"Exercising the right of occasional suppression and slight modification it is truly absurd to see how plastic a limited number of observations become, in the hands of men with preconceived ideas".

-Francis Galton, 1864



The numbers on Payroll Taxes are quite bullish. However if the Jobs Report shows similar, the stock market response could be negative, anticipating hawkish Fed moves.

The big difference in the data is that the BLS Jobs Report indicates jobs without any discrimination as to actual earnings. That is, a $10 per hour job counts as much as a $1000 per hour job. Payroll taxes intrinsically reflect the quality of the job.

Victor Niederhoffer writes: 

And yet Erica Groshen is still Commissioner of Labor Statistics and she's a very good friend of the Chair and they frequently speak together at testimonials and I believe coauthored an article on inequality together. However, unlike Erica, I have not been able to find evidence that the Chair sent her kids to Camp Kinder the way Erica did.

Bill Rafter writes: 

Today's comments by the Fed Chair give us an interesting observational platform.

If the Jobs Report on Friday is bearish on the economy, then it would appear that the Fed Chair was informed and stepped in before the release to keep the party going. (Whether such response is good is debatable.) Note that the survey period for this month ended on Saturday March 12th, so there has been plenty of time to inform someone who has a need to know.

However if the Payroll Taxes are correct and the jobs numbers are bullish on the economy, then the Fed Chair must be either poorly informed or illogical. Neither is comforting. In such a case one might question the need for such a Fed.



Recently I found some interesting papers on SSRN by Hilary Till . She gets 54, 65, 81 uploads. No joking. And then there are some really superficial papers about momentum and they get 80-120k uploads. Those are at the top in uploads. It is interesting. There is definitely a momentum in cheap momentum papers on SSRN.



 The Seven Pillars of Statistical Wisdom by Steve Stigler provides an illuminating and entertaining foundation for statistical activity. The seven pillars are Aggregation, Information, Likelihood, Intercomparison, Regression, [Experiment] Design, and Residuals. Every page of the book contains something fascinating and instructive.

It is at once an adventure story, a history lesson, a textbook on the foundations of statistics, and a tour de force with ingenious extensions of the works of the great in each field in Stigler's own inimitable hand — a persona that reminds one of Stigler's heroes, Galton himself.

The level of the book is such that the layman and the expert will both gain from it. I found every page insightful and it uplifts one to be part of a field with so many ingenious founders, and to know that there are such pillars that hold the edifice up.

I recommend the book highly. It is a masterpiece classic that will live forever.



 This is a fascinating article that leads me to imagine how much more the subconscious mind performs everyday with the visual signal without our awareness. Is it at work when we read something? If it is, then it could get different meanings of the text from our understandings. How much could the difference matter to us? Surely it is at work when we look at trading charts. Does it have a better way to trade the charts than what we are aware of? How can we best know what it tries to guide us? Perhaps this is a strong hint on the benefits of meditation, by which we are supposed to obtain clearer understanding of the situations we are in.


"A patient with bilateral damage to primary visual (striated) cortex has provided the opportunity to assess just what visual capacities are possible in the absence of geniculo-striate pathways. Patient TN suffered two strokes in succession, lesioning each visual cortex in turn and causing clinical blindness over his whole visual field. Functional and anatomical brain imaging assessments showed that TN completely lacks any functional visual cortex. We report here that, among other retained abilities, he can successfully navigate down the extent of a long corridor in which various barriers were placed. A video recording shows him skillfully avoiding and turning around the blockages. This demonstrates that extra-striate pathways in humans can sustain sophisticated visuo-spatial skills in the absence of perceptual awareness, akin to what has been previously reported in monkeys. It remains to be determined which of the several extra-striate pathways account for TN's intact navigation skills."



 "Johan Cruyff, footballer - obituary: Proud and mercurial Dutch football star who developed a fast-moving and fluid
style of play"

Anatoly Veltman writes: 

OMG Stefan! I was a big fan circa WC 1974 (could it be his upright "arrogant" posture?) As the youngest Master of Sports among all official sports in that era's Soviet Union, I think I was pervasively identifying.

In most of the 10×10 checkers games (each game lasting 4-6 hours in a daily round-robin) that I won in category under-19 (I wasn't 13 yet), my opponents felt somehow crashed right out of the theoretical openings. Their sitting posture at the board was somehow deficient, believe it or not. They might have been more gifted tactically, and counted forward better than my max. 30 or so moves - but they felt I somehow had strategic grip, and they slowly relinquished key cell configurations, resorting to (the inferior) off-center surround strategies.

RIP Maestro Cruyff.



What is the difference between the "smart-beta" index built around "momentum factor" (offered by Russell or some other index provider) and a trend-following CTA? It seems to me like a lot of smart repackaging (trend-following is now called momentum since more academic research is about momentum, trading is now asset allocation, etc.)….

Aside of fees, of course :-)

Ralph Vince writes: 

All trading systems can be represented as indexes. (even your simplest, go long here, flat there, short here, has aggregatge weightings of 1, 0,1 on the various positions — cash always 1-position weight).

All portfolio models, can be represented as indexes.


Trading Systems ~ Portfolio Models ~ Indexes (~ representing "equivalent to")

It's a matter of packaging.

And further building on this edifice scratched in the walls of my darkened cave….

And all long positions ~ short put + long call of same series.

And all of this occurs within the hyaline manifold of leverage space, which readily explains things that are often not so evident on the surface (such as why a short etf will have a long-term downward drift, as well as all leveraged ones, just as with any form of portfolio insurance) and on and on and on and on.)

Rocky Humbert writes: 

Ralph articulates this well.

I would add one point:

We know as a logical syllogism that the overall return from an entire market (to all participants) is the overall return from an entire market. Putting aside the mark to market paradox, if I were the sole market participant and I owned the entire market, then my return would be the intrinsic market return (i.e. cash flow, profits, dividends, etc). And if there were two market participants, then the intrinsic return is shared between those two participants. Again, mark to market paradox notwithstanding, just as it is impossible to squeeze blood from a stone, one cannot produce a total return that exceeds the intrinsic market return. The only question therefore is how to allocate the return — which, beyond the intrinsic return, resembles a zero sum game. (Some people here call the intrinsic return, "drift", but it is really dividends, retained profits, etc.)

An academically pure index must capture the entire market's intrinsic return. And it would do that by owning the entire market capitalization of that market. The S&P500 doesn't do this exactly — the index owners exercise nuance and discretion — and that process might give some opportunities to the smart-beta crowd. That the S&P is market cap weighted further gives rise to the mark to market paradox (i.e. the starting point when one purchases the entire market cap).

But if one could actually purchase a piece of the entire market on the day of the market's creation — and own it until the end of the world — that investment will produce a return that will, after taxes and expenses — beat holding any given smart beta strategy for the same duration. This is a purely theoretical point — because during any given holding period, some particular smart beta strategy will surely outperform. Again, it's a mark to market issue. So the goal is to figure out which one will and which one won't. (Assuming that this is possible!)

So yes Virginia — there is a pure index. But it is theoretical ideal.

anonymous writes: 

I used to trade and develop "smart beta" strategies back at the fund.

I don't think there is an established "this is smart beta and this is not," but I can tell you as to what people expect. The momentum strategies are a bit different than typical CTA trending strategies (not using crossovers for example). Instead momentum is tracked by other measures such as relative performance across sectors and going long/short the best/worst performing ones.

The implied idea of smart beta, which is not exclusive to CTAs, are the other benefits of using these strategies amongst others in a way that utilizes portfolio construction or a dynamic weighting strategy (like monthly rebalancing on vol).

