chance, and most people quickly get out of position) will get you biffed in a real fight where kicking occurs. Instead, someone who wants to get "to the outside: of his opponent (again, assuming two right-handers) is to step in with hands high, left shoulder snapped down towards the right hip, and not waste time in their (whereas the crouchee does want to waste time, he really cannot be hit with any force down there, and he can skooch out if necessary, but this all falls apart in a world where kicks are coming and the fight is usually over in a few seconds).

So there's really not a lot to fear in any opponent, as long as you've decided you're going to hurt him and stick around, and if multiple people, you aren't going to have to encounter more than two or three of them, and most of them are without a clue and not looking for a fight really (which is why they are in numbers), even if you don't have a weapon on you.

So, I've kind of come to the conclusion that it's a bad idea to leave. Best to stick around and tell the cops how you were being attacked, and that "It's probably on video," and be able to live with myself.

John Floyd writes: 

This is pretty standard kick called "kansetsu geri" or "joint kick", it takes some practice for getting the right power and timing but is very viable, and in this case if the Seal really wanted to hurt him there were at least a dozen other things he could have done, one would be a "toho" to the carotid artery or "nukite" right through his eyes, there are also many techniques that allow death to occur slowly over several days to avoid immediate implication of the attacker, but the best advice though is just avoid these situations if you can.



 Forever Stamps are used for currency in prisons and psychiatric hospitals where inmates and patients aren't allowed to have money. Not only is it a medium of exchange, it is a good store of value as stamps appreciate with the US Postal rates which historically have never declined.

The days of prisoners and patients being allowed to have two packs of cigarettes a week are long gone. In California and most other states there is a full ban on tobacco. Regardless, smokers get them and, per supply and demand, the price of tobacco in the facilities has risen astronomically, and can be even more expensive than dope.

When you think of prison economics the second thing that should come to mind after cigarettes is ‘mack' – small tins or pouches of preserved mackerel or tuna. Since 2004, mack has replaced ciggies for trading goods and services because they are small with a inestimable shelf life. Inmates and patients have built an entire economic structure around the oily fish.

Then, in 2007, Forever Stamps became the staple currency because they are smaller and last as long as cigarettes and mack, and they appreciate in value over time. They are non-denominational first class postage which means they can be used to mail first class letters no matter what the future postal rate. For example, in 2013 a Forever Stamp cost $.46 to mail a first class one-ounce letter, but today it costs $.49, which is an appreciation of about 7%.

One pack for a microwaved Mexican cuisine. Two macks for a haircut. Two books of Forever Stamps for a jug of bootleg wine. Forever Stamps are so popular that improvised black markets spontaneously emerge around them with inmates offering everything from handcrafts to clothes and televisions. There are 20 stamps per booklet which has a value of $10.00, and the booklets are generally not broken. That is, starched laundry is a book but never a book-and-half, and a bodyguard for a day may cost five books but stamps are never pulled.

Inmates and patients can procure postage stamps easily and legally by mail or in in-house exchanges for goods and services making them a de facto form of payment. In fact, postage stamps are considered legal tender in the United States. You should be able to go into Wal-Mart or any store and purchase any of these items offered in prisons and hospitals.

However, bill collection in the underworld is more grisly. If inmates don't get paid for goods, services or loans then criminal acts are going to follow. Contract hits over owing Forever Stamps occur daily.

There is an odd wrinkle called 'upping the value' of a booklet by offering a $7.00 item for two books of stamps that are worth $10.00. Yes, it cost the buyer $3.00 more but the thing was in demand with stamps in great supply. The seller may then turn around and put the stamps as money on his prison or hospital commissary account, or send the booklets home to be used as full value to send him more goods or stamps.

All of which means the prison or ward economy runs much like a commodities market: Money in a commissary account can’t be traded, but goods sold at the commissary can be. And since the amounts in circulation are tightly regulated, their value can far surpass their price in dollars. Store men — prison or psych businessmen who have amassed a fortune of stamps — often mail stamps to loved ones outside effectively converting their fortune into cash, reducing the number of stamps in play and thereby inflating the value of individual stamps.

In the corrections and hospital system, enterprising businessmen amass vast fortunes of strange juju. These eccentric fortunes cannot be deposited into traditional banks nor can their value be added on machines. Instead, they are hoarded in secret piggy banks like seat cushions and hollowed bedposts. One never knows when he will need an uncommon item not sold by the commissary such as clean urine (stored in condoms) for a drug test, and has to go to the bank to pay for it. In the joint, everything has a value and ingenuity is priceless.

And with that, we must study the improvised, underground economies of America’s vast prison and psychiatric systems. In traditional economies, money has three primary functions: as a medium of exchange, as a unit of account, and as a store of value. Forever Stamps are the underworld gold standard that citizens outside the walls might envy in some ways.



What sub-sectors are traditionally used to benefit from the elections campaigns, or will the campaign be fought on twitter and other social media?

Victor Niederhoffer writes: 

Tim Melvin is the expert on this. Any company that depends on government largesse will benefit as the idea that has world in its grip is that we are victims and the purpose of government is to take from the productive and give to the poor and foster smallness in humans, and strive for inequality so that none stand out as counterweights to the perks and emoluments and mistresses of the governs. 

Tim Melvin writes: 

Oddly enough today's column addressed this big government trade:

While macro stuff is not my strong point I feel like I can identify some segments of the world we live in that are more or less have to happen situations. Obviously small banks fit well into my long term view of the world. Smaller banks are going to have an increasingly difficult time keeping with regulatory and technology costs. The will find that it makes more sense to sell to a larger competitor rather than struggle to remain independent. This simple trend should makes us all a lot of money over the next decade.

The next powerful trend is one that I hate to see but the fact is that without a social and political revolution the Federal government will continue to play a larger role in the lives of its citizens. They are developing programs for medical care, social programs, energy policy and a host to other instructions and instructions that are going to require huge expenditures. A whole bunch of that money will find its way into the hands of consulting companies like Willdan Group (WLDN), Provident Service Group (PRSC), CACI International, FTI Consulting (FCN) and Ameresco (AMRC) that provide specialized consulting services to the various government agencies that will develop and oversee these programs.

And don't forget the print news and radio companies that will see a ton of advertising dollars from local elections–ahc, salm, SBSA–the hispanic vote will be HUGE and much $$$ will be spent there…TV station owners like GTN, MEG, SBGI–ssp owns both local tv stations and newspapers….

And many thanks. I was just sitting here wondering what in the fresh H*** to write about for tomorrow. Problem solved. I will post full column here when done if chair would like.

Ed Stewart writes: 

I think the same thing Tim talks about in banking is going to happen with brokerage firms, though a bit more stealthily. The second tier firms that are primarily marketing firms are going to give up on the technology side, much of the regulatory compliance side, etc, and become something more like introducing brokers. When this occurs most of them, or a great many of them, will consolidate under IBKR's global platform and then focus on sales and service. Apparently scottrade is the first, they have outsourced their options trading platform to IBKR - and the commission will be the exact same (supposedly) that IBKR's clients receive. They do this because ibkr will treat each brokerage relationship as 1 client, give them the volume discount, and then the other firm keeps the spread between the volume discount and what their individual clients are actually doing. Its a neat business model.

It will be invisible from a client perspective as the front-end will be customized or rebranded. One interesting small cap play on the hispanic market and possibly cycle is hemisphere TV, run by an experienced TV executive. I've looked into it just a bit, perhaps if i do more I will write a brief thing on it for the idea list.

IBKR is also starting to capture more fund business as smaller funds are kicked off the big platforms.

anonymous writes: 

I took a quick look at HMTV. It's an interesting company. But it seems to have a focus on niche markets within the hispanic community. I don't know how much appeal that may have to political campaign advisors. That's not to say it may not make for a great investment. My father invested in Perkin-Elmer in the 1960s because it launched a product that he thought would be great in the classroom. It flopped. Didn't matter, though. The company flourished because of its position as the leading supplier of electronic manufacturing equipment—a booming industry of the 1960s.



 I was recently referred to the David Stockman's blog, and after reading a few articles was nearly wetting my pants in fear. The fear brought to mind an occasion, a dark, dark memory, of a time I almost blew up my account(s), shorting SP futures just as my son was a few months from being born, one of the darkest periods of my life. And while I had some numbers I was going on, the over leveraging and stubbornness that set in was based subconsciously on the rantings of people like Stockman.

I came to the conclusion that libertarianism, or listening to libertarians is one of the most dangerous investment afflictions around, I disavowed any belief that this perspective that could help me make money, and it seems I have been cured for 6 years. I'm still sympathetic to the position philosophically, but have learned to ignore the market based rantings that I had ignorantly begun to factor into my world view.

I've not done any significantly leveraged short trades since that time. If the crash comes I'm happy to miss the "upside" of that event, play the swings, and hopefully position for the next upside with surplus in high return on invested capital stocks, hopefully be positioned to short some premium, but as for rooting for the crash, "chickens come home to roost" and all that, count me out. I could care less about the opinions, even if on a 100 year time horizon (perhaps) they will be proven true.

Victor Niederhoffer writes: 

Mr. Stockman came to the junta and called for Dow 10,000 a year ago, and said to hide your money in mattress as banks are not safe also. I felt compelled to counter his views with data based on interest rate versus return on capital, and a buy and hold return of 40,000 fold a century. It occurred to me that my approach is somewhat Malthusian. Earnings grow by a compounded rate based on the return on capital. This trumps algebraic opportunity costs and interest rates.

