What kind of moving average of the last x days is the best predictor of current and future happiness, and how does this relate to markets?

Anatoly Veltman writes: 

The widespread misuse of MAs concept is what gives it bad name. 90% of testers and users look at crossovers, and the remaining 10% look at break of MA from above or below. All wrong

The only proven way to apply MAs from trend-follower stand point is to look at nothing else but SLOPE. (Trading Days) Is 14-day MA sloping upward? If so, then is 30-day sloping upward? If so, then is 50-day sloping upward? If so: then Shorting is forbidden! Mirror test may save you from disastrous bottom-picking.

Bill Rafter writes: 

I beg to differ. There is no way the "average of the last x days is best predictor…" It by definition is at least a coincident indicator and more likely a lagging indicator. BTW the same can be said of the SLOPE of the last x days.

However, you can construct a leading indicator by comparison (difference or ratio) of the coincident to lagging indicators. For this newly created leading indicator, there tends to be a lot of false signals, due to random market action. To guard against that you need to have very smooth coincident and lagging inputs. Making them smooth also makes them more lagged, but that will not hurt you as you are not going to look at them outside of a difference or ratio, which will be quite forward-looking.

The real problem is that investors want to identify a static x. In doing so they are insisting that the market be modeled by x periods. Well, the market doesn't always feel like cooperating. At times the market may be properly modeled by x periods, and at other times by x+N, in which N can assume a wide range of positive and negative values. The solution is to first identify the exact period over which the market should be modeled for the coincident valuation. And then go on from there. Rinse, repeat.

Russ Sears writes: 

This would be a good question to ask the trading expert psychologist Dr. Brett.

It seems that with the same brain imagery he uses is being used in the study of the science of happiness.

While I am no expert I have read Rick Hanson, PhD book "Hardwiring Happiness"/ It has been awhile since I enjoyed this book, my summary of it is "focus on the life/good in the present. Placing things in context to how it has brought you to this moment, then enjoy the moment is enjoying life."

Presence seems to be the buzz-word in studies of contentment and psychology of success. Being aware of all your inputs, your feelings and recognizing them as part of life, then celebrate living. Presence gives you the fulfillment in your life needed to be loyal and disciplined enough for what is working well in your life. Thanksgiving is a day built on this idea, But presence also gives you the courage to turn things around, admit things are not as you want, and gives you Hope for the future. Happiness is more about living your life, being in control, then it is circumstances. Some of my happiest times have been after running hard for over 2 hours exhausted after 26.2 miles, cold and totally and dangerously spent but knowing I gave it my all.

So I would suggest that MA, trend following, momentum, acceleration, nor death spirals nor reversion to the mean, value investing should not ever be the "key to Rebecca", rather judge them in the context of everything else. Some days "the trend your friend" other days "the sun will come out tomorrow". 

Brett Steenbarger writes: 

It's a really interesting area of recent research. It turns out that happiness is only one component of overall well-being. What brings us positive feelings is not necessarily what leads to the greatest life satisfaction, fulfillment, and meaning. I suspect the market strategies that maximize short-term positive emotion have negative expected return, as in the case of those who jump aboard trends to reduce the fear of missing a market move.

Ralph Vince writes: 

Too many times in life I've found myself in darkened parking lots with a small gang of characters who intend me harm, and saw how the pieces would play out enough in advance enough to get out of it, or at least to realize there was only one, very unpalatable way out of it.

Shields up.

Too many times in life, I've had an angel whisper in my ear with only a few hours or seconds to spare to keep from being robbed blind by people I made the mistake of trusting.

Too many times in life I've paced in some anonymous hotel room, wondering "How the hell am I going to do this once the day comes?"

Too many margin calls have had to be met.

Far more times than I would care to, I've found myself confronted with the proposition of having to throw boxcars to survive, and I find myself, yet again, with that very proposition in a life and death context.

Only someone who really loves the rush of the markets, could enjoy wanting a given market to move in a specific direction. I've come to the conclusion it's far better for me to set up to profit from whatever direction things move in on a given day. Those that dont move in a manner so as to profit from this day, will tomorrow, or the next day, or the day after that… I need to just show up on time with my shoes on, collect on that which comes in today, sow the seeds today for taking profits on something at some future date. It's not difficult, and a lot more satisfying.

There's enough episodes in life we need boxcars to show up, and yeah, "Baby needs a new pair o'shoes."

Victor Niederhoffer writes: 

I like all these untested ideas about moving averages but my query was of a more general nature. What kind of moving average, perhaps its top onion skin an exponential average, is the best predictor of human happiness. I.e. if you are happy yesterday and unhappy the day before, are you happier or sadder. I mean vis a vis the pursuit of happiness, not markets, although the two are related I think.

Alexander Good writes: 

My answer would be a medium term moving average works best - about 6 months. We're naturally geared to notice acceleration not speed. After accelerating happiness, it's virtually certain to decelerate which we would have a heightened awareness of. Thus a 5 day moving average would have too much embedded acceleration and deceleration to yield a good outcome.

I would also say 6 months is a good number because there's a fear of 'topping out'. I.e. if you're at the peak happiness of the past 5 years you might get afraid of a larger mean reverting move. 6 months is short term enough not to be victim to noticeable accel/decel, but not too long to be subject to such existential thoughts that lead to unhappiness. 2 quarters is also a good timeframe for evaluation of back to back 3 month periods which seems like a relevant timeframe to most people professionally.

My meta question would be: does measuring one's happiness with a moving average make one more or less happy? 

Theo Brossard writes: 

I would pose that happiness would exhibit similar behavior with market volatility. Short-term clustering (which makes exponential average a good choice, if you are happy today chances are you will be happy tomorrow) and longer-term mean reversion (there must be some thresholds defined by values and time–you can't be very happy or unhappy for prolonged periods of time).

Jim Sogi writes: 

A good way to study this is to rate and record your happiness each day. Also record your acts: exercise, diet, work, family, vacation, tv, meditation, etc. Over time you can correlate the things you do that make you happy. You could correlate day to day swings as Chair queries in a univariate time series.



 Nothing I or anyone else ever sees in the movies, either in front of or behind the camera, has even the remotest connection to what goes on in a war or a traffic accident, for that matter.

The phrase "Full Metal Jacket" appears nowhere in Gustav Hasford's novel. There is no reason why it should have; full metal jacketed rounds have been the standard ammunition since the Lebel rifle was adopted by the French Army in the late 1880s.

Enjoy the movies for what they are, not for what their PR claims for them. They are real as themselves but not as a portrayal of life. The only time they come close is when they are about themselves.

Intolerable Cruelty is wonderfully accurate; Kubrick's movies are less real about war than a Met production of Die Walkure.



 Trader Style Quiz.

Let's say that Crude Oil futures spike to the high $40's/low 50's/barrel and stay around there for a week or two. The explanation is geopolitical fears. The very front of the crude curve flattens a bit but holds most of the contango.

And let's say that you were flat crude going into this move.

Do you: (a) Enter some sort of bullish crude position after the move? (b) Enter some sort of bearish crude position after the move? (c) Buy or sell energy stocks after the move? (d) Do nothing.