The goal with smart beta is to not produce alpha outright, but to accept that the majority of alpha has been "sapped" and you are now using diversified strategies that have a known cyclical alpha. This is where you get into gray area but I differ the two by saying:

alpha means the sharpe significantly deteriorates as others discover the method smart beta means the sharpe has already significantly deteroriated, but because it has, you can more easily predict the regimes in which they work/don't work. For example, AQR's paper: value and momentum everywhere discusses the idea that momentum (continuation) and value strategies (mean-reversion), tend to have negative correlations, albeit both strategies have lower sharpes (0.4 to 0.7).

anonymous writes: 

Assume, all flows as dividends etc produce an intrinsic market return of zero over some point. Trader A loses 10. Trader B gains 9 (dont forget the vig). Ok till this syllogism its a zero sum game

A sold at 100, B bought at 100.
A stopped out at 105.
B stopped out at 95.
There must be a C or a CDE.. and so on and so forth.
Still sounds like zero sum. 

But if over a length of time some stay in the game, majority keep dropping out. Then it becomes a series of zero sum games.

Next, If A,B,C,D,E…. et al become very large numbers then its a zero sum game between those who stayed in the game up to the point the non participants came in. This also explains the Lobogolas.

Market therefore is a variable sum game. People vary their exposures, they vary even their presence for prolonged periods of time. No one rides an investment bus permanently the way sage does. Normal people buy stocks with an "intention" to sell at some point.

The drift in equities is explicable by a fact that it is the only asset class where reinvestment in growth occurs. For Indian equities I have had calculated in the past it mimicks the curve of (1+GDP growth)*(1+inflation). Perhaps true for other markets too. Given in the long run supernormal profits dont exist, its the ability of businesses to pass on inflation to their customers that produces the drift in their cashflows and thus stock prices. 



It is interesting to consider the standard deviation of the daily change each day of the week from the preceding close to the day 2007-present. While we're at it a daily algbrc change also.

 day of week     stand deviation    av algbrc change

             Monday           16              -0.4
             tue                 17               1.2
             wed                16.5             0.0
             thur                 17               1.0
             fri                   15               -0.3

The changes listed — Monday is the change from Friday close to m on close. Etc.



 As Mr. Vince knows better than anyone, the variance of a sum is equal to the sum of the variances. I believe the market ecosystem works its magic each day of the week to do its damage and make the public lose more than they have any right to lose every day of the week without regard to levels or rest.

Ralph Vince replies: 

Which, by extension, we would expect the one-trading-day-variance from Friday to Mon to be the tamest of the five, consistent with your results, but not proof that weekends don’t matter.

If you could trade on Sat or Sunday it would be expected to get out of line compared to what we see from Friday come Monday, yes?

Victor Niederhoffer comments: 

The NYSE and many of the Asians I believe used to trade on Saturdays, and the changes on Sat were very small relative to the other days. I believe it’s because there is not as much damage that the collectivists do over the weekend.

Ralph Vince comments: 

When NYSE was open on Saturday, wasn’t that only half-day sessions? Us millennials know nothing of those bygone days.

Victor Niederhoffer writes: 

In the good old days, trading continued well into the evening at the fifth avenue hotel and the curb.

Anatoly Veltman writes:

Just got back from Seafire grill and I see this about the good ol’ days. Among other things, in my 1980’s better days, gold was only offered during Shabbat by HK dealers, and only a couple of hours. One memorable curb occurred after the Friday Oct.13th, 1989 Comex close. Late that Friday, following the UAL deal collapse, stock futures closed basically limit down. Gold futures that were closing full 1.45h earlier, didn’t discount any of that. I stared down a dozen screens, so I was anticipating SP technical troubles way ahead of the field. I kept soaking up gold offers all day - yet the darn contract barely edged up. My partner on the floor, who among others had no concept of what might have been transpiring with the stock market, kept a better tally: “we’re about 1,000 lots over the initial margin requirement!”

So going into COMEX closing sequence, I tell him: “We have no choice. Announce the offer of 1,000 lots, but please - no locals. Just keep yelling out “1,000 or nothing!” Don’t hit any partials.

No one took’em… An hour after COMEX close a good bank friend calls: “I heard you had some. Any market?” I give him .5% above Comex settle, he says buy’em, I say “1 bar mate”, he says “appreciate”. Half hour later he says “Aron is looking, help me out” (that’s Goldman). I give him 1% above settle, he says buy’em, I say 1 bar mate, he says “Wise. Appreciate”…And then HK quotes 1% higher and .5% wide - and no trade till Sunday…So Sunday night Sydney opens to a 1% higher bid, which I hit for my remaining 920 extra lots - and they’re thanking me! My broker calls Monday morning: “Any wire coming in?” I say you’ll hate me, but no wire; here is my 1,000 offsetting EFP shorts, I’m no longer your problem, made a quick million in the closed market, sorry mate, HOW ARE YOU DOING! He says “appreciate your concern; lots of accounts really fxxxup” I say sorry, not a freaking soul wanted them during COMEX, I be damned. He says don’t do it too often, and you owe me dinner… Guess what: I never got to buy him that dinner. Despite SP opening limit-down Monday, COMEX traded back down around Fri settle. My 920-lot Sunday opening sale was apparently passed around in Asia and thru Europe like a hot potato, with no one caring about the stock market again, like on Friday. I be damned… 



I received a message from a brokerage of mine that some perceive as working contrary to the interest of clients. It was to inform me that one or more accounts of mine held CHF, EUR or SEK. If I were not aware of the fact, the memo was to serve to inform me that I would be charged interest for holding these currencies.

The message goes out to managed account holders as well who then question the wisdom of holding any sort of position positions with negative carry.

For institutional traders who understand annualized day counts, it seems manipulative and contrary to the interest of the clients. The brokerage makes institutional traders fill out forms indicating their levels of expertise so it borders on manipulative to me to inform both those whose expertise was vetted and those whose money is run by those who vetted the expertise.

Though I have no formal model to incorporate the messaging intentions of brokerages, I have used it to increase my position in a negative carry position somewhat.



 This is a nit in the world of markets, but today might represent a continuation of an interesting trend. In short, the market and DC's utility regulator see the same world differently.

Twice before, DC regulators spurned EXC's attempt to gobble up POM. Twice before, the market guessed wrong. Moments before DC's regulators announced their decision, equity markets projected an approval.

The markets were right. The regulators were wrong. Moments after DC's announcement, POM crashed. Consumers were denied the benefits of a stable utility.

Today, DC regulators plan to announce their new decision. For the first time, the market is pricing POM with an ~ 80 percent probability that DC regulators will reject EXC's proposal.

This is supposedly EXC's last attempt. If DC's regulators reject EXC's third offer, EXC will either appeal to the federal courts or take their toys and go home.

Are the markets right? Are regulators foolish? Will POM jump?

I don't have answers except to point out the obvious: At midday there will be volatility around EXC and POM.

If DC rejects the merger again, POM is a dead company. No utility will attempt to acquire them. Their regulators will prevent growth. Shareholders could lose dividends. Consumers could lose reliability.

Enjoy the entertainment. Enjoy the day. DC's cherry blossoms are out in full bloom



 It's clear to me personally, that whatever the mouthpiece for the Fed will be next week, will try to tepidly unwind a bit of dovishness that triggered the USD collapse this week…

A much longer term consideration is that I'm speculating that USD will remain the world's single reserve currency for quite some time, despite the growing mountain of debt. This will keep US inflation in check, no matter what horrible deficit picture will need to be addressed from time to time. And Europe's inflation will be checked by wage stagnation. As to the emerging markets' real world: they have decades of survival experience with 5-10% inflation, and such would not be an issue to their economies and population.