Anatoly Veltman writes: 

Of course what can't be historically tested is next year's stocks profitability following a 35-year fixed income rally. That means that no history is helpful to one's S&P positioning today.

Gary Rogan adds: 

Why does this situation have to be viewed in terms of the trend that led here as opposed to the set of numbers that exist today regardless of the path to the present?



Here are some lessons I've learned during the past 8 years:

1. Call options. If you truly have conviction, buy long dated call options as volatility tend to be under priced for long maturities.

2. Short selling. It is harder to short sell than most think, and almost no one is good at it. One hurdle is the drift, but there are countless more.

3. Romance. You're clearly better off to marry someone in management than to marry the stock.

4. Dip buying. The successful buys on dips and vice versa, it follows that the unsuccessful do the opposite.

5. Market. Everyone is always bearish on the market, only the super successful dares to be bullish/naive.

6. Story. Human brains are hard wired over thousands of years to build stories around your beliefs/thesis.

7. Flexibility. The super successful are always ready to change their mind/direction. Go from long to short or from short to long.

8. Art. Stock picking is as much art as science and very rarely are the smartest the best at this game.

9. Top-down. Local knowledge remains under appreciated. The top down guys ends up shorting the best companies and vice versa.

10. Management. Always invest with the best in class management, however you are better off with a good end market and bad management than the other way around.

Stefan Jovanovich writes: 

Yes! Especially #10. "You are better off with a good end market and bad management than the other way around". It applies even more to private business than it does to public companies. Believe me. 

Gary Rogan writes: 

#10 is a lot like the Sage's favorite. When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.

Russ Sears writes: 

Most people cannot admit when they are wrong, in over their head or incompetent. If the tide turns and a business with good economics but bad management becomes a business with bad economics and bad management, then the fraud, accounting tricks and pleas for government bailouts come out. The "smartest guy in the room" is leading the way.



 1. It is doubtful that anyone has really profited from the brave new world of "printing paper" other than the people who "manage" the printing. That is a considerable number of people, especially if you count everyone whose work is not tested by actual demand. (Of course the civil servants are smarter and deserve better pay; they know how to avoid any questions about the market for what they do.)

2. Value is another Benthamite corruption; for those who want to find justice in discussions about money and credit, it is a very useful notion. It allows "policy" to become the question and avoids the petty information of what people are actually paying for stuff and services and promises. The awful thing about prices is that they seem to have no memory or conscience.

3. I don't fault the Greeks, Portuguese and Spanish for cheating any more than I fault people here in the United States for having taken out liar loans. The rule is always caveat emptor. If the Germans are now unhappy with what they bought with their currency union, that is something for them to discuss with their therapists at the IMF.

4. The idea that the Germans are worried in their bones about hyperinflation is a wonderful fiction. They, like the Chinese, are worried about export surpluses. As long as they are collecting more money from foreigners than they are sending them, all is good. The currency union with modern central bank attached was, they presumed, going to allow Germany to have a permanent surplus without the risks of having the national Treasury have significant debt held by foreigners.



 As some might recall, I follow coffee pretty closely. And while coffee trading may be a relatively closed shop, the price still responds to supply and demand. I recall from my econ class that even monopolies have to factor in the reduction in demand consequent to an increase in price unless the good is inelastic. That's four decades old, though, so maybe my recollection is off.

Here's the thing: oil's dropping as the supplies bulge and the dollar strengthens. Gold's weak as well. That fits a deflationary environment. Increasing interest rates fits an inflationary one. Coffee remains weak, trolling multi-year lows. What's intriguing to me about this is that evidence continues to grow that the el Nino taking place is getting stronger, and there's now discussion of whether this year's even might be stronger that the record one in 97-98. El Ninos generally mean the coffee crop is smaller than average. So while weather developments suggest a reduction in supply, pricing suggests a marked decline in demand, too. Either that or deflation with a stronger dollar.

Maybe I'm missing something here. (I probably am.) Anyone care to help me understand this better?

anonymous writes: 

Procter & Gamble, Starbucks, Sara Lee, Kraft, Tchibo and Nestlè control 60% of the market. Actually they are in overproduction, 120 million bags (sixty pounds) of coffee products, 105 consumed. The inventories accumulates from year to year.

They are trying to introduce into the market a GMO coffee variety whose seeds ripen all at the same time, greatly cutting production costs and collection costs, allowing automatation. They are destroying the lives of 125 million people, mostly small-scale farmers and their families for profit in exchange for a coffee built in the laboratory.

Andrew Goodwin writes:

Has anyone else made the same observation that nearly without fail, the same people who make the sternest warnings about climate change are the same ones who mostly firmly protest GMO food?

If the climate is changing then please explain why the crops that worked in the old climate will succeed in the new one. Sometimes it is enough to make me think these folks are going to succeed in starving us all.

In this case, respectfully, it seems that some parties would rather see higher coffee prices, which they think will help some number of people. They don't consider that the destruction of the Brazilian rainforest to make room for coffee plantations, profitable only with prices at higher levels, might have catastrophic impact on humanity in the longer term. 

Michael Ott writes: 

I've noticed that those that are vocal about climate change tend to make arguments based on the overwhelming scientific evidence. Yet when pressed with overwhelming evidence about the safety and benefits of GMOs they ignore it or claim it's a conspiracy. They make fun of those who ignore climate change science or claim it's a conspiracy. It's all hypocritical. This article was thought provoking: "Unhealthy Fixation: the war against genetically modified organisms is full of fearmongering, errors, and fraud. Labeling them will not make you safer."

Jim Sogi writes: 

The Kona Coffee specialty crop will be big this year. There are a lot of beans and just starting to ripen. We had some big rains right at the beginning of the season and there were rows of fragrant coffee flowers early on. The coffee borer was bad last year, but as with many natural cycles, it is not as bad this year. With the trees stronger from good rain, the pests can't get as big a foot hold. There is not enough Kona Coffee to make even a drop in the world wide market, but it's what I grow, harvest, process, dry, roast, grind and drink. There's not many coffee gourmets who can say that.

My son got me a nice Rancilio grinder. It's made a huge difference and now I enjoy real Italian style espresso and cappucinos. It's a game changer compared to the cheapo grinders and results in a very even fine fine grind which you can't get any other way.

Stef Estebiza writes: 

There is a ton of material about the problems with GMOs, and not only with the way in which they are then treated with pesticides. The list is long, but lobbyists' interests are mor profitable and important than your health. Here are two articles:

"Cancer Viruses Are Deliberately Inserted Into Your Food"

GMO: Study Shock, Toxic to Animals and Man

Michael Ott replies: 


Those articles are perfect examples of unfounded claims. This quote is just false: "because they are heavily contaminated with the toxic herbicide, Roundup". Literally dozens to hundreds of tests have been performed and prove the opposite.

False: "petunia plant which is a nightshade. That means folks with nightshade-induced arthritis can now get arthritis from soybean products." This has never been shown in a valid scientific study. Rather it's been repeated by pseudoscientists from a base false claim.

The second article showed results based on massive unrealistic doses and has been widely discredited. 



 Tempura, well known Japanese dish, is from the Spanish and Portuguese traders that came to Japan in the 1800's.

My friend dropped off 10 pounds of Marlin from a 400 pounder he caught. I love fish and chips. Here is a great recipe for the batter.

2 egg yolks, 2 cups ice water, and 2 cups flour. So easy, and so good. Don't let it sit, and be sure its lumpy.

I can't believe I haven't seen this before. I used to struggle with a beer batter, but this is better and easier. Great fish and chips, or tempura.

Coat with batter and Cook in hot oil 1 inch slices for a minute or so til brown. Marlin can get tough if overcooked. Pumpkin zucchini, beans and mushrooms made great sides.



 Andy Lo (paper link here) studied varied technical formations and concluded that the Head & Shoulders isn't useful for the universe of stocks. His paper didn't address the gold market.

I am not a professional chartologist (but I play one on TV), and a cursory look at the gold chart from November 2014 to present sure looks like a head and shoulders. If you believe this stuff, closes below 1150 should project to $1000/oz and below. Certainly, the strengthening dollar, rising real US interest rates, and various other stuff (like the Chinese reserve report released yesterday) and oil prices are not particularly friendly for gold bugs. Also, the long term gold price is still ahead of the M1 and CPI — but it will look fairly in line at 950-1000/oz.

Specs may recall that I very publicly rode the gold bull market for several years and exited in early 2013. I still occasionally trade around it for fun, but I am structurally flat. If you held a gun to my head, I'd rather be short than long right now for a trade. For now, I'm waiting for the GDX to trade at zero before I stick my toe in the water. ;) These are big cycle, macro economic moves — and that gold didn't catch a bid during the Greek crisis or Puerto Rico panic says it all.

Perhaps more interesting than gold is platinum — which just broke $1000/oz. It's pretty rare for platinum to trade at a discount to gold. I know Vic likes to trade big round numbers.

And definitely more interesting than either are GOOGL and NFLX — neither of which I own. Ugh.

Sushil Kedia responds: 

Mumbo jumbo being acceptable on this site for one moment, the head and shoulder argument is good for prospecting how much bearish opinion might be existing here and there. The truth from the university of mumbo jumbo is that momentum as measured by rsi is making higher lows and price has been making lower lows, commercials have the largest long position ever, and if at all someone must look for mumboistic patterns there is a terminal triangle on a c wave. A rocket will fire up soon…. 