Your answer to this question tells more about your views about trend following, reversion, and personal style than anything else.

Charles Pennington writes: 

I'll go with d.

Rocky's least favorite answer is a) because 1) even after a move up to 50, there's still a downtrend over the trailing year or so, and 2) he bothers to mention that the curve still "holds most of the contango".

d is the answer because laymen never make any money trading commodities. They should take any remaining money and buy the Vanguard STAR Fund.



 The movie In the Heart of the Sea about the Essex, as previously mentioned, is coming out on December 11th. Here is a cool article about the film:

"How Nantucket Came to Be the Whaling Capital of the World: Ron Howard's new film "In the Heart of the Sea" captures the greed and blood lust of the Massachusetts island":

And here is author of the book the film is based on, Philbrick, on Nantucket:

Bad weather had thrown off Pollard's lunar navigation. On the night of February 11, 1823, the sea around the ship suddenly churned white as the Two Brothers hurtled against a reef. "The ship struck with a fearful crash, which whirled me head foremost to the other side of the cabin," Nickerson wrote in an eyewitness account he produced some years after the shipwreck. "Captain Pollard seemed to stand amazed at the scene before him." First mate Eben Gardner recalled the final moments: "The sea made it over us and in a few moments the ship was full of water."

Stefan Jovanovich writes: 

Here is a cool report from the NY Times from 1861 about the whale oil business.

Contrary to what the Smithsonian and Mr. Philbrick have written, Nantucket was never the center of the American whaling industry. The trade journal for the industry, the "Whalemen's Shipping List and Merchants' Transcript," began publication in New Bedford in 1843 and was still being printed (as a single broadsheet) when Walter Sheldon Tower's History of the American Whale Fishery was published in 1907. Tower's comment: "New Bedford was a greater whaling port than Nantucket ever was."

FWIW, Melville's adventure sagas - Typee and Omoo - (also freely available both on Kindle and on Google books) are actually a better portrayal of life at sea than Moby Dick, which Melville wrote as an attempt to emulate Homer's prose poem of Ulysses. The American public loved the South Sea tales but they found the great work heavy going. Contrary to the usual biographies, Melville was not heart-broken by his novel's "failure" (sic), only worried because he needed the money. But, then, he got a decent civil service job and went back to his first love - simple poetry - and became the Wallace Stevens of the NY Custom House.

anonymous writes: 

No argument on the ultimate rise of New Bedford over Nantucket, but give them a little credit for being one of the main birthplaces of commercial US whaling.

Relatedly, I finally successfully made it through all of Moby Dick a few months back. Although not much of it came easy, I enjoyed it overall, and actually found parts of it pretty amusing.

I am looking forward to going to the Whaling Museum in New Bedford for the first time as soon as I can squeeze it in. I've heard it's quite nice.



I subscribe to several agricultural private forecasting firms and while one still has their feet on the ground estimating the yield county by county, most are using models that are even higher tech like this modelling system.



 I am told that the students at Harvard were highly impressed by President Obama's talent for telling his law professors exactly what they wanted to hear. Some of the subversives even went so far as to channel their inner David Mamet and develop a grading curve for sucking up. It was called the Obamameter. According to someone who was there: this was, unlike Olympic judging, an absolutely pure and unbiased measure of a student's brown nosing skills. It used the standard 10-finger scale. The President never scored less than a 10.

There is no question that this is the only way to succeed in school and, so it would appear, in public life. The question is why anyone would ever do anything else.

The Navy has had a useful corollary, the Seaman's cardinal rule: "If it moves, salute it; if it doesn't, paint it."



 The contango between current prices–oil for delivery within 90 days–and those 6 years out attracted my attention for what is probably a very stupid reason. I have been rereading Charles Dow's journalism, and I was struck by his comment that the "commercial cycle" (his term) in prices ebbed and flowed every 6 years. Not 4, not 11, but 6. Dow thought that scientific speculation (also his term) was a matter of finding values within the prices that the markets produced each moment. Values for him were not some Platonic idealization but a matter of commercial sense. One of the rare complaints he ever wrote to his readers about them was that, in dealing with the stock market, they abandoned the very commercial sense that had given them the money to speculate.

Is there value in a future commodity price that is, once again, at a rare extreme compared to the costs for present delivery? Dow would have thought so.

P.S. FWLIW, Dow thought a scientific speculator should expect to double his money in every commercial cycle–i.e. earn 12% compounded annually.

When I asked "is there a value in a future commodity price that is, once again, at a rare extreme compared to the costs of present delivery?", Charles Dow would have thought so because, as he wrote, "the best profits in the stock market are made by people who get long or short at extremes and stay for months or years before they take their profit." Contrary to modern journalists, Dow made no presumptions about his own abilities to find where in an extreme the profits were to be found. In oil itself? In E&P stocks? In refiners? What made Dow such an exceptional journalist was his rare combination of humility and curiosity. He wanted to know what the market would tell him; he never thought he had advice for the market.

Jeff Watson writes: 

That's the difference between a professional and everyone else. The professional lets the market speak to them, tell you the story, and everyone tries to tell the market what to do based on their own cognitive biases. 



 While perhaps not a panacea, coffee drinking appears to be beneficial for some people. Figuring out the chemistry is not easy. Here are a couple of recent papers related to the liver that cover some of the literature and studies to date.

"The suggested anti-inflammatory and hepatoprotective effects of coffee in our study could be accounted for by several bioactive compounds with high antioxidant capacity. The main compounds in coffee implicated to have protective roles in the liver are caffeine, paraxanthine, cafestol, kahweol, and chlorogenic acids; however, .1000 additional compounds could be responsible for its beneficial effects (43, 44, 45). Additional studies are warranted to evaluate the potential for application of these specific biochemical compounds in HCC prevention."

It seems very likely that coffee, acting through caffeine, and probably through inhibition of adenosinergic signals, prevents complications of chronic liver disease – specifically cirrhosis. Two features of the evidence are of particular importance. First, the fact that the literature in patients supporting coffee's anti-cirrhotic effect continues to accrue without opposing studies suggests that the initial epidemiological associations were real. Although this could be accounted for in part by publication bias favoring positive studies, that is not a fully convincing explanation. Second, the observation that the studies in human are supported by animal and cellular data suggest that there is a rationale to give the human trials greater consideration. At present, it is rational to encourage the use of moderate amounts of brewed coffee in patients with chronic liver disease.

And here is a very interesting article about coffee with good graphics by Nathan Seppa in Science News (Oct 3, 2015).



 I am in Moscow lecturing (wishing Chair was here as does the audience).

I saw this headline about the French ISIS killings…French tolerance of Syrian refugees etc. is the cause. It makes me think about my positions in the market. Am I sometimes too tolerant of positions that are lollygagging around doing nothing that I accept my fate instead of getting rid of them?

Also I see in the papers here that the USSR budget—that looks good on the surface– is based on $50 a barrel oil. At $40 they have problems. At $30…egads! Certainly it is in Putin's interest to get oil to $50. Can he? Also it makes me realize how important crude is to the world economy–it has very far reaching implications.

Russians seem much happier and more relaxed than when I spoke here a few years back.