Stefan Jovanovich writes:

Could we all agree to stop using obsolete terms like "reserve currency"? The term had a specific meaning before 1914 when banks throughout the world held pounds sterling as a reserve against calls for specie redemption by their depositors and counter-parties. It had a shadowy meaning after WW 2 when central banks agreed that the U.S. Dollar would be treated as being as good as gold, but no part of that Bretton Woods notion of the dollar as a reserve currency included the right to demand specie itself from either the Fed or the U.S. Treasury. If people and banks and central banks now choose to own dollars, they do so because they expect to use the dollars to pay someone else or they expect the exchange price of the dollar to rise against another currency or currencies. There is no reason to believe that people's preferences for holding dollars has any direct effect on the prices of goods and services traded in open markets, given the fact that all "major" currencies can be fully hedged and arbitraged. In such a world "inflation" itself has no independent meaning that can be distinguished from changes in exchange rates and price increases that are caused either by reductions in supply or rising demand. Monetarist theory itself becomes a tautology when all legal tenders are central bank IOUs.

Anatoly Veltman writes: 

Thanks Stefan! To re-iterate the technical picture: I anticipate very profound USD strength going into Q2 2016. This will test the commodities anew…And curiously, I also anticipate Yen's renewed strength - albeit after it first digests its sizeable 2016 gains to date. There, I'm at a bit of a loss for fundamental explanation: to envision this peculiar global macro scenario, in which both the risk currency USD and the risk-off currency JPY will suddenly dominate Q2!

Stefan Jovanovich comments:

Almost from the first day Vic was kind enough to let me wander in from the street, I have been panhandling his List's members for answers to my foolish questions. Thanks to AV's recent comments, I think I have found another.

It always puzzled me why people who traded stocks, futures and bonds were so sensitive to what a government spokesman said or was rumored to be about to say. Why should the people who were directly engaged in the most directly competitive of enterprises want to know about stale information from people whose idea of risk was going to a new restaurant on their government-paid expense accounts? Why would Henry Kaufman's guesstimates about M numbers be able to move the markets?

"Markets" are no more "free" than trade is; what distinguishes them from autocratic directives is the fact that their activities are open to anyone willing to make a bid. That is stating the obvious; but what is not so obvious is the fact that people use their bids in open markets to offset the risks from autocratic directives. The markets move in response to government (fill in the blank as to type) statistics as a hedge against (1) what those statistics are likely to make the government do and (2) what future bids are likely to be after the government "does something". A market cannot controlled by the government; if it is, then people stop coming into the room to bid. But all markets, because they settle in legal tender, end up being like taxpayers; they have to account for what the large idiot in the room will do.



 The NY Post had a splashy (in both senses) photo of President Obama on the tarmac greeting the foreign hoo-ha of cuba. There were several dignitaries in evidence as well as a number of Secret Service men, as is usual in all such circumstances.  You know that old adage, A picture is worth 1,000 words? This picture says more, some of which –surprisingly–show learning on the part of our obdurate and preternaturally untransparent 44th. Or maybe his chief of protocol finally earned his keep by orchestrating the noted change in comportment. Let us count the ways.

In previous such outings in rain or storm with President Obama, his Secret Service detail were shamefully abused by being forced to hold umbrellas over the heads of Obama and whomever else he thought warranted the cover. To outside observers, this may not seem a big deal, but to cognoscenti, the use of Secret Service agents for any purpose other than alert protection is unlawful. The President was informed of this misuse of his protection services by the Service. In this newest photo, as he makes what he hopes would be a legacy-cementing jaunt to the miserable Communist country at our foot, he holds his own umbrella.

Note that he is holding it over himself. The foreign dignitary he is shaking hands with does not have a cover, nor does anyone hold one over his head. Obama shakes hands with Cuba's foreign minister Bruno Rodriguez, his tall elder daughter in sneakers behind him.Three men appearing to be Secret Service, a few females standing behind the Cuban foreign minister, and…fairly obvious, neither Raul nor ailing Fidel Castro bestirring themselves to appear as a respectful nod to the significant visit by arguably the hegemon of the continent, if not the globe. This is the man who has loosened the restrictions on travel and trade that mean billions in sales, inflated hotel usage, tourists and the like, to this decrepit country hobbling along until either death or takeover frees the population from 60-year-long Castroite handcuffs.

Two nondescript greeter-women, without umbrellas, hold flowers, presumably for the President. They do not look enthralled.

Slap in the face to the United States, as airstrip pomp is noticeably lacking for this apparently self-abasing chief executive, who has extended more than a 'hand in friendship' to the renegade longtime Communist country a hop from Florida's nether toe.

It is uncertain whether the President will inquire as to human rights on the brutal regime where persons with HIV, for instance, are sequestered, and reasons for incarceration vary from state crimes to poetry that runs against the tastes of the Castros. Prisons are notoriously unhygienic and unmodernized,far from the conveniences and allurements of Guantanamo. No squash courts, recreation, reading material or niches for korans, exceptional menu fare that puts pounds on the once-rangy frames of terrorists caught on the battlefield in Muslim lands of cruel call. No telling if he'll request extradition of our criminals, like Joanne Chesimard, AKA Assata Shakur.

Ready and waiting for a tell-all doc by the pubic-faced obeso, Michael Moore. Documentarian of the assertion that Cuban medical care exceeds that available on the mainland. Maybe with Affordable Care Act implosions, price hikes and disreputable absence of actual care, Moore is the person to shame this President into a belated recognition of ACA fails. Naah.

Next, note that the President is again bowing from the waist to the foreign minister, as he did, notably, with the Saudi king early in his regime. (Obama's regime, not Abdullah's.)

The protocol is that US Presidents never bow to foreign leaders. It lowers our prestige, and raises theirs. It is not done. Except by the groveler who cannot even yet, after seven years of making our country visibly weaker (ask any African head—the weaker we get, the weaker they get. Talk to any small-nation potentate, such as the leader of Togo, trying to stay free) abase his country enough.

Third, the sissyboy we have seen on girlie bikes while he is on his multimillion-dollar vacations in Martha's Vineyard and elsewhere is a sissyboy here, too. If all the men in the picture but he are without umbrellas, why does he have to be the sole meltable? It may be all right for Sasha to hold an umbrella, since she's female, and her clothing or shoes or hair may have set the American taxpayer back five-figures, as we have read recently. Her graduation dress reportedly cost $30,000—nice work if you can get it. But this president: Does he have to be the nerd o' nerds? Be a male, O. Just because you live in a permanent protected bubble does not mean you have to lose your manhood. If the Cuban Foreign Minister can cope without a bumbershoot, you can, too.

Fourth, note the smile on this "statesman's" face. Can you imagine Presidents Reagan, Bush 41 or 43 or Eisenhower making such photogenic tools of themselves for an enemy nation, even one on the verge of taking further advantage of the US? Why not be presidential, greet ministers he meets with reserve and decorum? One notes that in Obama's forthcoming visit to the United Kingdom, Queen Elizabeth will not be meeting with this President. No doubt a considered response to his slap in the face to Great Britain when newly anointed 44th president, B.H.Obama, unceremoniously returned the iconic bust of Sir Winston Churchill, hero of the Second World War,on his White House ascendancy. And Obama's shockingly narcissistic "gifts."

A smaller photo in the Post article showed the President near his multi-million-dollar Beast, an armored car the likes of which no man on Earth has ever had. He's smiling the signature wall-to-wall grin we've seen for seven and a half dispiriting years: Mr Ecstatic, cruising in Cuba. How winsome.

How much power can be exerted by such a namby-pamby leader-from-behind? There you have it: 1,000 words matching those telling historic snaps.