 All traders have a tendency to be happier with down 5% after their max loss was 60% than up 25% after their max profit was 50%. Most Asian markets are up substantially with Chinese 25 to 40% up, and yet everyone is talking about the depths of despair there.

Hernan Avella writes: 

It's ubiquitous. I sit here in the airport, after my flight was delayed 3 times and then cancelled at 11:30pm. They tried to settle for a flight tomorrow night. I fought my way into a 5 am flight. I have to spend the next 4 hours in the airport (perhaps finding regularities). It's a disaster outcome that feels like a victory compared with the alternative. Rumors in the airport were that the Obama trip to New York messed up with air traffic. How appropriate.

Thomas Miller writes: 

Do flexions work the same in all markets? When they want to buy at lower prices do they push fear and negativity through media outlets (increasingly social media like TWTR) so the weakest hands sell out at the bottom where they come in buying positioned for the next move up? Or am I being overly paranoid and conspiratorial?



 Let it be memorialized vis a vis Rocky that the man who saw a terrible price and then found it was a mistake but the subsequent price was much worse is according to the erudite Mr. Zachar, "a Millstein" not a Finnegan.

Rocky Humbert writes: 

I went back to Daily Spec and found the original definition of Millstein and it was basically a price retest of a price reached in error as opposed to a further deterioration. Perhaps a Finnegan is related to Finnegan's Wake, a piece of literature which admittedly makes no sense, thus "a Finnegan" is an event that cannot be understood in any context, and named after something characterized by a literally critic as "a work where every sentence opens a variety of possible interpretations, any synopsis of a chapter is bound to be incomplete." But if that's not true, would confusing a Millstein with a Finnegan for someone of Rocky's stature deserve a Millegan, I mean a Mulligan?



 It is hard to find any regularities bullish for gold since Jan 2013 since the drift of gold is 80 cents a day down.

Tim Cook and the Upside Down man seem to me to use similar kinds of down talk or colloquial phrases consistent with the idea that has world in its grip.

The reverse of a Millstein should be named with a Ring Lardner type title after his short story "Horse Shoes".

Jack Schaeffer is one of the greatest writers of the 20th century but he is looked down upon by literary critics because he wrote about the heroes, who opened up the rugged west, and westerns are looked down upon because of their individualist mien.

Stocks are particularly bullish when they haven't set a new high for x days. The bond stock relation is always changing but seems to be going back to its predictive ways of old.

The constructal law should be quantified as to its predictive properties for markets.

John Markman and Virgina Postrel elicit the most dynamic aspects of the world in their posts on twitter and one admires their dynamism enormously.

Crude is a gnat's eyelash away from meeting the constructal number of 50.

One owned recently the equivalent of a freight train of 100 cars but fortuitously did not hold the position for too great a loss. At least one could have provided a home for the hobo for a few days had one taken delivery.

When a company's sales are up 25 % or more, but it misses analysts projections and drops like a rock in the after market, one looks to buy it. One took such a position with Twitter but because their salaries seem way out of line with their profits, one exited the position.

One often tries to trade individual stocks but finds that companies trading volumes like 5 or 20 million shares a day, which used to be the total volume of trading on the NYSE when I started on a good day, cost about 1/2 % to get out of a position in a hour, and this is much greater than one's edge in trading.



 This page on youtube has narrators talking about the best book they ever narrated. It has some very interesting vids!

anonymous writes: 

Two high-quality long time favorite podcasts of mine are:

1. New Yorker fiction podcasts: one famous author reads another's work aloud and discusses it, eg George Saunders, Roddy Doyle, Harold Brodkey.

2. In Our Time podcast: interviews with 3 professors at once on a subject of intellectual history, eg the Cavendishes, Francis Bacon, The Enclosures. Rarely or never found either programme to be a waste of time.



 Twitter is a fantastic idea, but the point is whether they will be able to expand it to justify the current prices.

Currently much of the "social crap" is standing only thanks to divine intervention.

Who will stand at the next crisis (when the tide of liquidity retires).

The possibilities are incredible for Twitter for business.

Isis recruits about 46 thousand Twitter accounts.

A Jedi can affect weak minds: can alter their perceptions into believing that you have not heard what they heard or hear sounds that do not exist. With the media, you can induce weak minds to indulge your sentences, to answer yes to your question.

With the growth of your faculties, you will be able to convince the weak minds not to see you, and become invisible to them.

Immeasurable is the power of the dark side of the force on the weak-minded. Don't miss out on this media power.



I have briefly conversed with two of of the more experienced traders on this site in recent days.

Our chat has surrounded price spreads between exotic real assets and the current valuation thereof.

Arguably, when dealing with the relativities between somewhat exotic 'real' things like Tin versus Aluminium (and yes Americans that IS how it is spelt!) that a purely quantitative or systematic approach is not sufficient. It is this reason (in addition to the the triggers below) that explain why I would never sell Silver/buy Tin as a spread trade. Conversely I have no problem being long stocks/ short bonds or other financial assets (for example).

History is replete with examples of great traders brought low by these types of trades real asset spread trades.

Almost regardless of how compelling the spread level appears, it is usually only those who grow, mine, harvest or ship the commodities concerned that make money. Likely, this is due to a combination of a genuine understanding of the flow and low to zero leverage.

It is possible to do these trades and, more importantly, exit them with a reasonable proportion of the maximum available profit. However, as has been imparted to me, any size big enough that the players notice is bound to attract penalty rates on exit.

There are similarities to trading Emerging Market currencies in some ways. For example:

You must secure your funding.

One must understand substitutability in case your short cannot be covered.

In the off chance that you out manoeuvre the real players, be prepared to graciously hand them 10-30% of your profit to replay their magnanimity in allowing you to escape their world with a slight overplus.

Anatoly Veltman writes:

A counter-query: isn't it more desirable for "wrong crowd" markets to carry you to profit, making exit easy? Why take on Commercials?

You rightfully point out that Entry at times may appear a no-brainer, but in a narrow specialized market you're likely one of the last to notice



 Questions for speculators to ask themselves:

1. Considering secondary and tertiary effects, what would one have done differently on Friday with foreknowledge of the one minute Armageddon this morning in Gold?

2. What predictive sequencing of runs, cross market relationships and other contemporaneous information of a quantifiable and repeatable nature (if any) existed before the close on Friday that would has encouraged a short position?

3. Is it predictive of anything that the EUR, the JPY, the S&P 500, Oil & the bonds couldn't give a flying '##+#' that Gold experienced a moment of disquietude? i.e they barely budged.

4. Has the true enemy shown his face? Are previous time and magnitude studies of substantial moves 'out of time zone' as it were, predictive of anything more than similar studies during New York hours ? Is it sustainable that the pressure valve just blown will not effect other markets further down the pipeline.

5. A perspicacious study of documents/ agreements with one's Prime Broker may reveal that in liquidating a client's trades due to insufficient margin they may be allowed to act defensively, with 'predictive discretion' and, intriguingly, there may not be any language confirming whether or not the broker or a related entity, in the case of forced liquidation, is or is not allowed to act as a principal.

anonymous writes: 

I am not taking a victory lap since I am flat gold (but it always amazes me when this chart stuff works, which partly answers the bloomberg news rhetorical headline).

"Gold Rout Spurs Search for Answers as Prices Sink to 5-Year Low":

The rout in gold isn't showing any signs of slowing down. In about 15 minutes during Asian trading hours on Monday, prices fell the most in two years, sliding below key levels watched by investors who use chart patterns to trade. While gold later recovered some of the losses, it's still at a five-year low and headed for a sixth day of declines. Gold for immediate delivery retreated 2 percent to $1,112.04 a ounce at 11:23 a.m. in London.



Calpine is an independent power producer. Most of their generating assets are gas turbines. Until today, Calpine was considered a near pure play on gas-to-electricity.

Champion is an energy service provider. Their services are limited to providing retail electricity.

Both companies operate in the deregulated energy markets. Calpine is focused in federally regulated wholesale markets. Champion is focused in state-regulated retail markets.

On the surface, Calpine's acquisition makes little sense. Digging a little deeper, it makes a lot of sense.

By owning 2.5 million retail customers, Calpine is able to hedge their generating fleet against a retail portfolio. They are also able to hedge their retail customer base against their generating fleet. After this acquisition is complete, Calpine can go long on natural gas and lock in a margin.

As an aside, 2.5 million retail customers is considered a stable base. On its own, Champion should be profitable.

Here is the announcement.



I found an interesting chart (normally I don't appreciate most of the stock market related charts as they cause illusion) on twitter, which was something refreshing.

Basically I am taking yesterday's close as 100 and marking current OHLC's in reference to it.

Below is $SPY modified candlestick chartChart for the last 20 days for a clear reading.











Here is the $SPY daily modified candlestick chart since start of this year for a longer view.

I have to do bit further research over the weekend if this type of notation is of any use for new types of price pattern extractions.



 Mick Fanning was attacked by 2 great whites in the final of the J-Bay contest, the biggest contest of the year. Luckily he emerged unscathed with no physical damage. Sadly, the interview afterwards has been removed from the web, but in it he said that he was totally shaken and said that it wouldn't matter if he ever competed again in surfing.