 A recent trip to upgrade my family's phones saw me leave with 3 extra android tablets, 2 iPads and a monthly phone bill that was 2x what it was when I walked in. The siren's call of the deep discount is as irresistible as the naive expectation of easy money. The closer we get to Black Friday the more we are exposed to the lure of 50-80% off deals. The ease of point-and-click shopping leaves us even more vulnerable to the pitfalls of anchoring bias. I find myself prone to frivolous and unnecessary purchases, just because items are cheap relative to what they once were, rather than because they are a good value and one needs them. Bears keeping in mind during the current holiday trading season.



 The best three minute episodes of my life have been at speed chess and survival. Chess is obvious, with the clock ticking, and in survival the elements are similar. A stranger meets a stranger on a bridge, narrow trail, or alley. They size each other up in the first couple seconds. There is an exchange of intent a la the Tactical Wheel of fencing. Then one person makes the first move that may be friendly or aggressive. In chess, you can always punch the clock, and start over again; however, recovering in survival may take longer unless your moves have been accurate.

Nigel Davies writes: 

There's a very good chapter on defending difficult positions in The Art of the Middle Game by Paul Keres and Alexander Kotov. Basically you have to do all you can to stay calm and keep your position afloat, never lash out in desperation. It could be that you'll lose anyway but your chances are better if you're calm and tough minded. Choose the move where you can't see an immediate win for your opponent and try to eliminate the greatest danger, sometimes the most dangerous enemy piece.

There's some good advice too in Mihai Suba's Dynamic Chess Strategy in that you can use a kind of psychological blackmail in that if your opponent has been attacking you present him with the chance for a won endgame. Very often they'll reject the lengthy but certain win because they think they should have more or have become too attuned to playing for mate.

Finally Emanuel Lasker in Lasker's Manual of Chess said that you should try to make every point in your position equally weak so as not to present a clear target. Make your opponent lunge and make the running, going forward is always harder and riskier.



10 years after this piece was written, it is still worthy of review"The Future of Terrorism: What al-Qaida Really Wants": "In seven phases the terror network hopes to establish an Islamic caliphate which the West will then be too weak to fight."



 HUNGER GAMES - Mockingjay – Part II

Katniss Everdeen is back, her bow and arrows ever at the ready on her back. Okay, so the books are beloved icons of young adult readers. And the first two/three were [just] tolerable as movie experiences, helped along by the luminescent Jennifer Lawrence, the circus-y emcee Elizabeth Banks, plasticized Stanley Tucci, the guru in nasty-mode Woody Harrelson and the unctuous, evil Donald Sutherland as President Snow. Josh Hutcherson is a mystery: Why was he cast, of all the testosterone running wild in LA? He seems always slightly dyspeptic in all the lensers of the franchise.

Panam is still in rebellion mode, one district against the other, with Katniss the reluctant rebel leader. Her task: Bring together the factions to fight not each other, but Pres.Snow, Mr. Sutherland, hostile-benign dictator. In this go, the last of the 4-part franchise, the beautiful behind-the-scenes Coin is played by Julianne Moore, and one is momentarily upset by the sight of the now-deceased Philip Seymour Hoffman in his continuing role. War between the districts is still ongoing, with .Julianne Moore and Philip Seymour plotting to use Everdeen to their ends, feigning support of the rebels, should they succeed.

The credit roll provides an explanation of why it all seems arid: There are more set dressers, than there are stunt people. The movie looks like a set-dresser's paradise, but it doesn't ring true on any level. The advent of hunky Liam Hemsworth is eye candy, but every scene is subsumed to Lawrence, far more sophisticated in her poise than her age would allow. If not JenL:aw, then Peeta, who is wonky here and flashed in and out of schizo episodes, hovers nearby lest Hemsworth snatch away his beauty, Ms. Bow 'n' Arrow. For all the expensive star real estate, Hoffman, Banks, even Hemsworth had relatively vestigial roles in the lengthy pic.

Ultimately, it all feels ginned up and uninspired, for all the premier-night excitement and the giant IMAX screening venue. Who cares, after all, about this overextended syfy or fantasy story of scarcity and cage-fights? Don't go Hungry: Save your $20.

SPOTLIGHT Directed by Tom McCarthy

 As this essentially true story unspools, based on material accumulated during the past half century in Boston [and elsewhere], you don't have to see flashy costumes or exaggerated make-up, battles and automatic machine-gun 'pods' exploding or vast oceans of inky death licking at the heels of the film's protags, as you see repeatedly in the CGI-dominated Mockingjay. For news junkies, it is impossible to see the gathering of evidence from disparate sources on the closeted paedophilia scandal that has rocked the Church for decades and not think of its filmic forebear. All the President's Men, a masterful pastiche of actors recapping the Nixonian theft of papers from the oppo political party, concerned the Watergate 'caper' that spelled the downfall of one of our noted presidents. The emergence of that story is now a sort of hallowed skirl through politicking and what not to get caught doing, was for months stymied by efforts to spike it as a story, blown up, in the end, by the Washington Post. There, editors had little patience for the Deep Throats and silenced witnesses, and could not be persuaded there was a story worth exposing. In retrospect, any one of the endless skein of hydra-headed scandals of the present Administration dwarfs the Watergate chapter of American news-and-political agit-prop almond chew. Here, too, over a period of several years spanning 1972 through 9/11 and forward, the papers were not interested in in-depth exposes of the all-powerful Boston Church. The unwholesome clerical misbehavior, molestation and paedophilia revealed by dogged legwork shown here brought down holy hell, as it were, on the Archdiocese that shadows all of Catholic Massachusetts.

This is no spoiler, because the major stars have been on all the late-night shows talking about the legitimacy of the story—though adults will not be surprised. What is exciting is the gradual, and adult, work of the ensemble actors—the great Liev Shreiber as the only Jew among the entire panoply of lapsed Catholics at the Boston Globe, and his Spotlight cadre of indomitable reporters, including marvelous Michael Keaton, the irresistible Rachel McAdams—who is treated with dignity and egalitarian respect throughout, a nice change—white-haired John Slattery as Ben Bradlee, Jr., extremely scenic liar-for-hire Billy Crudup as one of the legal eagles who profited for years from the burying bad behavior cottage industry– plus various and sundry character actors who show their acting chops while not chewing the scenery.

Spotlight is unfailingly interesting, without the pyrotechnics. Moreover, it shows journalists who still report and do the pavement pounding, so viewers see how stories come together, after the tough, slogging work of investigation, checking sources, re-visiting tight-lipped lawyers, and making sure the full tale is buttoned up.

Evident, too, is the neither-black-nor-white nature of news today: On the one hand, the Church does many excellent things for people needing comfort. On the other, they consistently looked the other way for decade after decade. And played hob with both documentation and the law. You pray devoutly that there are people doing the work of angels documenting the malfeasances of the current Administration, for next year's block-buster reveals.

One of the standout films of the season.



The biggest takeaway for me this week has been "it hurts to follow the news". Everything was so dark in Europe over the weekend. The consensus was that this was worse for Europe than 9/11 was for us. Everyone knows the terrible decline of 7% that followed 9/11. This time exactly the opposite.