 There are many whom one might point to and declare that they are an architect of our society, or that the world would likely be dramatically different had they not strode upon the face of the Earth. Some might go so far as to suggest that the impact of someone is so great that the current world is practically impossible to conjure in the absence of that individual. Andrew Carnegie, Alfred P Sloan, Steve Jobs, and Bill Gates are all in that category.

So is Andrew Grove. Or I should say, was Andrew Grove, who passed early in the day:

I wrote recently about Grove’s place among the Intel Trinity. Unlike his peers at Intel (Moore and Noyce), Grove was directly involved in the creation of Wintel and all that it encompassed. Whether one thinks in terms of PCs, the internet, or the electronic controllers in automobiles (among other places), one sees Grove’s handiwork. It would be easy to wax poetically about the man and his accomplishments. He was not only a phenomenal CEO who shone in an age of phenomenal CEOs, he was a phenomenal teacher, both at Intel and at Stanford University. His course in the Graduate School of Business was easily the course most in-demand on the entire campus. At one point, there was a waiting list of GBS students hoping to take the course, never mind from disparate parts of the university.

A refugee (escapee might be a better description) from communist Hungary, Grove might have taken a stance on the political right. He did not, and was among those who championed the Democratic Party in one of the few geographical areas in California in which the GOP was even somewhat competitive. He was a tireless support of the Silicon Valley Jewish community and worked furtively to develop strong ties between SV and Israel. It was no accident that Israel became not only one of Intel’s research centers but also a major microprocessor manufacturing center—and that faith was returned when the plant remained open during numerous attacks on Israel over the years, with barely a hiccup in production.

There is the oft-uttered phrase “We shall not see his likes again in our lifetime.” It seems likely to apply to Dr. Grove. I hope that it does not, however. The world could use many Andy Groves. He will be missed.



You may have heard the following quote:

Philosophy is like being in a dark room and looking for a black cat.

Metaphysics is like being in a dark room and looking for a black cat that isn't there.

Theology is like being in a dark room and looking for a black cat that isn't there, and shouting "I found it!"

Science is like being in a dark room looking for a black cat using a flashlight.

Spirituality is being in a dark room looking for a black cat with a torch and discovering "you" are not there.

I would like to add: 

Trading is like waiting for a bookie to get in a dark room first and yell out a spread and then not going into the room until you have locked up one leg of a wider spread, then going in and giving it to the bookie at the tighter spread he is holding on to. 

Of all ideas available, wherein non action is not a possible choice, then choosing the one where one may claim better understanding or lesser severity in testability to handle adverse incursions better, is defined as risk management. 

I disagree with the definition of science, since the moment you have a flash light on, the room ain't dark any more. So will instead settle if you kindly change that to looking for a black cat in a dark room using body heat sensors. 



It is useful to consider whether there is a formula like I = E/R for markets with appropriate random elements. Would a resistor for the stock market voltage be bonds or euro? Does the speed with which a market moves a given magnitude have a differential effect on the future?

Stef Estebiza writes: 

Check this out: "Charging and Discharging a Capacitor"

They know this stuff because right now they are experiencing a flow of money from China/asiatic markets and Macao. They are discharging the capacitor in China to upload that to Macao.

The product of Resistance R and Capacitance C is called the Time Constant τ= tau, the time constant which characterizes the rate of charging and discharging of a Capacitor. But if you use a fixed resistance and change the supply voltage (variable) you can change the time of charge of a capacitor anyway.

So, from 2009 the capacitor S&P 500 was loaded in ascending exasperated way, despite the high resistance (endless but constant). The monetary mass, (the applied voltage) was very high, steadily increasing, just to force the charge of the capacitor, despite strong resistance. The money supply, which, thanks to the tapering they said NOW to be reduced…so, if you reduce the voltage, the capacitor will start to discharge…it has a current when it has a potential difference, currently, the condenser is charged, it is in full charge, and equals the voltage applied to load it (monetary mass).

So, in real life you can't go over the capacitor features, if you rise the voltage to force a further charge on the capacitor, you risk to destroy it. But…it looks like someone (some kids well informed) short-circuit the capacitor for brief moments. (short-circuiting the poles of the capacitor).

If the resistance across the capacitor's pole is zero (short circuit) the current tends to infinity, as well as the transformation of value from the nominal value (on the markets) in cash. So, yes, like Macao teaches, the important thing, if you remove the tension, you open the circuit so that there is no discharge of the condenser. In reality the capacitor has its own internal resistance that sooner or later download the condenser…SO YES, EUR$ can go to 1.15 and over… (the higher the better to buy then$) (I was waiting) for 1.20/22.

"Does the speed with which a market moves a given magnitude have a differential effect on the future? "( Yes, we are managing a phenomenon of discharge or runoff ).

All that is to help Emerging (see the yuan) Europe and USA (strong $)…Alchemy of Finance if they can manage the crisis and then do the quantitative easing for the masses, everything can get going again, otherwise, they have not understood anything about the current situation.



 This pic shows Vic Niederhoffer with Andrew Romay (born in Hungary in 1922) at the 50 Year birthday party for Roy Niederhoffer.

Andrew Romay survived the Mauthausen concentration camp in March-May 1945, then came to the United States where he became well known as an investor and lawyer in the Hungarian emigre community.

So careful was his due diligence work that the famous phrase was often heard "OK, I am willing to invest if I can come in pari passu with Andy on this deal".



I figure there are a lot of phone calls between central banks [now], namely the Fed calling the shots [just like] after 2008.

I see that after consolidation, the dollar yen ramped up for about 10 months (after the Japanese stepped it up the week after the Fed stepped it down on qe) and eurusd was belted for about 10 months from top to bottom. Funnily enough Draghi had his cake and ate it too. (The last sentence kept the Fed happy).

So how about the USD has a breather [i.e declines] until about October, and then everyone has had their day in the sun [i.e has had a turn at depreciating their currency], and maybe fx101 is back on track.

John Floyd writes: 

I would caution some danger of being too sanguine of such prospects and consider the following question: "What are the differences between 1998, 2008, and the current set up in 2016?".

One might consider the key question to ask preceding 2008 was what was driving the US consumer and what were the prospects for housing, mortgage equity withdrawal, the size of consumption as percent of the US economy, and the US economy as a percent of world GDP.

The vulnerabilities in 2016 are not centered in the US and the emerging markets represent a significantly larger portion of world GDP. China is now the world's second largest economy and emerging markets as a whole account for about 40% of the world's GDP.

But, unlike 1998, the emerging world's weakness is not anchored to fixed exchange rates that were prevalent in Asia and Latin America and public finances are in better shape.

Rather than being US centric fault lines are seen on multiple fronts such as the UK, China, Brazil, South Africa, Russia, Japan, and the European periphery to name a few.

The room for official policy maneuvering is also very different in 2016 than it was in 1998 or 2008.

One of the things I found most helpful pre 2008 was the simple math of looking at the components of GDP by country and the global weights of GDP and anticipating the direction and size of changes. Today, that same math yields some interesting conclusions into the possible outcomes and market reactions.



An interesting area of research is being done at Stanford.

1. "The Sky May Hold the Secret to Efficient Air Conditioning"

Air conditioning accounts for almost 15 percent of all energy use by
buildings in the United States. One way to cut that is to send heat to
outer space, according to Aaswath Raman. 