This reminds me of when I got whacked in the Mexican Peso debacle in 1982 and also saying that I might never trade again. I empathize with Fanning on 2 levels as not only did I get whacked in a few big trades in my life, but I also have been chased out of the water by sharks in New Smyrna Beach, more than once.

One hopes Fanning will return to surfing, but one would understand if he didn't. I know lots of guys that got blown out in the market, never to return. I also have a friend who was a life long surfer who got bitten on the foot by a 5' shark and quit surfing on the spot, never to get wet again.

I wonder what makes some people quit and some people come back. There's some kind of primal fear surfing, when you know that you are not at the top of the food chain and can get eaten alive. Check out this gnarly video .



Stocks up 5 days in row. Gold down 5 days in row. Crude back to 51 bucks a barrel. Bond yields back to their average [see screen below]. My goodness. What fools we mortals be.



 “The moves are all there, waiting to be made…But you have to find them.” -Tom Wiswell.

It’s all so simple–in retrospect. The Greek Crisis had to end the way it started–the sonata form. Beethoven’s fifth–the tension release–the frustration aggression hypothesis–the constructal law–. The odds were 100 to 1–that it would end right where it started. But what a game it was.

Paolo Pezzutti writes: 

4 consecutive times both S&P and bonds up is a rare event. It occurred only 6 times since 1999 (it does not seem really predictive though). Gold, oil and euro have printed new n-day lows for 3 consecutive days. Markets have liberated forces that have changed the constantly unstable balance and relationsip between assets. Nothing terribly new has actually happened: gold, oil and euro have continued their downtrend. Stocks have moved once again in the direction of the past 7 years (I could be very wealthy had I followed the Chair’s advice…). I would dare to say the euro is driving. As these macro moves are initiated and sustained by “central planners” there may be room for mean reversion, but one should be careful not to burn his fingers.



 I'm wondering if others have this experience. Sometimes when I try to reach for something new or novel, I never seem to find it. Other times I look to what I already know. The weird thing is I learn more that is new and novel when I look at something I thought I already knew. The most simple thing that I thought I knew 15 years ago–it turns out I had only the most superficial understanding of it. With luck, in 15 years I will feel the same way about what I know now. Some things are so deep, perhaps it is only just before you die you finally understand half of it, but at each moment you felt you knew everything about it.

Stef Estebiza writes: 

The more you accumulate, and from different angles, points of view, the more your Dbase accumulates nuances, alternatives on which to reason. Reread old books. Concepts overflown and unassimilated, suddenly seem logically obvious. Like trading, the more you experience, the more you realize that they are many faces of the same coin. The problem is that the brain eventually degenerates, loses enamel, and has a hard time tracking down the cluster stored. The hard drive is likely to lose sectors. For this reason you take photographs, directors make movies to store the emotions, a programmer writes a code idea to simplify and recover in a moment the hard work of years of accumulated experience. There is nothing more powerful than the human brain…

anonymous adds: 

Practical trading experience and genuinely new research into live trading applications is asymptotic, i.e there are permutations and combinations of market outcomes that have never happened before. So, in that sense, one never reaches perfect knowledge.

The reaching for something 'new or novel' often comes after observing something new work perfectly and then trying to test it and seeing that it is, like most things, ephemeral.

Intriguingly however, there are things about markets that one can know everything about. I do not believe that 99% of market participants know everything that is publicly available about the quantitative (measurable) securities that they trade, invest or hedge exposures in. Things like: How the Bund and DAX futures open and what goes on in the 60 seconds between the two events.

One can know everything that has happened to a market individually and relatively in the past. The Chair and Ms. Kenner have suggested a periodic table of markets with a bunch of relevant statistics. One suspects this would help prevent much stupidity.

The heterogeneous nature of the FX markets, the uselessness of Value at Risk, the times of day when market making machines are maintained and serviced, the importance of New Zealand and Australia to FX are all knowable.

So, yes, I understand your sentiment.

Also, 'simple' is relative. My first 'upstairs' trade in 1992 was the purchase of an SPI futures contract because it went through a line someone had drawn on a chart. Could there be anything simpler?

Well, on Thursday I sold EURUSD based on an approach I have used more than a score of hundreds of times that looks like rocket science compared to the 1992 stupidity.

As you say, perhaps we will feel the same in another 20 about what we do now.



 I saw Penn and Teller's show with Aubrey. They state there are 7 principles of magic. Palm, ditch, steal, load, simulation, misdirection, switch.

How are these principles of magic carried out in markets. It's a nice classification of deception I think, but I don't know enough about magic to dare to expatiate.

Larry Williams writes: 

I would add—big move covers little move and confederate.

Tom Printon writes: 

I just finished the book Sleights of Mind by Stephen L. Macknik and Susana Martinez-Conde.

Two neuro scientists get an insiders view of how magicians operate. Many interesting insights on biases and deception. Could help a trader navigate a flexionic world where up is really down and down is really up.

There are some good passages from Teller, and it's worth a read in my opinion.

"Magic tricks work because humans have a hardwired process of attention and awareness that is hackable."



 The Hustler with Paul Newman and Jackie Gleason has many good lessons for traders.

George Scott tells Fast Eddie: "You're a born loser". He always has a ready excuse for losing. Despite his talent, he lacks character.

Winning is defined solely, in Scott's book, by the amount of money one takes home at the end of the day.

Winning can be hard for some to accept, as well as the price for success.

What is the price of success? Presumably, Fast Eddie gains character by the end of the movie, and wins…but does he, in the long run.



 Discouragement is between you and your dreams. Imagine the ways you deal with it in life, business, sports, board games and romance, and then take a tip from deep in the desert. I've discovered after living here for two decades that desert rats, as they fondly call themselves, deal with the hardships or heat, privation, and loneliness in eight ways.

1. Books: This is a lifelong plunge.
2. Booze: So is this, so try the other seven first.
3. Exercise: This was my adaptation many years ago; the washes are my sidewalks.
4. Refrigerator People: Live with one hand on the door.
5. Hobby: For most, it's fixin' cars.
6. Estivation: Not found in some dictionaries, this is the desert form of hibernation.
7. TV: Hours of it.
8. Sex: Beats watching the cactus grow, or does it?

One of the first questions to ask a person to know them better is: "What do you do in your spare time?" The answer in the desert is always one of the above. And from that you will be discouraged or encouraged. Think of encouragement as a cheerleader that says, "Do it!, Don't give up!" until you reach your dreams.



Largely as a result of technological advances so magnanimously disseminated throughout all the markets by latency, distance and microwave dependant strategies (pernicious and otherwise) it is only very rarely that we get to see what a given market is really trying to tell us. I think this is particularly true in physical equities.

Arguably, players in the markets of 'weight'–as it were–now consider leaving substantial orders, limit or otherwise, in the market to be anathema to a successful implementation of their trading or investment process. So, when something 'statistically shocking' occurs many orders rush into the breach to try and move volume.  For the purposes of what follows, one would exclude actually announced takeovers as another order of activities ensues in those cases.

The most recent example of this would be the rumour induced move up in that flea ridden end of civilised discourse inducing stock that everyone appears to love–TWTR.

One might find it enlightening, and possibly nourishing, to study all the publicly available information surrounding these occurrences.

Perhaps a list might include:

1. 'x' period returns pre- and post the 'event' to see if they are of a magnitude that is reasonably divergent from randomness

2. Have these events in previous instances occurred during the death spiral of a stock ( all lurking haters and TWTR apologists please send your hate mail elsewhere ) or are they part of a volatility enhanced 'basing' process.

3. time to new high/low created by the 'event' In other words, does the event accelerate the invisible hand's activities.

4. Is it just 'one of those things' that happen and irrelevant to the future path taken by the market in question.

My null, if you like, would be that the reaction of the market to such ephemera says quite a lot about where the big boys are directing their flow.



Are the entry and exit points determined by algorithm or by eyeball? If by algorithm, then one imagines changing volatility regimes, but also knows that a sharp trader would have that factored in.

If by eyeball, then of course that leads to interesting speculation about psychological regime changes.

Zooming out, there is the issue of ex post chart scanning, and seeing the "ideal" entry and exit points, and how the Mistress can take even a good trade and make you feel like you screwed it up.



Is there a law of multiple proportions, i.e. that when two elements combine, the weights of one element that combine with the other are in a ratio of small whole numbers that applies to markets. I've often thought that the relations between markets, i.e. the weights with which one market affects the other are in small whole numbers.



There are two unpleasant experiences that every trader will face in his lifetime at least once and most likely multiple times. First, there will come a day after a devastatingly brutal and agonizing stretch of losing trades that you'll wonder if you will ever make a winning trade again. And second, there will come a point when you begin to ask yourself why it is you make money and if this is truly sustainable. That first experience tests an individual's grit; does he have the stamina, courage, guts, and smarts to get up and engage the battle again? That second moment of enlightenment is the one that is actually scarier because it acknowledges a certain lack of control over anything. I think I was almost 38 years old when one day, in a moment of frightening enlightenment, I knew that I really did not know exactly how and why I had made all the money that I had over the prior 17 years. This threw my confidence for a jolt. It sent me down a path of self-discovery that today is still a work in progress.

-Paul Tudor Jones



Four years ago, I asked some investment bankers about fintech supplanting their businesses. They laughed and opined that there's too much personal interaction, the human touch is key they said for their businesses to operate. I recall hearing the same thing from car dealers a bit more than a decade ago (shortly before I bought my current car—a Honda Civic with 110,000 miles under the hood (ain't stick shifts great!)) and they insisted that people needed to see and touch a car to buy one. Then there were realtors. I'm not sure that real estate has quite reached the stage that car buying has, and the need for in person inspections prior to signing the paperwork will likely continue for sometime, but there may be some improvements.