 A friend posted this link to his Facebook page. It's about the chess scene in Bryant Park, Manhattan. It's a very well written article, and I suspect it will be the best 3 minute read of your day. Lots of the highlights in the article make me draw parallels with the markets. For example:

The author said, "A chess match with a stranger in a public park involves a sudden and awkward intimacy…You are usually silent and bent forward, concentrating together, antagonistically, on the same problem. You are conscious not only of your own position and ideas on the chessboard, but also of the stranger's body, energy, breathing, where the eyes move on the board and what they speak of intent." In the markets, one needs to get inside the counterparty's head to understand the motivations, strategy, and game being played. (If one doesn't know who is on the other side of the trade, one must figure out the rationality of the other side, because they have reasons to be in the trade that are just as important as yours.

He further went on to say, "I have staked out a solid position I can feel myself coming undone. Usually this occurs when I build an early lead and then become so terrified of squandering it that I panic and end up doing just that." How many times has one blown a good position and had a winner turn into a loser…and one watches it unfold, well aware of what is happening."

Interesting point brought up: "He was the stronger player but I should have won." In the markets, one can beat a stronger player if one is nimble. Every trade I enter, I enter with the assumption that the counterparty is stronger than me and has better information.That way I can plan my escape if things get dicey.

He adds: "What is it about chess that can make losing so annihilating and the reactions to it so acid?" Amateurs and the public mentally beat themselves up over a bad trade, when the proper thing to do is figure out how you FUBAR'ed the trade and the lessons that can be learned. He postulates, "The supercollider of egos and skill levels at the park can produce democratizing and humbling effects." There is a lot of ego around the markets, and that is not necessarily a good thing.

He went on, "The randomness is part of the draw but also provokes a fear." Markets can be very random, especially when the form is about to change and it's trying to figure out a price where it will trade at.

As an aside, two things my mentor taught me. Nervous markets close lower, and markets always move to the level where there will be the maximum amount of trades allowable at that time. That's why when we were locals and the market wasn't moving, we'd start offering the market down and start selling in order to bring the market to a place where the paper would come in. It's not really different in the electronic age.



 Again and again I see misdirection as an important factor to understanding markets. When everyone is focused on China for example it will be German industrial production that moves markets, or when interest rates seem important it will be earnings and growth that matter. Big moves in commodities matter, until they don't matter anymore. A rate change now seems in the bag so the 30 year rallies, not sells off. The Fed Fund rate is in fact rarely even employed by banks, misdirection. It is the reverse repo and excess deposit rates that are very active.

Even using a quantitative approach to markets, there are only so many things you can test. So testing the what happens to the right hand will not help when the ball is in the left. No easy answers here, but Ricky Jay is a great resource on the topic and has a good film on Netflix.



A shibboleth on Wall Street and life is that we underestimate change.  I've heard it a million times in popular and academic papers. Zarnowitz adduced it in his study of forecasts 50 years ago also. I felt a fast study might be of interest. Do the big changes following big announcements in the early periods tend to continue or reverse. I tested it for 100 of the biggest changes. As usual the popular view is totally off. There is a big tendency for the big rises to be followed by big declines to an inordinate extent and the same reversal tendency for big declines. The study would have to be expanded to be of merit but it's a much better way of quantifying the effect than the subjective studies festering about.

UPDATE: I found 600 article (items) with the tag "underestimating change stock" on google and many of them are very interesting including an article on underestimating earnings announcement price movements and buying straddles to profit, also analysts not taking account of price changes before earnings announcements in making their predictions. But I didn't come across any that examined a large sample with a definite and non-overlappng data set like mine. My study shows that if you take all the important announcements, and look at the change in the first 10 minutes that are big, there is a significant tendency to reversal. I also looked at all the big 10 minute changes around 830 without regard to the announcement and found the same effect. I can say that at least at the microscopic level, with moves of about 0.2% expected, there is a substantial tendency to overestimate the impact of announcements. 

Adam Grimes writes: 

Thank you for that study and the perspective. It makes a lot of sense, and makes me ask a few related questions:

Something I've been wondering about is the claim that markets switch regimes faster now and that markets basically don't trend as well as they used to.

Two thoughts: 1) it's used as justification for the "death" of simple directional strategies… there does seem to be some evidence that we don't have the long trends of the 1980's that gave CTA-style trend following legendary returns for a while, but question 2): why do we assume this is linear? The people who discuss this would have us believe that we look back to the past and see markets that trend and have now fallen into a chaos (perhaps that's overly dramatic) where markets essentially no longer trend. Isn't it also possible this is cyclical, and that we could see more decades of those long, relatively "easy" trends in the future? The assumption is always that it has been driven by electronic trading, more competition, etc… but I wonder. (Always hard to truly understand the drivers… I guess understanding the effect would be enough.)

Not sure how to look at this idea in an objective way. Does this raise any thoughts?

Adam Grimes CIO, Waverly Advisors, LLC

My book: The Art and Science of Technical Analysis

Shane James writes: 

Hi Vic,

I concur with this.

Of note in many of the macro markets is that there is quite an imbalance in the price formation process.

In other words, within the idea of 'conditional heteroskedaticity' or 'volatility clustering' the relatively large moves do tend to occur contemporaneously and the relatively smaller moves also do the same,

The 'imbalance' I refer to above is that- overwhelmingly- the clustering of small moves proves the point more so than the clustering of large moves.

In terms of sign the smaller moves have more persistence than large.

Rocky Humbert writes: 

The money quote in the Forbes article that you cite is, "Find the trend, but don't sweat the details or the timing because you'll always be wrong." There are 4 sub-statements in this sentence. Which of the 4 are you challenging? And bear in mind that your answer must be consistent with your faith in the "Triumph of the Optimists".



Looking at wikipedia as a source, and looking at the attacks on G7 + Spain + Russia (just to get few in extra- sorry to quantify this way)…

Whether it is one dead or a million dead, it is barbaric act…

Where the toll is 50+ since Y2K:

t[-2] is the chg % one days ago , t[-3] is the chg % two days ago,  t is the change on the event day

t+1 is the chg % from the event day to one day later, t+2 is two days later

17-Sep-01 * - as the market is closed on 11 sep 2001

13-Nov-15    France November 13, 2015. A series of 7 attacks kill 153 people in the capital city of Paris.

07-Jul-05    United Kingdom July 7, 2005. Multiple bombings in London Underground. 53 killed by four suicide bombers. Nearly 700 injured.

11-Mar-04    Spain March 11, 2004. Madrid train bombings, killed 191 people and wounded 1,800.

23-Oct-02    Russia October 23, 2002. The Moscow theater hostage crisis was the seizure of the crowded Dubrovka Theater by Islamists. 170+ dead (including 40 perpetrators) 700+ injured.

12-Mar-03    Russia May 12, 2003. The 2003 Znamenskoye suicide bombing. 59 killed 200 injured.

01-Sep-04    Russia September 1, 2004. Beslan school hostage crisis, approximately 344 civilians including 186 children killed.