2. "How do half-inch ants survive the Sahara? Silver hairs, scientists say"

Nature was first! Rather than face predators during cooler hours, silver ants only emerge from their dens at the hottest point in a Saharan day. Extra-long legs keep their bodies as far as possible from the hot sand, and special heat shock proteins allow them to withstand temperatures up to 128 degrees F. But these adaptations can only do so much – any more than 10 minutes in the sun means certain death for the silver ant, so they must hunt quickly, sprinting 70 times their body length every second. and "This is very, very unique," Yu says. "I've haven't seen other examples [of animals] that are so close to perfect in every sense. It is highly reflective in the solar spectrum, so the energy intake is minimized, whereas it's highly emissive in the thermal radiation spectrum, so the heat dissipation is maximized. This is the best thing you can do without electricity. You can only expect to see such extreme engineering in the biological world in such harsh environments."



In two weeks the March Jobs Report will be out (Friday April 1st at 8:30am). The data to be reflected will be that collected thru this past week (March 12th). The Payroll Tax Receipts (distributed by the U.S. Dept. of the Treasury) thru March 16th already presage a Jobs Report considerably stronger than the prior one.



 Summary: Some people just aren't creative, and those that are often don't know when you should and shouldn't tweak a good idea to turn it into a great idea. Is it already a great idea, or can it be made better?

I've often found in my life that inspiration needs to be followed with hard work. An original idea gets tweaked until it fleshes out into something that just works better. And once you have an idea that works better, you continue working to make it even better.

Many people just slog through life trying to make it, living day to day, week to week, paycheck to paycheck and, as a result, never get to tap into their true creativity…..or maybe I have it wrong. Maybe they slog through day to day, week to week, paycheck to paycheck because they lack the ability to be creative and see the opportunity that surrounds them.

I grew up surrounded by these people. Many of them are dead, many are in prison, many have served time in prison. Many of them are just shells of flesh waiting for the spark of life that lies inside of them to extinguish.

One particular memory I have is of a party I went to in grade school at Tommy Notter's house. His parents were supposed to be home, but they weren't that night. So a bunch of grade school kids got into his parents liquor cabinet. Someone even brought marijuana. It was one of my first introductions to the life that most of my friends would choose to live. I declined to imbibe that evening, and had to face much ridicule for my choice to not be cool.

However, that is not the main memory that I have from that evening. My main memory is of sitting on the coach in Tommy's living room and hearing the song "War Pigs" (by Black Sabbath) played on his parents stereo, for the first time in my life. The song absolutely kicked my butt.

For those in this group that enjoy a bit of an edge to their rock, you know what I'm talking about.

Today, I heard what I believe was the original version of the Black Sabbath heavy metal anthem, War Pigs. The song was originally called Walpurgis.

Although Walpurgis is a good song, it doesn't hold a candle to the masterpiece that is War Pigs.

At the end of this missive, I've placed links to both songs for your enjoyment.

Since I've reopened my practice and I'm taking new clients for the first time in years, I've had to work on tweaking my communication skills and, more importantly, my listening skills.

Over the last 20 months, I've noticed a marked change in my results as I become more and more comfortable with my listening and creativity skills.

My results clearly show a move a positive direction, both in client acquisition, client retention and client satisfaction.

For me, it's more of a "feel" thing. Like pilots who say they can fly by the seat of their pants because they can feel the plane and know what to do, that is the way it is my practice. Whether it's ability to see the path of least resistance so that you can lead the prospective client to making the right decisions, or to just know that you're wasting your time with a prospect who isn't going to change no matter what.

The introspection and thought process that goes into the creativity associated with communicating with people and reading people is a valuable skill set and one that everyone could improve on, even if you're not a "people person".

For me, it's a constant journey to improve…..and the biggest challenge I think I have much of the time is knowing when to say, "it's good enough and I can't make it better".

I'm sure there are applications to market and trading….i.e. is your system good (i.e. Walpurgis) or can it be tweaked and improved (i.e. Walpurgis to War Pigs).

I'll let you decide which is better: Walpurgis or War Pigs


War Pigs



The Intel Trinity
by Michael S. Malone

First, this is an outstandingly written book, the post-war industrial biography of the Santa Clara Valley in California. It reads like a novel: Isaac Asimov meets Tom Clancy in the ease of reading. And the story presented is a compelling one. In short, it was an enjoyable read. Let’s dig a little deeper.

One of my majors in college was electrical engineering/computer science. It’s a bygone era. No one remembers much now about Unix, Version 6 (the first version that allowed the computer, typically a PDP-8 or -11) to perform such that one didn’t think there was really a washing machine trapped inside the cabinet of blinking lights. I doubt that many recall when MSI stood for middle scale integration or LSI for large scale integration, indicative of the density of transistors on the chip. Ask an engineering student about an 8080 and you’re as likely to be told that that’s a low starting monthly salary for her to receive upon hiring just after graduation. That the 8080 (and arguably the 8008) is the origin of the modern PC is probably something about which she has no idea.

[This review continues here.]



In the last four weeks U.S. equities have risen nicely. Some were lucky or good enough to forecast what happened (check their records). And there are some who are apprehensive about where the market is now. I cannot guess everyone's motive, but I believe more than a few of the hesitant are so because they fear a further bursting of the Chinese Bubble. However I present to you a brief phantasmagorical tour showing that the Chinese Bubble has already deflated.

In terms of three usable commodities (copper, wheat and cotton) the Shanghai Stock Exchange has mean-reverted to its price in mid-2014. If you are betting on a further Chinese decline, be cautious.



"Many scientific “truths” are, in fact, false"

In 2005, John Ioannidis, a professor of medicine at Stanford University, published a paper, "Why most published research findings are false," mathematically showing that a huge number of published papers must be incorrect. He also looked at a number of well-regarded medical research findings, and found that, of 34 that had been retested, 41% had been contradicted or found to be significantly exaggerated.

Since then, researchers in several scientific areas have consistently struggled to reproduce major results of prominent studies. By some estimates, at least 51%—and as much as 89%—of published papers are based on studies and experiments showing results that cannot be reproduced.

Bill Rafter writes: 

In academia the currency is published articles. It should therefore not be a surprise that many published articles are useless or worse, flat-out-wrong to the point of being fraudulent. Consider that in the United States the typical number of scientific-based papers published in a peer-reviewed journal by a doctoral candidate is ONE. In certain other countries that number could easily exceed a dozen. Consequently the avid reader of scientific papers learns to discriminate in his reading habits against certain universities and certain countries of origin.

Would you do business with a bank that had a reputation for handing our counterfeit currency? And the fact that counterfeit banknotes exist casts suspicion over all transactions.



Time to check on wait times between bear markets:

SP500 weekly closes 1955-present to look for instances when this week's close was more than 20% down from the highest close of the prior 250 weeks (~5 years). Then I checked how many weeks had elapsed since the prior first -20% week.

As of last week's close it has been 222 weeks since the last -20% week, which occurred in Dec 2011.

35 bear markets were identified this way, and the great bull market of the 90s ranks longest between bear markets. Our current wait of 222 ranks 4/35, which could help explain the complaints about helicopter Ben and his mom.

Date          weeks btw bears
03/05/01 644
10/12/87    282
06/04/62    234
02/22/82    211
09/26/66    210
02/28/05    191
12/03/73    191
09/12/77    182
01/19/70    173
06/30/08    159
07/25/11    149
03/14/88    22
11/07/11     15
06/13/05     15
07/11/88     14
06/04/01     13
10/31/88     13
01/03/78     13
05/17/82     12
04/06/70     11
08/25/08     8
03/18/74      8
09/17/62      7
07/09/62      5
12/05/11      4
12/31/73      4
09/15/08      3
06/25/01      3
08/01/88      3
04/04/88      3
02/06/78      3
10/03/77      3
01/21/74      3
07/30/62      3
01/16/78      2



 The beautiful symmetry of the market's fall and decline with exactly the same thing causing the fall and rise in the same amounts, the yuan and oil down and up… but to him that's scientific, there's nothing that's terrific.