Looking at successful internet companies like Facebook or LinkedIn suggests that they owe their success in taking a key human activity and digitalizing it. Banking beyond loans or brokerage-related activities would seem ripe for such exploitation. There are already such efforts moving forward in the VC space. In Africa, mobile banking of all sorts is the growth sector of the banking industry. But I know of no investment banks that have been digitalized, never mind successfully so. Does anyone know of any instances of this?

"Bitcoin is the 'Napster' of finance — and there'll be an iTunes"



 With the leverage of technology and the network effect, when one hits on an idea that is perfect for its time, it just seems to take off and almost run itself. This fellow just sold the Plenty of Fish biz for 575M.

Very different from a business I have followed but never invested in, Spark networks, (LOV).  Spark trashed their business by diverting funds from their astoundingly profitable JDate into immensely wasteful add spending for mostly failed Christian Mingle, all while neglecting their underlying user experience and product.  

In the second case, they attempted to "force feed" a success vs. the first case, which seemed to feed and grow by itself.

 Is there an analogy in trading strategies, I wonder?



What could be better for the dealers than a manufactured product with tremendous sizzle and fat fees, which they can continually sell ("hedge") against becoming a guaranteed loser for the customer. Only periodically is there a hint of profitability or opportunity for the retail investor. Better than Vegas. Looking at you vol products.



 Joel McCrea, who was the classic Southern Californian, told an interviewer that he had become a rich man because he followed Will Rogers' advice: "Work Hard, Save Half of What You Make, and Live on the Other Half".

It is the only advice I ever offer anyone who "wants to start his own business". If the young person's response is anything other than "what do you mean by 'save'?", I know the rest of the conversation is going to be an utter waste of our time.

My definition of saving is hopelessly uneconomic by schoolie standards; it does not include investing in equipment or any other type of "capital" for the business. Only cash or securities the person is willing to own for at least a decade count as saving. And, still worse, the savings cannot be treated as operating reserves for the business.

For the speculator, none of these rules apply–nor should they. For the speculator the markets in which he/she trades represent opportunities–as Shane's post "when to look for what you are looking for" beautifully explains.

For the business owner the market is not an opportunity but a threat because you have absolutely no control. You are always all in and you can never fold your hand. This is why business owners in this most competitive of nations, the United States, have always so readily formed associations with their seeming competitors. The "market" is the enemy, not the guy down the street who is as much of a price taker as you are.

P.S. There are two reasons why you have to save Half. The first is that thrift is your job; figuring out how to satisfy the customers while spending less and less money is the only thing you can control. The second reason is that, contrary to all the Ron Chernow biographies, the titans of industry became almighty rich by not expanding when times were hard. They prospered by cutting costs and hoarding cash and waiting patiently for the market to destroy nearly everyone else.



 When I visited the Rosslyn Chapel near Edinburgh I was amazed by the beauty of this masterpiece built in the 15th century. Interestingly, the chapel became the subject of speculations related to connections to the Knights Templar or Freemansonry. The topic became popular when Dan Brown wrote about these symbolic designs in The Da Vinci Code.

A specific aspect of the architecture I found fascinating at one end of the chapel, is the ceiling with 4 cross-sections of arches containing designs on each array of cubes. The cubes are attached to the arches in a musically sequential way. Some claim there is a code behind the cubes sequences, which hide melodic and harmonic progressions. In some of the decorations others can recognize symbols similar to Chladni patterns.

Chladni was a German physicist and musician (1756-1827), who was considered as the father of acoustics. He did research on vibrating plates. A metal plate, supported by a post in its center, is vibrated at a single frequency by use of a mechanical driver. For most frequencies, nothing at all happens; when certain special frequencies are hit, however, standing waves appear on the plate, driving the sand away from the points of large vibration to the points of no vibration. By varying the frequency of oscillation, we can find a large number of the so-called resonance frequencies and their accompanying patterns, which become increasingly complex and beautiful as we up the rate of oscillation.

I was intrigued by the concept of a code to interpret what you see, that is the beautiful symbols organized in apparently random sequences. The idea of a hidden key that allows you to read the real message to be delivered in the form of visual patterns corresponding to specific frequencies and, when built harmonically together, to melodies. Interesting is also the concept of resonance, which is responsible, in Chladni's experiment, for moving the sands to the points of no vibration.

There are parallels with financial markets. Do visual patterns in markets hide apparently random price relationships? How to apply the concepts of frequency, amplitude and resonance to breakout moves and mean reversion? Higher harmonics imply more nodes and therefore mean reversion is likely? Could round numbers be associated to points of no vibration as they function as attractors? It is beautiful, however, to observe how sequences offer interpretations that are not obvious at first.

Stefan Jovanovich writes:

The vibration technology testing suggested is 1950s era Soviet/US related and is dated. A quick read about "The Thing" is available to those interested. Basically you throw a broad range of frequencies until you hit one that creates feedback. The Thing had the advantage of passivity and no power source so it was not detected for years.

I'd like to see testing of the hypothesis that the round number effect is more an effect created by options strike price standards and larger open interest at round numbers in home markets Forex rates and price scaling change key index values for international specs.

A brain in the past was Leon Theremin who worked with musical instruments and bugs.

The revelations about "The Thing" and its detection give an idea of how to test for key vibrations or their absence. From wiki:

The illuminating frequency used by the Soviets is said to be 330 MHz.[6] The Thing was discovered in a stroke of luck by a technician with an untuned video receiver[citation needed] — a wideband receiver with a simple diode detector/demodulator, similar to some field strength meters. It was then located during a technical surveillance counter-measures "sweep" of the Ambassador's office, using a signal generator and a receiver in a setup that generates audio feedback ("howl") if the sound from the room is transmitted on a given frequency; the generator was tuned to 1800 MHz. The device was first assumed to operate on this frequency, but tests showed it was unstable and insensitive. Peter Wright, a British scientist, then got the Thing operating reliably at 800 MHz.

For land-based structures, this debate continued through the 1980s. It was important to the nuclear power industry. They were required to design against probable seismological events. Millions of engineering hours were dedicated to modeling flexible and rigid systems. Both worked. Billions of dollars were lost as the industry switched from one approach to the other. Flexible models require detailed analysis of harmonics, which varied by geography. In the end, the industry settled on rigidity–mostly.



A booming capitalism is occurring in the largest psychiatric hospital in California brought about by short wages to the 1200 residents. I'll call the mental hospital Capitola where entrepreneurs are improving themselves by opening little stands and pushing carts past the assessment offices, nurses stations, seclusion rooms, and along the mall, gym, and gardens. The regular wage for residents is $1 an hour and they're allowed to work only two hours per day. However, it's legal to sell items to residents and staff including the psych technicians and security.

Business is vigorous now in July because residents are receiving their income tax refunds to finance new small businesses. The cycle repeats annually: They get a grand or so from their income tax, from an investor, a loan, or by saving over time. Investors make about 50% semi-annually on their seed capital for one year. The vendors order items online and shipped directly to the hospital, or have them smuggled in bananas or the rectums of psych techs.

The hottest selling items from the carts, cardboard box shops or sidewalk blankets along the mall are computer and TV cables, video games, jewelry, food and tobacco, coffee, bras for cross-dressers, and tennis shoes. Electronics such as radios, DVDs and televisions go at double or more the retail price. A cheap watch that sells for $10 outside goes for $50 inside. The vendors always undercut the hospital grill and store to attract bargain crazy residents, and guarantee their products. Maxwell House coffee that sells for $8 a jar outside goes for $10 from a vendor and $15 at the hospital store. A handful of residents are called 'warehouses' who buy in bulk from online, and then distribute them to resident 'distributors' who either buy and sell inside the hospital at a markup of 50%, or take a 20% commission.

The carts are made from wheelchairs which the vendors rent by the day from residents who have them, and other sellers use cloth shopping bags or spread their blankets along the halls and mall.

Money inside the mental hospital is illegal to touch, and almost all sales are via booklets of Forever U.S. postage stamps.

No one seems to mind, and the staff in their clean white coats believe the responsibility of capitalism keeps the residents busy and stimulates their minds.



 In the spirit of broadening horizons within the aegis of a selfish profit motive, this site discusses concepts that are extraneous to the financial markets that just may have some applicability to one's daily speculations.

Of the many posts on this site that I have observed and participated in, topics can be classified broadly into two genera:

1. Motivational, general, commonsensical et. al.
2. Potentially quantifiable and directly applicable.

I will focus on type 2.

For one's own part, the allometry of trees, seismic activity and gravitational effects of heavenly bodies are my three favorites (nemeses!).

All involve non linear relations between at least two quantities that take account of magnitude, time and force or gravity.

The real problem with using the mathematics from many of these areas is that the relationships in the real world (ex markets) are often much more stable and less prone to 1 in a trillion shots like 1/15/15.

Also, the problem of units. Gravity is one in particular where units (m/s ^2) is hard to transfer.

A discussion on conversion of units, stability of distributions and alteration of some of the more formulaic aspects is apropos.

For one's own part, the most intellectually compelling extra-market relationships involve gravity and allometry but the dual directional nature of the two forces involved in seismic activity seem most applicable.