11-Sep-01    United States September 11, 2001. 4 planes hijacked by 19 al-Qaeda members: two planes crashed into the World Trade Center in New York City, New York; one into The Pentagon in Arlington County, Virginia; and one into a field near Shanksville, Pennsylvania. 2,977 victims killed.



 In describing a Hitler oration Shirer in Berlin Diary: "in the sound of the magic words of Hitler, they were merged completely in the German herd." Rosenbaum in his introduction to Rise and Fall of the Third Reich: "was it a unique one-time phenomenon or do humans possess ever present receptivity to the appeal of primal herd like hatred". Galton in his Inquiries into Human Faculties likens the human tendency to gregariousness to the oxen he tried to train to lead without success. We see evidence of this herd like gregariousness all the time in markets, and the only problem is to ascertain the end of its irrationality so as to profit from it.

Anonymous writes:

A CEO told me over the weekend that now that his business is "hot" he has been told the Japanese company that kicked the tires and decided not to buy much lower might now buy at 1.5X to 2X the current price as popularity has created the needed validation for the purchase. Wonder if that matches your observations.

Victor Niederhoffer writes:

Sounds like the gregarious imitative Japanese persona. Do you agree?

Larry Williams writes:

I agree, but disagree. The buying is not based on any unique Japanese Persona, rather most all people buy high and most all people are afraid to buy when prices are falling. Human nature. High prices prove it. Only real speculators look past today for proof.

anonymous writes:

Larry and Vic,

The anecdote and your responses illustrate both of your biases, which are not necessarily any better or worse than the Japanese buyer's bias.

Example 1:

If the company is an early-stage drug company with billions of potential long-term profits, but dependent on Stage 2/3 clinical trial results, it may be demonstrated mathematically that buying the company after it achieves positive results (and after the price has increased 2x) is a better risk-adjusted return for an acquirer who doesn't like portfolio volatility.

Example 2:

If the company is entering a new space and is a first-mover, there are numerous examples where buying the company after it has critical mass is a better bet than speculating on a long shot. Goldman Sachs is a primary example of a company that rarely enters a market early.

I heard a truism on the radio last week: "People love to go shopping when things are on sale. The only exception is the stock market where lower prices scare the buyer." This is both a true and false statement. If a sweater gets marked down 20%, it's the same sweater. However, if an individual stock price goes down 20%, it may OR may not have the same earnings potential prior to the price change. There is a difference between "price" and "value". Great investors understand this difference and even they sometimes get it wrong.

So, while I am not defending the Japanese fellow, generalizations without numbers on the table are no better than snide racial epithets.



 Not knowing how to get to the Cattle Call Rodeo in Brawley, CA, at 120’ below sea level, I stopped and asked a marching Afghanistan War veteran for directions. "I’m the one they left behind!" he told me. He had a shot leg, and was withering in the 90F weekend heat in the last of the eight mile march behind 120 others to the Rodeo. I paid his admission.
Unlike most rodeos, where the cowboys, cowgirls and animals are known in advance, the Cattle Call roster is a last minute affair. We entered the stadium in a gully, jam packed with yelling fans, at the first gunshot. My companion instantly ducked, grabbed for a gun in a nonexistent holster, drew a phantom pistol, and began scanning the bleachers for the enemy.
We watched the breakaway roping, bronco riders, barrel racing, mutton busters, and others, but by far the most appealing was the Cattle Cull. A group of twenty cattle waited in nervous anticipation at one end of the arena, while a team of three cowboys (or cowgirls) shot from a chute to cull one cow at a time into a pen.
With each gunshot, out the gate, my companion rose off the bleacher, crouched, pulled an invisible revolver, and scanned the crowd for adversary. Finding none, I gently reminded him we were at the rodeo, and he sat down, until the next shot.
I was enjoying the event because it brings into play, under the duress of a clock, elements of picking a target, culling it, while keeping the rest of the group intact, and then selecting the next, until three are corralled. It is a metaphor for sport, romance, business, and the market. Henry Ford said, "Put all of your eggs in one basket, and watch closely that basket," but in this event there is a succession of three things, one at a time, that must be taken and watched to win. 

When the veteran next to me shot up again, and people started scooting to the far ends of the bleacher, I thought we’d get the bum’s rush, but came up with a solution from the event. I told the veteran, "There are going to be an unknown number of shots before this event is over, and, like the cowboys, you can choose only three times to react, or we’re goners."
He not only got it, he waited patiently through the remaining seven teams, thinking there would be more. Yep, the Cattle Call Rodeo cured him of shell shock.



Fact 1:

As Bill Rafter recently wrote, "what drives markets most of the time (i.e. 90+ pct.) are two things: momentum and sentiment. If you have a handle on those you can make money."

Fact 2:

Credit drives GDP. "For the period from January 1955 through June 2015, we found that nearly 88% of periods in which the trailing twelve month average of private debt acceleration declined or was negative occurred when the U.S.' real GDP was falling, and if we look just at the periods in which the trailing twelve month average of the real GDP growth rate declined, we find that nearly 84% of those periods are ones in which the acceleration of private debt was either falling or negative."

Fact 3:

We live in a world where cash and checking account balances have given way to credit as the medium for actual transactions.

Fact 4:

The people and businesses who actually have the discretion to spend more (or less) do not need the approval of banks or bond buyers to do so. They depend entirely on their existing credit limits and their cash flows.

But the current presumptions of nearly everyone–male and female–who wears a suit and tie to work are that these facts can be ignored. The watchers/believers in the oracles of the Federal Reserve Banks still believe in that old time religion: bank reserves and the interest rates on them drive the economy by changing consumption preferences. They may be right even if their theories of political economy no longer fit the known facts.

History makes it more than a bit clear that "the stock market" (really, the credit market) not only leads but controls "the economy". Collapses in production and employment follow collapses in credit, which are, in turn, dependent on sentiment and momentum, which are now largely dependent on what people believe about who is in control. We skeptics may be the greater fools. It may not matter that there are only semi-midgets spinning special effects wheels behind the curtain that the little dog has pulled away. As long as people believe in the magical powers of the flashing lights and sheet metal thunder, they will save their worries for important stuff –like Syria and the Chinese invasion of the Spratlys.



 I discovered the shul in Rangoon tucked tightly between two Non-descript office buildings in a nondescript road in Yangon (authentic old and renewed name of Rangoon, for native Myanmarese/Burmese).

The shul I find is a lovely gem, gated archway with iron scrollwork name and black paint announcing its provenance. Aside from the wrought iron lamps from decades ago, on the front benches, anterior to the main sanctuary, are a dozen commemorative blow-up B/W photos of great Jewish heroes meeting Burmese greats or UN personages. Moshe Dayan. Ben Gurion. U Thant. Golda Meir. The script at the bottom bears the names of the people shown, the date, and the occasion.

They are good photos, 15" by 15", framed in simple black wooden frames of convenience.

I took pictures of the pictures, and included their legends, beneath. The shul is an old-style European-style synagogue, with lovely bima center, benches parenthetical to the bima, all solid wood, probably teak—the country is famed for its vast teak reservoir forests. There is a small room behind the 'sanctuary' with some lovely old sifrei Torah. The shul seats perhaps 100, but whenI asked the [very dark-skinned] gabbai or caretaker if there were any minyanim, he gently shrugged.