A study of what happens when the sold old bulls see unchanged after a big decline in the small and the big is suitably appropriate.



Ag commodities have been on a long downward move close to 40% for over 4 years. I know because I started buying some a while back and am getting slammed.

Also junk bonds have been on a similar downward spiral for years.

However, for the first time in years, both seem to have gotten a bit of a bump.

Not sure if its a continuation of the slide or maybe close to a bottom? I notice a few other things like oil, gold seem to have slowed their declines as well and gotten a bit of a lift.

I wonder if deflation is starting to abate.

Alex Castaldo agrees:

A remarkable turn. I would add that emerging market stocks have also turned up after long underperformance. See for example VWO (Vanguard FTSE Emerging Markets Equities), EWZ (Brazil, an exporter of the aforementioned commodities), etc.



 This has very large implication for AI that go way beyond the already impressive ability to beat a human Go champ. We are starting to see the fruits of what started as neural networks decades ago. Kurtzweil may yet be proven right:

"Google's DeepMind beats Lee Se-dol again to go 2-0 up in historic Go series"

Google stunned the world by defeating Go legend Lee Se-dol yesterday, and it wasn't a fluke — AlphaGo, the AI program developed by Google's DeepMind unit, has just won the second game of a five-game Go match being held in Seoul, South Korea. AlphaGo prevailed in a gripping battle that saw Lee resign after hanging on in the final period of byo-yomi ("second-reading" in Japanese) overtime, which gave him fewer than 60 seconds to carry out each move.

"Yesterday I was surprised but today it's more than that — I am speechless," said Lee in the post-game press conference. "I admit that it was a very clear loss on my part. From the very beginning of the game I did not feel like there was a point that I was leading." DeepMind founder Demis Hassabis was "speechless" too. "I think it's testament to Lee Se-dol's incredible skills," he said. "We're very pleased that AlphaGo played some quite surprising and beautiful moves, according to the commentators, which was amazing to see."

"AlphaGo was more confident than professional players"

The close nature of the game appears to offer validation of AlphaGo's evaluative ability, the main roadblock to proficiency for previous Go programs. Hassabis says that AlphaGo was confident in victory from the midway point of the game, even though the professional commentators couldn't tell which player was ahead.

Until yesterday, the ancient Chinese board game of Go had never been played to a world-class level by an AI. Computer programs have long bested the world's leading human players of games like checkers and chess, but Go's combination of simple rules and intricate strategy has made it a major challenge for artificial intelligence research.



 I have been thinking about the imminent times when SPU closes above 2000 and then to 2018 unchanged on year. Many sold out bulls will come in. There's no emotion more urgent and forceful than sold out bull. You just have to get in and not let the big rally you missed go up there without you. So the public buys when it goes to highs above key levels and sell when it goes below key levels. Thus they sell low, and buy low. With intraday swings often hitting 3% on a day, this is very damaging.

But what is the reason that sold out bulls are so anxious to get back in and resent so much the marker rising without them. We'll have to ask Brett about it. But I have a theory. It's a sperm wars theory. The bulls are like the man who's going out with a hot girl and wants to have kids. The worst thing for him is to have another man get her pregnant. So his ejaculations have killer sperms in them that prevent other men's sperm from fertilizing the egg. The same emotion. It's bad enough to miss it yourself but to see someone else get the goods is worst of all.

Steve Ellison writes: 

The market played me like a fiddle in January, and I lost more money than I had a right to. I had a terrible fear of missing the rebound, but at the wrong time in retrospect. I had this fear as the market's (and my) losses mounted on the way down to the initial low of 1804 on January 20. At some point, my position size (which I have now concluded was too large) forced me to exit in order to ensure survival. After the S&P 500 touched 1804 on January 20, it closed 50 points higher the same day. From that point, I felt like I was missing the rebound, but I was more afraid of the downside risk of revisiting that 1804 point. And even on the way up, the S&P 500 would abruptly drop by 20 or 30 points with some regularity, just to reinforce the fear of the downside.

Brett Steenbarger comments: 

 Hi Vic,

I like the sperm war theory. One thing I've consistently noticed on trading floors is that the mood is downbeat but not despondent when the great majority of portfolio managers are losing. When many are losing, however, and a few are making significant money, there is absolute despair. Similarly, when losing money, traders are downbeat. If missing a move that keeps going without them, they are tearing their hair out. Many have said to me that they'd rather lose money on a trade than not participate in a market move. And when a trader gets stopped out of a long position after a pullback, he inevitably roots for the market to go much lower (and vindicate his decision).

The best traders distinguish between market movement and market opportunity. The worst traders treat all (random) movement as opportunity and excoriate themselves for missing "opportunity".

Victor Niederhoffer replies: 

Thanks for you sagacious observation. And of course there must be some regularities that issue from this phenomenon. 

Brett Steenbarger responds:

Indeed! I recently encouraged a PM to calculate his P&L if he had bought the markets at the points at which he had stopped out. Sure enough, the stops brought negative alpha; his profitability would have been meaningfully increased had he not sold at the lows. Similarly, I encouraged a PM to calculate the P&L only for the portions of his positions he had added once his initial position had become profitable. Those added positions also brought negative alpha. The market can be a cruel mistress indeed!



A good article on regulatory capture is here.  

Carder Dimitroff writes: 

Some observations.

First, regulatory capture is frequently discovered at the state level. State regulators may have built-in conflict of interests that can benefit the regulated. In some cases, state regulators approved questionable investments that appear to harm constituents.

Second, regulatory capture is not a digital issue. It's an analog that is represented by degrees of capture that change over time.

With regard to the second observation, consider fee-for-service agencies such as the Federal Aviation Administration (FAA), the Food and Drug Administration (FDA), the Nuclear Regulatory Commission (NRC) and others. Today, many might say these agencies appear to be free from capture. In fact, they are captured at a macro level. Without customers to pay regulatory fees, their agencies will shrink or they may go out of business. As such, regulatory decisions are often framed in terms of what "the industry" will tolerate.

Keep in mind that "the industry" represents a portfolio of regulated interests. Industry and regulators may allow a few of the regulated may experience difficult regulatory interactions as long as the overall portfolio is unharmed. This is why we see industry associations carefully take on regulators. This is also why we also see revolving doors between regulators and associations.

The art of regulating requires an understanding of timing, incrementalism and return on investment. Regulators can increase regulation incrementally and over time as long as the industry can tolerate (or profit) from changes. In some cases, courts step in and force regulators to speed up the process (Mass v. EPA -

A fascinating scenario is when industry interacts with two or more regulators at the same time. In the Mass v. EPA case where the US Supreme Court required EPA to act, industry went to state regulators and asked for rate increases.

Guess who won in that deal? The regulated and the regulators!



Here's a great video about the fish business, from broker to chef. The fish market is shown first, a big broker discusses the ins and outs of the fish market and supply and demand. The video shows where all of this ends up on a plate. Sometimes a spec needs to look at a cash market for a bit of grounding.



It is interesting to note that the SPU has rallied some 150 big points during the last month from its February 08 close of 1850. It's happened 8 times (with no overlap) since 1996. 10 days later the market was higher 5 times with an expectation around zero. For 20 days later it wasn't that good with 4 of them up, but a highly negative expectation. Strangely, it was neutral for bonds also.

Strangely, since 1996 there have been 25 times non-overlapping that SPU down 150 points over last month but only 8 times up 150 big points over last month. Slight upwards drift of 1/2 point a week during that period. 



 I gave in and rented An Honest Liar documentary about James Randi the other day. A rather decent documentary/biography. "The Amazing" Randi seems to have been an icon back in the 70s and 80s? Sorta the Father of Magicians and Illusionists following in Houdini's foot steps.