In all honesty though, making the jump from a compelling description of events to satisfactory prediction thereof remains elusive from these three areas of toil.



 "Ron Clarke, athlete - obituary"

"Although he never won one himself, one of his most treasured possessions was an Olympic gold medal given to him in 1968 by the Czech athlete Emil Zatopek, a four-time gold medal winner, with the words: "Look after this. You deserve it." The medal was for the 1952 10,000 metres."

"Zátopek's running style was distinctive and very much at odds with what was considered to be an efficient style at the time. His head would often roll, face contorted with effort, while his torso swung from side to side. He often wheezed and panted audibly while running, which earned him the nicknames of "Emil the Terrible" or the "Czech Locomotive". When asked about his tortured facial expressions, Zátopek is said to have replied that "It isn't gymnastics or figure skating, you know." In addition he would train in any weather, including snow, and would often do so while wearing heavy work boots as opposed to special running shoes. He was always willing to give advice to other runners. One example he often gave was always to be relaxed and to help ensure that while running, gently touch the tip of your thumb with the tip of your index or middle finger. Just making that slight contact would ensure that arms and shoulders remained relaxed."

John Floyd writes: 

There are quite a few parallels to life, trading, and chivalry here…..be your own man, value of hard work, stretching for the limits, tenacity, gifts to those believed deserving with mutual benefit, shared comradery in an individual sport, timing of being in the right place at right time…



 I was born with a thirst for knowledge. The earliest harvest was a series of projects. The order was: geology, dinosaurs, astronomy and rockets, birds, rocks, leaves, animal behavior, microscopes, gardening, chess and psychology. I allowed either one or two months, depending on the breadth and availability of literature on the topic. At the end of each I made a list of the half-dozen pertinent points for refreshing later. A stunning discovery at ten was that information on topics began to overlap and to pool into other subjects.

At twelve I began a series of sports (sprints, high jump, homeruns…), famous quotations and board games. I theorized that all the topics would eventually merge to form a bank which has proven true. There was a pause, of course, for university where the study was veterinary medicine. On graduation the small projects continued with stocks and commodities, journalism, body language (studying every night at bars for ten years without drinking), physics, survival, geography in each of 105 countries visited, cons, martial arts and negotiation.

The best advice I can give is that knowledge is power and to keep on reading.



I had a nice experience with Zapotek. The UN gave me a medal for sportsmanship and one to Zapotek. I spoke first and spoke about the importance of the profit motive as an incentive to devolve the best in athletes and give the spectators the best product. Zapotek spoke next. He stumbled. He couldn't read the writing. The Czech ambassador had thought that I gave a propaganda speech. He hastily wrote out a speech for Zapotek on the comradarie that team sports such as team handball and soccer developed in the eastern European countries. It was hilarious. Right out of Sid Caesar and I believe Zapotek was embarrassed. The French all rushed up to me after and said, "we needed that speech of yours on free enterprise". We all laughed at each other knowing that we were all flawed and human.



This article at Trader Planet says commercials are record net long and in the past such has resulted into large up moves.

Without invoking the testing or testability of such a thought process yet, I seek the Senator and other CoT experts on the site to help define in the least ambiguous way how to filter out the True Commercials, The True Speculators and the True Small Traders.

Is the COT data so straightforward to leave a free lunch on the table for the whole world?

I also wish to twist this one thread in evaluating why would this tool of thought also not suffer from the ever changing cycles?

Also indulging in the more routine task and the more mundane task of imagining the future: once the pent up emotions of a Greece that was greasy for last five years having been released, with equities everywhere in the world been ho-hum for a good time, with an iPhone in the pocket of every college kid in India, is the world complacent enough here for a regime change? Oh, yes with peak oil ideas being forgotten completely, the world has also been quite happy in imagining 45 for the Nymex Light crude is also not going to hold, oil will be free some day very soon.

Anatoly Veltman writes: 

The article is (surprisingly) erudite: commercials are mean-reversion, while small specs are trend followers. This always explains increased commercial Long after decline, and diminished small spec Long. Not really predictive, except if you believe in mean reversion anyway…

The only COT-specific signals are in fact trend-following, and occur rarely: divergence. Divergence is one situation only: when commercials have NOT countered the move. Recent move was down, and if commercials have NOT increased Long, then it would be a rare signal "to sell!". But, of course, no signal right now. If Gold embarks on long rally, and commercials will NOT sell into it - there will be "buy!" signal.

All other COT interpretations are coincidental or superficial. Commercials should not be followed because "they know better"; but following them is safer because "they don't care", i.e. will not be force-liquidated! (It did happen to them twice in 35 years: during Hunt silver corner in 1980, and during Ashanti failed financing in 1999).



One hypothesizes that anything that increases the ability of flexions to aggrandize themselves with pecuniary or non-pecuniary perks will have a positive impact on the market proportional to its value. Alternately, that anything that furthers the idea that has the world in its grip will be positive for the market. E.G is banks were given the ability to trade derivatives willy-nilly (over and above the 4 trillion that JP for example has, that it would be extraordinarily bullish.



"Radical economic transparency" allows hedge funds to count lites and other worthless things related to markets.

"These Investors Have Satellites; They're Seeing Data You Don't"

By Jeff Kearns (Bloomberg Business)

Some 250 miles above the Earth, a flock of shoebox-size Dove satellites is helping to change our understanding of economic life below.

In Myanmar, night lights indicate slower growth than World Bank estimates. In Kenya, photos of homes with metal roofs can show transition from poverty. In China, trucks in factory parking lots can indicate industrial output.

Images from these and other satellites, combined with big- data software, are helping to create what former NASA scientist James Crawford calls a "macroscope" to "see things that are too large to be taken in by the human eye." Aid organizations can use the results to distribute donations. Investors can mine them to pick stocks.

anonymous writes: 

You're evaluation as "worthless" is surprising. I would have thought this was your cup of tea, but 2 decades ahead of pack.

I watched the train tracks that pass a several miles away heading to the refineries burdened with miles and miles of tankers, and the pipe yards fill up

On a related note, the restaurants in Houston that used to bustle with employees that are directly and indirectly related to the oil and gas sector have fallen quiet at lunch time. There is no longer a wait at the sushi restaurant, and others that are surrounded by service companies. 6 months ago you would be on an hour wait, now you walk in anytime and have a seat. The office buildings are emptying out, and my partner is considering buying his landlords building out on the cheap. Residential real estate has diverged though, actually shot up in price in Houston's core. There are many amateur speculators that didn't get the memo. We'll see if these properties move.



 With copper selling at $2.50 a pound, wire thefts have become increasingly popular. Last month in fashionable Chesapeake, VA my brother chased down two midnight strippers on his bicycle. Little desert towns around me now in southern California look like war zones with every fourth shanty or mobile home broken into, and stripped. At my own Sand Valley property wire robbers stripped the extension cords, dug up underground wires, and burned them to the precious 'green gold' in my backyard barbeque. The other day in Niland, CA I was house hunting and paused at the sheriff station to inquire about neighborhood safety. The radio blurted, 'Copper stripper in the act in the chartreuse house on Fifth Street.' The sheriff piped, 'Will you stand by?' and I replied, 'Yes'. But secretly I tailed him, turning into an alley behind the chartreuse home. I got out and looked for people or prints, as the officer yelled, 'Police' and banged through door after door inside. He exited, pistol in hand, and yelled, 'Freeze!.' 'I'm the house hunter!' I shouted. We trailed the robber down the alley, and because of the price of copper I've decided to buy a house elsewhere.

Pitt T. Maner III writes:

There is a nice reward for those helping to catch Cu thieves:

"With the theft of copper communications cable increasing in Southern California, Verizon is offering up to $10,000 to anyone who can provide the company with information that leads to the arrest of the perpetrators."

Strange events since the price of copper appears to be near a multi-year low…perhaps the cables are easier targets or the thieves have become more sophisticated in finding and exploiting them.



Given that a swing has covered a territory of x, and a turning point has been reached, what is the ideal point vis a vis return and risk to exit on the way back. And how should the turning point be defined, hopefully with less retrospection and naivete than the professor's with the 200 year trend following system. By the way, how did their trend following work when big money could actually follow it? I believe a run of of length 8 x when x is an unbroken 5 move might have a very positive expectation after a swing in the opposite direction of 2.

Anatoly Veltman writes: 

Trend following has worked for them well– once all moving averages are sloped down (which I don't currently have proper charting to verify, but I can well visualize and speculate that it HAS BEEN the case indeed, on daily charts of both SP and CRUDE as of early last week), they are not allowed to position Long at any point.

I imagine they covered the first few spikes down, but now they'd intend to hold on to Shorts at least to pinch 2000 if not to pinch 1900, depending on the precipitous nature of the move. Of course, SP is trading sharply up this Thursday session, but they may are likely anticipating to reach their near objectives by early next week…

Of note also is the fact that (following the May's record print) SP started to punctuate double-top sets of resistance prices. First set occurred in May and June, and we just got another set this week. Once down-phase is indeed on a roll, it's my personal observation that such price resistance sets develop numerous times through the entire cycle. This was very much the case during the entire 2008 roll (from 1500s all the way thru below 1000s).



 I read Dark Pools recently, a great book about the development of the trading algorithms and computers that match buy and sell orders originally by Island, then ARCH then Nasdaq.

The author said that NYSE resisted them the whole way, and their computers and systems were patched together in a big mess, with patches upon patches.