Did he speak Hebrew? I ask. He shook his head from side to side, No. Did he speak Yiddish? No, again.

He said to me that he is indeed Jewish, but like many out of the way ancient synagogues, the story told by the designated watchman is often at variance with the fierce emes. He said there are only [either] 20 Jews–or families– in Rangoon. There is of course no rabbi, though the shul is in overall good repair, overall–not like the hulking lost loveliness of the Cairo synagogue, which soliloquises its glory past of 70 years ago, before Nasser expelled nearly all Jews on the assumption of Israel to the world's yawning yet bristling stage and attentions.

Did they have holiday services? I persisted. Again, he lifted his shoulder blades slightly, universal symbol of "Well, not exactly…".

There is, in all these out of the mainstream synagogues that cry for a dusting and a good morning minyan, a vast mournful melancholia. Here were Jews in a bustling community, those keeping company, perhaps, with the mid-career George Orwell–though he was not a member of the tribe, he lived in Rangoon among the corrupt British foreign-affairs officers and the nearly equally corrupt Burmese officialdom.

One leaves slowly, aware that if one ever wends this way again, the synagogue will be still less peopled, perhaps overgrown with vines or incursive foliage from the humid, heavy air and the rain that falls sheetingly in monsoon months, rains that demand constant pushing away and wiping to remind people that mildew does not inhere as by right.

We met no Jewish Burmese, coming or going.

It is common when one finds such gems that one respectfully wanders about the wooden benches and the clear, clean aisles, the tiled floors, and pokes at the photographs noting its heyday. Distancing oneself from the sadness of the truth that here is a living relic of the Diaspora, when thousands of Jews may have passed en route to sureness of habitation, employment and safety to limb and family.

As in Shanghai's remaining shuls, this is more museum artifact than living totem of the force of Judaism as a sinewy observance.

But a sensitive being catches a persistent lump in the throat. Of loss. Of regret and sadness.

The thought only of a throbbing lively culture in robust Israel, with festive shuls and all manner of observances, redeems one from the forlorn pangs of regret and loss.



 Superforecasting by Tetlock is making the internet rounds. Grist or chaff for aspiring prognosticators?

"Having a Crystal Ball":

What emerges is readable and laudable, if less than earth-shattering. In the end, the findings are, well, predictable: an intelligent person who devotes time to researching a problem, narrows the parameters of the question, interrogates the hypothesis, and monitors new information will be better able to predict the future.

From the superforecasting website:

In Superforecasting, Tetlock and coauthor Dan Gardner offer a masterwork on prediction, drawing on decades of research and the results of a massive, government-funded forecasting tournament. The Good Judgment Project involves tens of thousands of ordinary people—including a Brooklyn filmmaker, a retired pipe installer, and a former ballroom dancer—who set out to forecast global events.

A rather lengthy "master class" on the subject:

Over the weekend in Napa, Tetlock held five classes, which are being presented by Edge in their entirety (8.5 hours of video and audio) along with accompanying transcripts (61,000 words). Commenting on the event, one of the participants wrote: "The interesting thing is that this is not about a latest trend that might scale in one or two years, but about real change that might take a decade or two. Also, these masterclasses are not only much more profound than any of the conferences popularizing contemporary intellectualism. The possibility to spend that much time with the clairvoyants in a setting like this also gives you a sense of community so much greater than any of the advertised."



 There are some trading comparisons in this article. Maybe a bit like all in or no stop for a week, month. Long S&P?

"If he falls, he dies: The ultimate stakes of Alex Honnold":

With his sharp intelligence, Alex inclines toward a hyperrational take on life. He actually insists, "I don't like risk. I don't like passing over double yellow. I don't like rolling the dice." He distinguishes between consequences and risk. Obviously, the consequences of a fall while free soloing are ultimate ones. But that doesn't mean, he argues, that he's taking ultimate risks. As he puts it, "I always call risk the likelihood of actually falling off. The consequence is what will happen if you do. So I try to keep my soloing low-risk — as in, I'm not likely to fall off, even though there'd be really high consequences if I did.



I get a headache just thinking about this. My dog won't like it either. But if it's true, it will make WiFi look so yesterday.

"uBeam Declassifies Secrets To Try To Prove Wireless Power Is Possible":

Essentially, transmitters on a room's walls track devices with uBeam receivers and send inaudibly high-pitched ultrasound beams at them. The receiver converts the vibrations of the sound into electricity, which charges a connected device. uBeam is designed to deliver a minimum of 1.5 watts of electricity to smartphones, or enough to keep a phone from losing battery life even when being heavily used. Depending on the number of devices being charged simultaneously by a single transmitter, and depending on the distance of those devices to the transmitter, uBeam could charge devices at comparable rates to a wire, or faster.



"The stock market leads the economy, not the other way round"

Are we sure of this old bromide?

anonymous writes: 

Yes, the data support the conclusion. Even more so because we know the results of the stock market immediately, and we get the GDP number only each quarter, and then after a delay of months that is then revised three times.

Andrew Goodwin writes:

A statistical method for testing this theory with precise equations is given here for those who would care to update the work:

"The Stock Market as a Leading Indicator: An Application of Granger Causality"

To summarize the conclusion reached using this "Granger causality" method:

Our results indicated a "causal" relationship between the stock market and the economy. We found that while stock prices Granger-caused economic activity, no reverse causality was observed. Furthermore, we found that statistically significant lag lengths between fluctuations in the stock market and changes in the real economy are relatively short. The longest significant lag length observed from the results was three quarters.

Stefan Jovanovich writes: 

"Is the causality relationship more consistent with the wealth effect or with the forward-looking nature of the stock market? The results from this project are consistent with both the wealth effect and the forward-looking nature of the stock market, but do not prove either. Another possibility for future research is to further evaluate where expectations about the future economy are coming from. Our results reveal that expectations for future economic activity are not simply formed by looking at the past trend in the economy as the adaptive expectations model would suggest. Expectations are being formed in other ways, but how?"

The argument for the "wealth effect": rich people's spending is the Keynesian pump that gets its money flows from the drift towards higher stock prices. The argument for the forward-looking nature of the stock market: the same one that applies to all asset and credit pricing, even those for "true" bills. The argument for "adaptive expectations" models: straight lines are easier to draw.

Stock prices go down because enough rich people think they will go down. God only know what makes them decide to think that, even though they have all the lessons of the past to tell them otherwise.

As Eddy and her Mom and others remind me, my sarcasm can be a bit heavy-handed, obscure and unfunny.

Let me try again, now that Big Al (who has saved me from gold standard oops moments and other follies) has come to my rescue.

The Chair's drift is a fact of enterprise itself; people get richer because they figure out how to do things better, faster and cheaper, and the price for that know-how rises steadily because it is the means of producing more wealth.  (Marx was not wrong to focus on the means of production; he just left our distribution and exchange as the other necessary parts of the deal.)

The people the Chair left behind at Harvard, Berkeley and elsewhere share their own kind of Marxist illusion; they think that people can manipulate the way we all keep track of wealth - the unit of account, the interest rate on government debt - and have the manipulations produce further drift which will, in turn, somehow produce greater wealth.