The movie opens and closes with Randi saying "no matter how smart or well educated you are, you can be deceived". A lot of what has already been discussed about deception over the years on this site is in the movie. Well worth watching even if for a refresher.

Through age and an almost tragic accident Randi is basically forced into retirement. He then becomes a crusader to expose those that deceive for profiting without being honest about their deception! Backwards I know. Hence the title of the movie.

He completely helps Johnny Carson foil and ruin Uri Gellar, the so-called famous psychic.

Randi exposes a Southern Evangelical that holds himself out as a "healer" fleecing crowded Civic Centers.

Randi feels that the practice of magic/illusion should be one that the crowd knows it is paying to see entertainment. To practice deception for the sake of conning and stealing is ironically morally unethical to The Amazing Randi.

The movie ends with Randi sharing personally that he was deceived and the impact it has had on him.

I feel it is worth the hour to watch. Countless market implications were in my thoughts while watching and thinking about the movie afterwards.



 When I go on a ski expedition or have a musical performance coming up, I spend countless hours preparing the gear, the techniques, the words, training the muscles, lungs, heart, and mind. It is the difference between success and trouble. Books and books have been written on the subject.

When preparing to trade, it's good to be prepared. Have your equipment, the connection, the data, the broker, a back up for everything, power in good order and readily available. Have a clear schedule, and a clear mind. Have the trade situation and prospects well in hand and an opinion and a plan.

Even after doing these things for many years practice is important because the muscles and mind cannot just pick up an activity without hours and hours of practice strengthening the muscles. The mind and inner sense pick up nuances that only come with regular and repeated practice. It's more about hard work and perseverance than talent. It took me a long time to learn this difficult and hard lesson.



"When U.S. air force discovered the flaw of averages"

In the early 1950s, a young lieutenant realized the fatal flaw in the cockpit design of U.S. air force jets. Todd Rose explains in an excerpt from his book, The End of Average:

In the late 1940s, the United States air force had a serious problem: its pilots could not keep control of their planes. Although this was the dawn of jet-powered aviation and the planes were faster and more complicated to fly, the problems were so frequent and involved so many different aircraft that the air force had an alarming, life-or-death mystery on its hands. "It was a difficult time to be flying," one retired airman told me. "You never knew if you were going to end up in the dirt." At its worst point, 17 pilots crashed in a single day.

The two government designations for these noncombat mishaps were incidents and accidents, and they ranged from unintended dives and bungled landings to aircraft-obliterating fatalities. At first, the military brass pinned the blame on the men in the cockpits, citing "pilot error" as the most common reason in crash reports. This judgment certainly seemed reasonable, since the planes themselves seldom malfunctioned. Engineers confirmed this time and again, testing the mechanics and electronics of the planes and finding no defects. Pilots, too, were baffled. The only thing they knew for sure was that their piloting skills were not the cause of the problem. If it wasn't human or mechanical error, what was it?

After multiple inquiries ended with no answers, officials turned their attention to the design of the cockpit itself. Back in 1926, when the army was designing its first-ever cockpit, engineers had measured the physical dimensions of hundreds of male pilots (the possibility of female pilots was never a serious consideration), and used this data to standardize the dimensions of the cockpit. For the next three decades, the size and shape of the seat, the distance to the pedals and stick, the height of the windshield, even the shape of the flight helmets were all built to conform to the average dimensions of a 1926 pilot.

Now military engineers began to wonder if the pilots had gotten bigger since 1926. To obtain an updated assessment of pilot dimensions, the air force authorized the largest study of pilots that had ever been undertaken. In 1950, researchers at Wright Air Force Base in Ohio measured more than 4,000 pilots on 140 dimensions of size, including thumb length, crotch height, and the distance from a pilot's eye to his ear, and then calculated the average for each of these dimensions. Everyone believed this improved calculation of the average pilot would lead to a better-fitting cockpit and reduce the number of crashes — or almost everyone. One newly hired 23-year-old scientist had doubts.

Lt. Gilbert S. Daniels was not the kind of person you would normally associate with the testosterone-drenched culture of aerial combat. He was slender and wore glasses. He liked flowers and landscaping and in high school was president of the Botanical Garden Club. When he joined the Aero Medical Laboratory at Wright Air Force Base straight out of college, he had never even been in a plane before. But it didn't matter. As a junior researcher, his job was to measure pilots' limbs with a tape measure.

It was not the first time Daniels had measured the human body. The Aero Medical Laboratory hired Daniels because he had majored in physical anthropology, a field that specialized in the anatomy of humans, as an undergraduate at Harvard. During the first half of the 20th century, this field focused heavily on trying to classify the personalities of groups of people according to their average body shapes — a practice known as "typing." For example, many physical anthropologists believed a short and heavy body was indicative of a merry and fun-loving personality, while receding hairlines and fleshy lips reflected a "criminal type."

Daniels was not interested in typing, however. Instead, his undergraduate thesis consisted of a rather plodding comparison of the shape of 250 male Harvard students' hands. The students Daniels examined were from very similar ethnic and socio-cultural backgrounds (namely, white and wealthy), but, unexpectedly, their hands were not similar at all. Even more surprising, when Daniels averaged all his data, the average hand did not resemble any individual's measurements. There was no such thing as an average hand size. "When I left Harvard, it was clear to me that if you wanted to design something for an individual human being, the average was completely useless," Daniels told me.

So when the air force put him to work measuring pilots, Daniels harboured a private conviction about averages that rejected almost a century of military design philosophy. As he sat in the Aero Medical Laboratory measuring hands, legs, waists and foreheads, he kept asking himself the same question in his head: How many pilots really were average?

He decided to find out. Using the size data he had gathered from 4,063 pilots, Daniels calculated the average of the 10 physical dimensions believed to be most relevant for design, including height, chest circumference and sleeve length. These formed the dimensions of the "average pilot," which Daniels generously defined as someone whose measurements were within the middle 30 per cent of the range of values for each dimension. So, for example, even though the precise average height from the data was five foot nine, he defined the height of the "average pilot" as ranging from five-seven to five-11. Next, Daniels compared each individual pilot, one by one, to the average pilot.

Before he crunched his numbers, the consensus among his fellow air force researchers was that the vast majority of pilots would be within the average range on most dimensions. After all, these pilots had already been pre-selected because they appeared to be average sized. (If you were, say, six foot seven, you would never have been recruited in the first place.) The scientists also expected that a sizable number of pilots would be within the average range on all 10 dimensions. But even Daniels was stunned when he tabulated the actual number.


Out of 4,063 pilots, not a single airman fit within the average range on all 10 dimensions. One pilot might have a longer-than-average arm length, but a shorter-than-average leg length. Another pilot might have a big chest but small hips. Even more astonishing, Daniels discovered that if you picked out just three of the ten dimensions of size — say, neck circumference, thigh circumference and wrist circumference — less than 3.5 per cent of pilots would be average sized on all three dimensions. Daniels's findings were clear and incontrovertible. There was no such thing as an average pilot. If you've designed a cockpit to fit the average pilot, you've actually designed it to fit no one.



 Showing at the Ahmanson theater in Los Angeles is 90 minutes of mind-bending leftist revision channeled through flagrant disrespect for religion.

God, it turns out, is a sarcastic narcissist who is mildly troubled by his own capriciousness and lack of compassion. These character flaws he launders by noting that we are made in his image…and given our similar flaws who are we to judge. (Bill? Hill?)

We also learn the reason for a large number of same-sex couples in audience. The bible is not to be taken literally and all openings are fair game. The first humans were actually Adam and Steve - with a lisping pet snake - and Steve was a dumb hunk with a good bottom. We also suspect that many of these couples standing at ovation had religious childhoods.