Perhaps that is why today, when thing really counted, their systems crashed.

Not good at all.



 To my surprise both "alarmist" and "deniers" (I guess that I'm quoted as a "denier") measure the average temperature for the whole earth for a whole year to a fraction of a degree, and that the result is significant. Of course it's not!

How can you possibly measure the average temperature for the whole earth and for the whole year and come up with a fraction of a degree? So, I have this cry here. I think the average temperature of the earth is equal to the Emperor's New Clothes. There was a boy who said, you know, who cried at might, "The Emperor has no clothes on," and I would cry out and say, "You can't measure the temperature for the whole earth with such accuracy!"

Chris Cooper writes: 

Is this not addressed by the law of large numbers?



For those of you who have been trading the mini ES contract, it should warm the cackles of your heart to know that for the first time since its inception in 1997, it had back-to-back inside days (yesterday, Weds July 8 and today, Thurs July 9) where both days of the inside day had a range which was larger than the rolling 20 day ATR (average true range). Clearly the ES has had many inside days over the years which are synonymous with contracting ranges, but never one where the two bars in question had a greater range than the rolling 20 day ATR (which is 23 points now). The first inside day, Wednesday July 8, traded from 2073 to 2036 (37 points) and the second inside day, today, Thursday, July 9, ranged from 2068 to 2038 (30 points).

This is all on the heels of the New Edge CTA index getting smoked in the month of June. I can't imagine the returns for July will be much better for all the brilliant hedge funds out there.



 As part of an amusing, frustrating, wretched but ultimately uplifting and loss minimising part of my daily routine, I categorize mistakes made, differences observed and yes, things that were done successfully in a timely manner.

The hope is that there are some pedagogical benefits to be had from said classifications. What follows is a hard list (no wisdom or homey style nuggets).

It is regrettable that I do not have much perspective on broader aspects of life outside markets that might allow something approaching the towering lists of a Tom Wiswell. But it is what it is and anyway, I have Messrs. Jovanovich, Watson, Niederhoffer & The Poltergeist that provide one with regular cerebral sustenance.

I entitled this post the things 'we' do wrong. The list is mainly me, but I have had the privilege of observing the best and brightest so there are are few others added. All of their problems are subsidiary to mine:

1. Not enough focus on the stock market. I have missed substantial turns in stocks bearish and bullish because one imagined a speculation in Gold, for example, to have been more important.

2. Ignorance of a certain portion of the trading day (heaven forbid I might rest a while). In my defense, this has been fully rectified.

3. Not focusing enough on trade size. I keep an approximately equal size per speculation as I take some 2500-3000 odd trades a year. My view has been if one trade stands that far ahead of the others in terms of expected return, then why would you bother with the 'sub optimal' trades? Thus the constant position size.

4. Ignoring holding period (I am fortunate to say that this is not a point of worry personally).

5. Never adding to positions.

6. A dislike of hard core programming. I much prefer a simple interface through which questions can be asked. It is notable that the only products in this category that are any good are not available for purchase. It is only in recent times that programming/ hacking skill was valued above picking direction accurately. A reckoning approaches on this but I will not discuss it here.

7. I trade too many markets. My universe has 23 macro instruments in it. 3-5 would suffice.

8. I have never found anything REPEATABLE with a holding period more than a couple of days that satisfies me or any of my backers (who would never allow a 10% + drawdown).

9. This one is a bit controversial. I always assume the other market participants are 'better' than me. That their strategies are better in some way. This has stopped me going for the kill in a few very notable instances.

10. I don't have risk on in the moments before scheduled economic announcements or planned flexionic commentary. This has cost me but has allowed a very very low volatility relative to return down the years.

Ed Stewart writes:

Good list. Particularly the conjunction of size, time horizon, and to add a few of my own - reaction to a destabilizing price shock, endowment effect, prospect-type behavior, distractions such as an in-law asking to participate with you for the day, rationalizing excess conservatism when aggression is warranted which leads to the avoidance of big scores, among other things.

Vince Fulco writes: 

Chutzpah built up over an outsized good run (frequency of wins or profit generation) leads to stepping on a landmine you could have avoided if leverage was kept in check.

anonymous writes:

I've accepted the fact that I will feel like an idiot on a day to day basis. The upside of this is that when I calculate a 6 year compound return as I just did last week, I'm stunned as to how it occurred. How can one climb a mountain (in my case a not so big one) while always feeling one is falling and failing.

Victor Niederhoffer writes:

It is always good for a speculator to be humble. Also I think to follow Irving Redel's rule whenever people ask him how he's doing in market: "Fair". 



 An interesting hobo-esque story of hiding out in the woods since 1986. No contact with humans

"The Last True Hermit"

"I drove until I was nearly out of gas. I took a small road. Then a small road off that small road. Then a trail off that." He parked the car. He placed the keys in the center console. "I had a backpack and minimal stuff. I had no plans. I had no map. I didn't know where I was going. I just walked away."

Victor Niederhoffer comments: 

A hoboesque hermit.

Bo Keely writes: 

The quote describes one of two reoccurring situations around the world. The first is when someone decides to shuck society and take a turn into the wilds. It's a cold turkey withdrawal not unlike leaving drugs: You drive to smaller and smaller roads, then walk on less and less distinct trails. In this way, there is no turning back. The other situation it describes is hoboesque in leaving all familiar behind to start on a new track. It usually takes the form of sneaking out the bathroom window and trading the wife in for a freight train to adventure. In the Amazon, the version is taking a large steamboat on a big river to a smaller one on a thinner brook to a canoe alone into a green tunnel of quest. The point is not to be afraid to try anything new.



 Some books I read on my 1 week trip to the country:

Chemical Principles by P. Atkins and Loretta Jones

The Development of Chemical Principles by C. Langford and R. Beebe

My Early Life by Winston Churchill

Pattern Thinking and Cognition by Howard Margolis

Rodeo by Elizabeth Lawrence

Europe by Brendan Simms

The Meaning of Sports by Michael Mandelbaum

Knowing by Michael Munowitz

Chemistry for Dummies by John Moore

Going Solo by Roald Dahl

Difference Equations by Ronald Mickens

I read enough of them to recommend them all and wish the markets were not so volatile that I will not be able to finish and or digest them except for the Churchill book which is perfect and inspiring and insightful for anyone, and thanks to Richard Owen for sending me it.

Galen Cawley writes: 

Thank you for the rec. Knowing by Munowitz is superb. I am reading it in conjunction with Feynman's Tips on Physics in order to develop some intuition behind the formulas. It's a summer project, being added to AP Calc and other subjects that I tutor on the side. Fear of flop sweat is a powerful motivator.

Marketwise, I am 1/3 through a fine book called How to Measure Anything by Douglas Hubbard. He spends too much of the first 60 pages proselytizing, but the parts on calibrating, guesstimation techniques, sampling, etc look tasty.

Jim Sogi writes: 

Ed Spec by Chair was one of the most influential life changing books in my life. Now I have another. The Life Changing Magic of Tidying Up by Marie Kondo. I've previously used Pareto distributions by throwing away 80% of the the stuff you use 20% of the time. This time sorting by category, suggests keeping only the 20% of stuff you really love. Discard the rest. Do it by category, not by room. Life changing stuff. It's not Feng Shui. Real practical applications.

Hernan Avella writes: 

Thanks for the recommendations. Here are some I'm reading now:

1. Pure Intelligence: The Life of William Hyde Wollaston by Melvyn C. Usselman

2. Europe Transformed: 1878-1919, 2nd Edition by Norman Stone
3. Choice and Chance, by William Allen Whitworth



 With Panama leading the group, a fast-growing economy and deeper canal can't hurt.

1. "Americas Lead Highs, Sub-Saharan Africa Lows in Well-Being"

2. "A researcher explains why Panamanians are the happiest people in the world"

We were curious about why Latin Americans fared so well in terms of their well-being, so we checked in with Dan Witters, Gallup-Healthways Research Director, to get some insight. "It's a culture of positive outlook," he said. "It permeates Latin America." He added: "There are some pretty poor countries there, characterized by many decades of civil strife, human rights abuses, and outright civil war — yet people maintain pretty impressive levels of objective well-being. For those of us who spend all of time in well-being measurement, it was no surprise to see Latin American countries in there.



When he was partners with the Palindrome at Quantum, Mr. Rodgers liked to speak of buying not just when it was cheap, not just when there was a Rothchildian blood on the streets moment but also when the flexionic types were closing the markets down.

With 70% of the free float either suspended or down the limit in China, I feel we are in a massive period of opportunity.

I do not wish to debate The Motorcycle Man's other interests and calls over the years, rather just mention the above.

Unleveraged purchases of Chinese stocks with a portion of the overplus from other speculative activities with a reasonable holding period begins to look favorable as the zero bound approaches.

A good day for reversing today in many markets, at last…



 Trading pits, you had a great 167 year run. You taught me almost everything I know, and you aided in my development as a spec. We had a lot of fun, although most of that fun cannot be repeated in this venue. The pits were unique…there is no business school in the world that could teach you how to handle it when one buys 3mm bushels of wheat, and suddenly the entire pit is in one's face with offers, palms outstretched, doing severe damage to one's account. Thanks for the memories, market lessons, life lessons, lifelong friendships, and the great game you let me learn. This image courtesy of the www.tradingpitblog.com.