This all reminds me of what a WW II veteran once told me about sharing a bivouac with the Russians while Truman, Churchill and Stalin carved up the world at Potsdam.  The Americans, with their wonderful energy, had set up tents and installed GI showers and faucets after running lines to the nearest pond with clean water.  After seeing the GI walk over to a faucet and turn it on to fill a pail of water to feed the radiator in his Deuce and a Half, a Russian soldier yanked off the faucet, walked over to the Russian side and defiantly banged it into a post.  He was enraged when he turned the tap and nothing came out.

Fat thumb correction:  stock prices go up and down because enough rich people take one side of the trade or the other that they change the price of wealth expectations for that particular company. There is no way of knowing what their particular "reasons" are; markets are part of Heisenberg's universe.

Bill Rafter writes: 

Allow me to come into this party late and probably tick everybody off. What drives markets most of the time (i.e. 90+ pct.) are two things: momentum and sentiment. If you have a handle on those you can make money. Probably the same two things drive the economy, but you cannot make money trading the economy, as the data coming out of the economy is more lagged than the data coming out of the markets. Hone your skills where they can count.



 Has anyone studied Art Cashin's claim that:

"When October is up over 7 percent, the result of the next two months — the so-called Santa Claus rally — is cut in half," UBS's director of NYSE floor operations told CNBC's

His research comes from Stovall from S&P, if I hear him right. Cashin says that instead of approx 3% benefit long drift you only should look for half of that because of the >7% rise in Oct.

anonymous writes: 

I have not studied his claim, but if he does not somehow factor in the relative strength of the market in months just prior to October, I'm not sure the observation is worth much. Presumably, the very week August and September of 2015 created a reset of sorts and the odds of a Santa Claus rally occurring this year are probably no worse than usual. Just my opinion of course. 

Jeffrey Hirsch writes: 

We have.

While I love Art Cashin, he and everyone else mistakenly calls the yearend rally the Santa Claus Rally. As defined by Yale Hirsch my illustrious father and mentor the Santa Claus Rally is the short 7-trading-day period cover the last 5 trading days of the year and the first 2 of the New Year. Most importantly as the songwriter in Yale has made clear: "If Santa Claus should fail to call, Bears may come to Broad and Wall." Here is the page from the 2016 Almanac and a slide image I use a presentations.

From Page 114: "Santa Claus tends to come to Wall Street nearly every year, bringing a short, sweet, respectable rally within the last five days of the year and the first two in January. This has been good for an average 1.4% gain since 1969 (1.4% since 1950). Santa's failure to show tends to precede bear markets, or times stocks could be purchased later in the year at much lower prices. We discovered this phenomenon in 1972."

The history of the Santa Claus rally:




















 I'm in Ushuaia Terra del Fuego Argentina en route to Antarctica. Argentina is experiencing severe inflation. Some years ago (say mid 2001) the Peso was on par with the dollar. In 2013 it was 8:1. Now it's 12 Peso to the dollar. A hamburger is 85, a beer is 50, a crab dinner is 170. Classic economics defines inflation as higher price goods. However I see 3 different causes of inflation that seem to be different mechanisms and have different results

First is classic. Inflation where demand grows or supply shrinks and price goes up. Second is the situation in Argentina where the Peso devalued due to government default on its international loans The third is the Fed increasing the money supply and causing the oversupply of dollars to (in theory) raise prices. But it doesn't work. The latter two do not seem to either increase demand or relate to supply change. To me they seem to be different mechanisms at work. The problem with increasing money supply is that it doesn't increase demand. Instead the money flows to a bubble. The classical definition of inflation does not accurately describe the latter two mechanisms. Isn't there a better way to describe them?

Stefan Jovanovich writes: 

There is no way to separate the causes of an increase in the nominal current selling price of a good or service - let's call it Item X. Is it the result of a decrease in the supply of Item X? Is that decrease the result of sellers actually running short of Item X or are the sellers holding back inventory from the market in anticipation of a future price rise? Or have the suppliers all gotten together somewhere and agreed to form a cartel that will restrict the supply of Item X? Or are the sellers all agreed that the unit of account that prices Item X is now in greater supply? And is the unit of account that prices Item X in greater supply because lenders are offering less restrictive terms for borrowers? Or is it because the government has issued more checks or made more electronic transfers from its central bank account exchangeable on demand for the currency that the Sellers and Buyers of Item X accept as the unit of account?

These are just some of the supply questions that affect pricing; there is an even larger list that can be written about the variability of demand.

The Peso's devaluation relative to the U.S. dollar can be explained quite simply; people holding dollars do not want or need as many pesos as they once did and their counter-parties, the people holding pesos, are now far more eager to swap Argentina's currency for ours. When one then asks why, we are back in the land of multiple explanations: Argentina is not seen as a profitable place for holders of dollars to buy businesses or property, the risks of regulation, currency controls, legislated devaluation and other forms of legal confiscation have increased, etc. etc.

"Inflation" only has a a theological definition; it is part of the modern economists' vocabulary for describing how many monetary angels should be standing on the tope of a GDP pinhead. And like those other now obsolete serious academic questions, it has a very useful purpose; for its presumed answer one must look to the diviners of expectation.

What Samuel Butler wrote as a satire in Erewhon is now how the world worships; we no longer spend much time in the Musical Banks because we all know that the important messages now come from those who sit on the thrones that are Reserved.



 Very good letters from N.C Wyeth in the book The Wyeths by Betsy James Wyeth, (Andy's wife). A beautiful passage by the author: "If I could just say to him "I'm sorry". Perhaps this was my motivation while I worked on the manuscript gathering everything together. I knew him for six years, but I never understood him until now. Forgive my foolish heart".

A Beethovian passage from NC Wyeth: "However practical we might want to be, however, we must make elemental nature our basis of inspiration. Without this as a starting point, our aims and actions must needs be extremely limited. I think of a hundred things a day that I would love to realize on canvas. [he carefully leaves out his amorous thoughts.] The process of mind after grasping the purely elemental motif, quickly reduces it in rapid success to a practical scheme".

There are beautiful letters about instructing Andy in the technical and creative powers of painting, starting with drawing cubes and cones that should be read by everyone. The railroad accident that claimed the life of NC and his 2 yr old son at 60 is put into perspective in a very different and reasonable way here relating to distraction from looking at a field of corn here rather than the intentional crash elicited in the major bio of NC. Very worthwhile and hats off to the author, a model for all good wives and daughters in law.



 Quantum computers seem like a promising technology.

1. "Imagine you have a maze and there are billions of ways to turn left and right and you are given five minutes to get through. With conventional computing you would try each path sequentially." But quantum computing would allow all possible paths to be tested simultaneously with an answer given immediately. This is the power that is possible with the technology, he said."

2. "In classical computers, data is rendered as binary bits, which are always in one of two states: 0 or 1. However, a qubit can exist in both of these states at once, a condition known as a superposition. A qubit operation exploits this quantum weirdness by allowing many computations to be performed in parallel (a two-qubit system performs the operation on 4 values, a three-qubit system on 8, and so on). As a result, quantum computers will far exceed today's most powerful super computers, and offer enormous advantages for a range of complex problems, such as rapidly scouring vast databases, modelling financial markets, optimizing huge metropolitan transport networks, and modelling complex biological molecules."