God also tells us he picks on America because we deserve it, that he hates Sarah Palin, expresses shock that Donald Trump could rule the world, disses the book of Mormon, and emphasizes that the bible does not entitle us to own guns. Evidently only governments, criminals, and gods must wield power.

Even to the non-religious it was offensive to witness the disrespect for people who are. I was proud but lonely as the only Angelino sitting quietly at the end. One might expect a play like this in a small theater but now the movement is front and center.

This act of god was a timely tour of the current entertainment/government axis, and put to rest any doubts that one should support the traditions of our shameful past or eccentric conservative candidates.



 "Family Wealth Lasts For Ten To Fifteen Generations: An Interview with Gregory Clark, historian of social mobility"

Clark uses historical records to track surnames and social status over generations, and finds that rates of social mobility are surprisingly similar—and surprisingly slow— across societies as diverse as feudal England, modern Sweden and Qing Dynasty China.

Most social scientists estimate that it takes about three to five generations for a family's wealth or poverty to dissipate, but Clark says it takes a staggering ten to fifteen generations—300 to 450 years—and there's not much the government can do about it. According to his calculations, if you live in England and share a last name with a Norman conqueror listed in the Domesday book of 1086—think Sinclair, Percy, Beauchamp—you have a 25 percent higher chance of matriculating at Oxford or Cambridge. If you're an American with an ancestor who graduated from an Ivy League college between 1650 and 1850, it's twice as likely that you're listed in the American Medical Association's Directory of Physicians.



When the amount of buying is always the same as amount of selling, it has been discussed many times before here that price behaviour is not a game of demand and supply but expected demand and supply. That is also reflexivity adjusted demand and supply.

At a tick, inside the last "exchange" in the pit what is it that is moving the tick this side or that side?

I would simplify for my mind and place on the table an idea that it is the "Path of Greater Impatience". Whether a white shoe firm is "aware" of impending larger clients orders and therefore bidding higher or lower or there is a Technical Analyst anticipating some breakout or reversal and therefore not willing to be patient or there is a news driven, a.k.a. fundamental trigger puller, or there is an HFT machine that is sensing the depths of the order book, anyone who makes impact on the next tick is the one willing to stake a claim that her impatience is justified and is going to be profitable.

Ticks arise on impatience. Prices propagate on impatience. When too many minds and wallets are left into the patience zone, the impatient "in the money" hands get into whipping a notion that the patient will eventually turn impatient. That is where the reversals, small and big happen.

I would leave this note with a cheeky surmise that patience ain't the virtue, knowing when to be not patient and knowing when not to be impatient is the virtue.

Wondering if there is a way to capture from data streams any metrics of what percentage of existing bids and offers in the order book are changing and if such a series of data could be established how would it enhance trading decision making. This could get even more interesting to plot / numerically analyse what percentage of bids and offers are changing closer or away from price, what percentage new bids and offers are coming in and what percentage bids and offers are going out of the order book.



Numberphile has done a nice vid on the Hawkes process and applications:

The Mathematics of Crime and Terrorism

Here is a presentation that dives a lot further into the math:

An Introduction to Hawkes Processes with Applications to Finance

The Wolfram entry



 I wonder if the Olympics will lift spirits. Is it time to raise a selective cane or two?


The last time Brazil had back-to-back years of recession was 1930 and 1931, and has never had one as deep as that forecast for 2015 and 2016 combined, according to data from national economic research institute IPEA that dates back to 1901.


Brazil is on course for worst recession in century.

"The country of 204 million people was only recently being touted as the emerging markets giant that had finally found its feet — with the Olympic Games due to take place in Rio this August symbolizing that new status." and ' "Brazil has never had such a high level of uncertainty and this is freezing everything up. There is no consumption or investment or credit with this historic level of uncertainty," Daniel Cunha, an analyst at XP Investimentos in Sao Paulo, said.'



The NYC Junto will meet on Thursday March 3, 2016 at the General Society Library, 20 West 44th Street. The open discussion will begin at 7:00 PM and the featured speaker begin at 8:00 PM. This event is free and open to the public.

The featured speaker will be Gregory F. Rehmke , who will speak on the topic of economic freedom and its benefits. Mr. Rehmke is the Program Director for, a Teaching Fellow at the Independent Institute, and has directed educational programs at the Center for the American Idea, Reason Foundation, and the Foundation for Economic Education. He co-authored of The Complete Idiot’s Guide to Global Economics.



A very reliable model of mine is the sign “CLOSED” on a store’s door.  It invariably means the store is closed.  But I was just given an example that a slight change in circumstances can render it totally off the mark. 

There’s this corner candy store near me that sells graham crackers smothered in dark chocolate.  I allow myself one a day at the end of lunch and thoroughly enjoy the event. 

So I drive up to the store at 1 PM on Monday and the CLOSED sign is hanging on the front door.  It’s one of those simple ones that says WE’RE OPEN on the obverse.  Elsewhere the hours are posted as 12 – 8 Monday thru Saturday.  But I move on.  Same thing happens on Tuesday. 

Today (Wednesday) finds the CLOSED sign still in place.  Despite what my model tells me, I try the door and find it unlocked and ask loudly if they are open.  A guy substituting for the owner Carol welcomes me and handles my weekly purchase.  And I learn that he had no idea about the simple sign on the door that had been chasing away all customers for the last three days. The owner is recuperating from surgery and the guy never noticed the simple sign.  Another O-Ring example in which a small item has disastrous consequences. 

Again we find that no model is perfect.



The market is down about 60 SPU points from end of year level 2035 , pretty close to unchanged. I thought I mite look to see if when it's close like this at various points in the year and it hasn't been up on the year, there might be some constructal gravitational pull to unchanged. But I found that in early months only 2008, 2009, and 2011 were within a few %, and 2009 and 2011 were very good subsequent year, and 2008 was a very bad subsequent year so nothing regular appeared. I'd be interested in any more definitive analyses of gravitational attraction or lack thereof strike you. With the differential between rate of return on capital and interest rates, my idea is that gravity of unchanged will soon emerge as did the 10% decline fake bear market emerge. 

Peter Humbert replies:

Here are some stats and histograms about what happens with the following condition:

S&P YTD is down but relatively small, but over last 30 days was down <9%.

This has been a rather bullish event! Anecdotally, lots of doom/'bear market rally' narrative folks in crosshairs?

          t+1        t+10         t+2        t+20         t+3        t+30  
count  134.000000  134.000000  134.000000  134.000000  134.000000  134.000000
mean     0.175707    0.854411    0.188060    1.598434    0.312602    2.760814
std      0.979701    2.343549    1.300881    3.234254    1.636851    3.240970
min     -1.436308   -3.545963   -2.039090   -4.239931   -2.367307   -3.145101
25%     -0.480246   -0.942465   -0.714501   -0.814316   -1.077247    0.605604
50%      0.153723    1.411869    0.384118    2.781918    0.524295    3.243502
75%      0.932062    2.768957    1.122745    4.450586    1.648371    5.176882
max      1.729257    3.637647    1.990115    5.190608    2.539770    7.254999



The edge in part related to the vig would be reduced to 0 if there were just 1 or 2 trades a day in  markets. Which time would be best for a non-flexion, non-top-feeder, i.e., the public, to trade if they wished to maximize their wealth?

Andrew Goodwin replies:

Mutual funds have had one price per day in most cases. It has proven difficult to keep various sharpies out of securities markets whether these markets price continuously or just once per day. The names and tactics change.

Ralph Vince comments:

You're referring to the most illiquid of times - which correspond to violent selloffs, not so much sleepy, pastoral markets. The most recent in memory was the open of 8/24/15.


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