 The lesson of Greece is that there is no solution, beyond inflation. When governments promise benefits more than they can afford, despite the sophistication used, the end has to be inflation. In this case the inflation has been the seen in the exchange rate. Cooperation for Europeans with the US and the world has gotten expensive.

It has been suggested that better cooperation could help. Peter G. suggest that defection is optimal for a one time occurrence of the "prisoners dilemma". But it is not the only time it is optimal. Peter G. is right that the "Tit for Tat" strategy is the "winning strategy" on a form of the prisoners dilemma repeated. But it is not the winning strategy if the outcome and motives are not knows a priori. In such a world the winning strategy evolves. If I do not know the outcome and your motives, a "bad" outcome generally should be forgiven. I should assume you tried your best but it simply was not in your control. If we continue to cooperate the odds will be in our favor long term. This is "generous forgiveness" evolves into "always forgive". Always assuming the other side is not deceiving you have the benefit of lower policing cost. Who wants to read all those agreements "accepting"and software updates for instance. But this quickly brings us back to the defection or survival of the fittest/war or deception strategy. If all accept that there is no need for police/due diligence , or certain agents are above the law or above failure, we are in the "always forgive" strategy. Have we entered into Too Big to Fail era? Are we in Greek national accounting era, the nation's cooperation is assumed, no need for due diligent/accounting can't be questioned? For a good summary of the evolution of cooperation see Martin Nowak, 26:33 minutes.

So the end is near. Lately we saw who the markets are betting on in such a survival of the fittest world, the US. But a 30 year bull bond market must end IF we cannot afford the boomers benefits. Have we entered into a period of where we cannot afford it? Has technologies hedonistic benefits left inflation a thing of the past, for the population as a whole? Rather than predict when the bull bond market will end let me say, that it is simple calculation to find the upper bond of this bull market: A 10 year bond today is at 2.28 % yield, if rates were to go to zero for all 10 years of the curve the gain would be 10 years x 2.28 % = 28 % yield. The 30 year is at 3.07 % so 3.07 X 30 year = 92.1 %. The end is near.



 Today we toured Vigo Spain. At one of the seaside forts there was an old stone cross at a look out point.

David and Hunter wanted to climb out to the edge so I could get a picture of them.

As they climbed out there, a Seagull that had a nest next to it became quite agitated and began squawking at them. Then it took flight and started to dive bomb them.

It actually hit their heads in it's attempt to get them away from the next. David was having none of that and he jumped away from the cross overlooking the sea and ran to safety, but Hunter really wanted his picture taken.

The bird circled around and I as started to snap a photo, it dive bombed Hunter, pooped all over his and and then thrashed his head.

I snapped this photo just as the bird was attacking Hunter.

Whether we like it or not, this moment will be the most memorable moment of our entire trip.

I hope you enjoy this photo as much as we did!



 Saudi Stock Exchange (Tadawul) Opens Up To Foreign Investment:

With the opening up of the Saudi Stock Exchange (Tadawul) last month, H+K Financial's Bobby Morse writes in Banker Middle East about the new communication priorities this brings for companies in the Kingdom.

Worth more than all regional Gulf markets combined, Saudi Arabia's Tadawul is arguably the jewel in the GCC's capital markets' crown. It is home to some of the region's most prized investment targets, including blue-chips in key sectors such as petrochemicals and banking.

Up until now these investment opportunities have been largely out of the reach of the vast majority of non-Saudi investors, except through complicated swap arrangements. However, from June 15 this is set to change as the exchange opens to foreign investors.

With the world's most powerful fund managers now eyeing the Kingdom's brand new and extremely attractive opportunities, we can expect to see Saudi Arabia's companies concentrate on their internal structure and external profiling.

anonymous writes: 

It's not really open in the sense that most US equity investors would expect. Foreigners still need to be approved as a Qualified Foreign Investor in order to buy Saudi shares. JP Morgan put out a SA investment primer last month in which they termed the qualification process as "somewhat cumbersome." I got the sense that the Kingdom wants only the most passive of foreign share owners, with significant limits on foreign holdings in each particular company, and there is inability to effect takeovers or present as an activist.

It also isn't clear what the solution is to a structural budget deficit problem might be (other than the possibility of higher energy prices). Their economy seems to be the antithesis of what libertarian minded folks (such as on this site) would want to see in a marketplace. You can get exposure to a somewhat corrupt and deficit-burdened energy sensitive economy by allocating assets to Russian equities, at far lower valuations than are offered in SA.



I'm not sure how to frame this out yet (perhaps others have ideas) but I am thinking of an accumulation indicator. The basic idea is this. Have you ever seen a market that went from "volatile" to almost a controlled, with a steady rise up. The qualitative thing you see is every single morning dip reverses very quickly. The second thing is that over a period of time there are no sustained pullbacks of any magnitude, an invisible hand guiding the market up. You can imagine how that kind of market feels for a short–every single short covering opportunity is thwarted prematurely.

Regardless, out of these conditions the qualitative hypothesis is that the price needs to accelerate before it can reverse or have a substantial correction. The question is, if defined quantitatively, might such an accumulation pattern show above average expected value. It is perhaps the flip side of the normal swing-type idea of buying a dip. Also, it might be helpful to only look at markets that have a positive drift.

John Bollinger comments: 

Fred Wynia's volume work addresses this concept quite well. The work
is proprietary and quite elegant/sophisticated, but the underlying
concept, that of measuring and comparing volume in swings, has been
around for a long, long time. As usual, the devil is in getting the
details right.

Gary Phillips writes: 

Ed, good luck trying to develop an indicator that is both robust and deterministic. Just a note however, if one only looks at markets that have a positive drift, back-testing results could be affected by said structural bias and rendered useless because they would only reflect the longer-term tendency of the market to go up.

Ed Stewart replies: 

Thanks. The idea as it stands is to complex to begin evaluating. I don't think I have captured the essential nature of the idea yet. I'm going to look if any specific elements of the idea on a stand alone basis. In terms of drift impacting results, that is very true. Drift needs to be incorporated in or it is pure futility. Many years ago when I was a random reader of the site I emailed in and Victor sent me a paper explaining a method that I still utilize, if I recall correctly. That ended up helping me tremendously. 

When I wrote the accumulation post, it was in large part based on watching the climb in IBKR over the prior few months and also similar observations on a short-time horizon. What do you know, IBKR has accelerated quite nicely. Up 5% today and almost 10% in prior 3 days. You can see the qualitative example if you look at a 3 month chart. No luck though, understanding the phenomenon on a systematic basis on the intermediate term. I've had luck with the idea on a shorter time horizon though. 

Gary Phillips adds: 

Most trend following systems have average win rates because of high draw-downs during whipsaw periods. The fundamental problem of most trend-following systems is that in order to deliver a high payoff ratio they must sacrifice a high win rate. If you try to increase the fraction of winning trades, the payoff ratio will suffer. So in effect, you would like to mitigate the negative effects of these problems by by combining a trend following strategy with a short-term trading system that would compensate for the negative trend following performance when markets are range-bound or mean-reverting. I am sure there are those that would argue that volume and volatility are both robust and deterministic indicators, but neither rising volume, nor falling vol, are necessary, nor sufficient, for the market to always trend higher, and even if they are randomly presented they do not necessarily establish timing. 



Econ 101: price discovery has a cost.

Buy Low, Sell Prime

Sam Cohen's business works like this: He walks into a big retail store and buys a bunch of stuff. Then he sells it on Amazon for more.

This is a multimillion-dollar business for Sam — and for lots of other people who do the same thing.

How is this even a job, much less an industry?

anonymous writes: 

Pricegrabber and other broad product aggregators make price comparisons a near effortless task.



 At the spec party in 2014, I had the pleasure of an audience with Mr. Eisenstadt. Actually, in hindsight I believe that I monopolised his time more than was polite– photographic evidence exists of my transgression on Mr. Owen's telephonic device.

Regardless, I discussed this meeting with an ex colleague who had just recently gone out on his own. I had worked with this gentlemen at two previous hedge funds in both Chicago and London.

The amazing thing about the early work from Mr. Eisenstadt was the lack of often pointless long term back tests on unclean data. Cutting through the detritus, what he did was come up with an idea and then test it in real time with only a small reliance on the past–the ultimate in financial market experimentation.

Anyway, my ex -colleague, in the rare times when he experienced a notable drawdown, was always able to pin point the problem to 'switching' his stop loss or limit levels based on changing contemporaneous information.

After my discussion with him, he undertook a live experiment. For a period of one year he was to record the difference between his override trading and the actual levels he set when he initiated the trade.

I have before me the results. Those of a certain Galtonion proclivity may have a passing interest:

Total trades - 477

Wins - 267

Losses - 94

Scratch - 116

He managed an 13% return over the period.

The net result of his 'switching' based upon gut feel, headlines and other ephemera was negative 3.6%.

I don't suggest anything groundbreaking in this. Rather it is the result of a real experiment, with real money, in real time.

He feels that he is ready to start a process where he will begin to cure himself of his 'switch-itis'.

An interesting comment from him was: "It makes more sense to lose what I was initially comfortable risking on a losing trade than to try and finesse it."



In media res is a writing technique in which a story begins in the middle, then flashes back to the past to fill in the narrative, concluding back at the beginning. Hamlet and the Odyssey are examples. Markets often follow this narrative and like to revisit certain narratives from the past before concluding the day's story. Today I think qualifies.

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