3. With its extraordinary computing power, a quantum computer is potentially able to solve highly complex problems, in particular optimisation issues. In the field of healthcare, quantum computers will "make it easier to analyse genetic information and identify a person's genetic heritage," Murray Thom, Director of Professional Services at D-Wave, one of the first companies to develop commercial applications for quantum computers, explained to L'Atelier, adding: "Researchers will then be able to use this information to decide on treatment options."



 The Siberian snow cover is building up a bit.

The meteorologist who discovered this relationship, Judah Cohen of Atmospheric and Environmental Research, says this October's Siberian snow cover is off to a fast start, which may portend another cold winter for the East. "I think that [the Siberian snow cover] will be above normal," Cohen said in an e-mail. "[But] it is lagging the two blockbuster Octobers of the past two years."



 Kit foxes wear black masks on silver fir, that made them stand out on Halloween.

I had just walked six hours and lost my way, stumbling in circles.

I sat hard on the desert floor to gather my wits, and threw my feet to the stars.

In a minute, the first black mast appeared and nudged my boots once, then twice, to the west.

In another minute, the second fox grabbed my right index finger in its mouth, and began tugging me in the same direction toward camp.

I followed them a half-mile to my camp, and we shared supper.



 The malachologist John Dupont has left a withering monument in his seashell museum of natural history with 3 or 4 visitors, but a list of 20 founding Dupont donors.

One can see the signs of madness in the displays enumerating the 5 classes of mollusks.

I found the exhibit of volutes particularly interesting as it similar but much smaller to my own collection, but I did not harm any of the squash players I have coached.



Let's say that US manufacturing continues to comeback. How much of an impact will that have on the US economy. Manufacturing doesn't seem to generate the jobs it once did. Roger Arnold's suggested that it's unlikely to ever do so again. It may generate wealth, but for whom, and where does that wealth go? Back into the US economy? Outside the US? Would such a development foster income inequality? The re-unionizing of the economy? If manufacturing begins to again create wealth in the US to an increased degree than in the past, will that lead to a strong dollar? Lower interest rates? Perhaps an increase in the velocity of money?

Or is manufacturing sufficiently small as a part of the economy that the effect is muted at best, no matter what it might be?

Or is the effect irrelevant because once oil prices rise (albeit not to their former highs), manufacturing in the US again becomes inefficient compared to elsewhere in the world and this is just a temporary blip best ignored.

anonymous writes:

Where any wealth goes is a function of taxes.

Assume for a moment that energy is free, such that manufacturing could occur anywhere. Where then would it occur? That depends on the other costs. Labor immediately comes to mind, but quickly followed by robots who tend not to unionize. So labor might not be a determining factor. Proximity to bulky raw materials might be an issue, but with free energy the costs of shipping are minimized. What then? Taxes, friends, are the ultimate cost of production. Of course certain politicians don't believe this because they have never run a business. However there are examples. Consider those businesses in which the end product is a service. Where do they locate; why in the most tax-friendly place. And those businesses in which the variable cost of production is small, such as pharmas, have been merging to locate the head office in a favorable tax jurisdiction.



China is building a commercial plane. One might expect nothing less from the world's largest economy. However, that said, China still has not "created" a new industry. Neither has Japan. Given the focus on the group as opposed to the individual, I doubt that either ever will. Innovation is, at its core, an individual activity, a gift for the West deriving out of the Renaissance. (I am sure some of the scholars on the list will contest that interpretation, but I submit that it is one reason why economies in countries lacking freedom of expression have little in the way of innovation—if an individual fears saying something, the chances of creating or developing a new idea are notably reduced (if not practically eliminated).

By new industries, I do not mean a new variant in an existing industry but rather something that is transformative. For instance, the British with steel and coal (maybe railroading—I'm still undecided on that one). Italy with banking and music, possibly wool (again, I'm not sure about this one). The US with oil, aerospace, entertainment (media generally? I'm not sure of that one), computers and the net, electronics, atomic energy (and commercial energy for that matter), automobiles. The British, news. The Dutch corporate finance. (sufficiently different from banking as to qualify as a new industry.) Germany, publishing. (I'm not sure about defense and Germany.) And so on.

Britain's development of radar was an innovation, sure. It didn't create a whole new industry. Ditto for Japanese innovation in the atomic energy industry. (Carder's counter to this idea.) And for all of the economic growth in the Union associated with the American Civil War, US economic leadership would await its industrial revolution which didn't start until well after that in Britain and wouldn't pass the British untill the 1900s when autos, oil, and entertainment began as industries in the US.

Not every industry was created by one country. The pharmaceutical industry for instance was a creation of Germany, Switzerland, and the US. Ditto for chemicals. The British and Germans together developed the chemical industry.

I don't think it's an accident that creating these industries took place during the height of the economic influence of these countries. China and Japan have shown an amazing ability to grow economically by perfecting existing industries, but there is a limit to how much one can grow an economy in taking this approach. This may be contributing to the Japanese malaise. The Soviets did the same thing in its push to industrialize during the 1930s. It caught up. It didn't create. And it was no accident that the Soviet economy topped out in growth in the 1970s.

There are some interesting corollaries from this idea. First, for all of the rancor about the US going in the wrong direction, the US has been creating new industries. The internet was an industry created in the 2000s. (Were there internet companies in the 1990s. Sure, but as an industry? I think one can reasonably challenge that idea. It wasn't sustainable as an industry until the 2000s.) That said, I'm a bit challenged to name other examples in the US, though I'm equally challenge to do the same for the rest of the world. Maybe that's why global growth is slowing down. Just a thought on that one. I have to wonder though, what new industries will develop in the digital economy. And I'm not sure how to categorize the "sharing" industries like Airbnb. Is there even an industry there?

And for all of the problems of a government program (centrally planned) like Apollo or the Manhattan project, there were whole new industries created in their wake—developments that in diverse ways paid for the costs of those programs. (I'll note as well that for both Apollo and Manhattan, the science was pretty much established by the time the projects were launched.)

Another corollary is that for all of the interest in the economic growth of Europe, the Europeans haven't produced a new industry in at least a century. European economic growth will likely be stymied until one again sees new industries emerging in it.

Is this thesis flawed? Maybe in some aspect, but I think the observation stands. Is such innovation the cause of economic growth? I won't go that far. But it is at least an indicator not only of economic growth but of economic leadership. I don't see such leadership coming from China or Japan anytime soon. Will China remain the largest economy? Perhaps. But as the Soviets demonstrated, there are real limits to how far an economy under a totalitarian government can take an economy (and that's beyond just being centrally planned, which has its own set of problems).



 I bought this little Washburn rovèr travel guitar for travel. It was really cheap and must be made in China, but the amazing thing is it plays well, is built with good precision, is in tune and sounds surprisingly good. It came with a nice case. The parts must be cut by computer. It's one of those deflationary things that are cheaper but better and better.


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