Allen Gillespie has delivered a shocking rich tapestry of ideas for profit and research that overwhelms the senses. I studied many of these things 50 years ago and wish I had the expertise to follow up on them. The Confederate paper is particularly interesting and brings to mind what one is often told that the price of stocks on the French Stock Exchange during the Guillotine area kept rising apace. Laurel and I had the pleasure of meeting Mr. Gillespie when he was a budding momentum buyer of growth stocks and recognized him as an extraordinary talent. His growth in many areas is most pleasant to memorialize and note as one of the shining memories of a not entirely nondescript career.

Allen Gillespie writes: 

For what it is worth, tonight's bond retest of the high looks like a classic rest of a high after a momentum break and in equities, many crashes end when the YTD performance goes negative. People hate giving up their year. 

Counterparty Risk was what drove a lot of the de-risking in 2008. Since that time the Fed have made banks hold increasing amounts of capital in "safe" assets (aka government bonds). In announcing that everyone passed the stress test and releasing capital for buybacks and dividends, the bond market has sold off. We already discussed the end of central bank buying but if counterparty risk is deemed to have declined - then the sell-off in safe non-earning assets might have a ways to run.



An interesting reading for people who deal with probability. The last sentence of this article, "Blackwell's Bet", sums it up nicely: "It's unexpected and ironic that an unrelated random variable can be used to predict that which appears to be completely unpredictable."

Rocky Humbert writes:

I would posit something that is market relevant. The envelopes contain positive integer amounts of money.

For simplicity, let's say you open envelope X and find that it contains $5. And we are trying to guess envelope Y.

There are are only 5 possible amounts that are smaller than X: $5, 4, 3, 2, 1.

But there are infinite number of possible amounts in envelope Y that are greater than X: 5, 6, 7, 8…. to infinity.

Since we know nothing about the distribution, is it not reasonable to surmise that Y probably is in that much bigger universe (between 5 and infinity)?

This is intuitive. Not mathematical. The same thing is true for people who trade on the long side. Prices can rise an infinite amount. But they can only decline to zero. Hence, there is a natural edge to trading from the long side ceteris paribus.



This is an interesting article about quants and baseball (which is already deep in stats). Essentially the two quants used stats to get a 5'8" pitcher a berth in the Brewers' farm system. The pitcher had previously been ignored because of his height.



One believes that the tremendous computers at the high priority broker are not set up to liquidate options positions on spiders or options that don't trade till 9:30. This could create a shocking move. On the 8/24/2015 weekend there was a rally from 4 am to 5 am or so before going limit down when the liquidation at 9:30 started. From there it was straight up until the close.

anonymous writes:

​It's a bit too coincidental how many market moving events occur when the US stock exchanges are closed. With all now being electronic, computer-driven, every market could easily trade 24/7, and I wish they would.​

Anatoly Veltman writes: 

Gold up 100 is your sure indicator of big reversals coming in this session.

Allen Gillespie writes: 

Many futures brokers double the margins, so I would think the moves might equal 2x the size of the doubled margin requirements which for most works out to 8-9k per contract. So a 2sd move on the doubled margins just to knock everyone out.

Victor Niederhoffer replies: 

But then the poor public must have maintenance margin of 6000 after the initial move so 80 points is enough to put them well below maintenance.

Allen Gillespie writes: 

Event odds? Does anyone have or know where to get the monthly data for the UK? Specifically, I am interested in the 1931 period around the the British Exit from the gold standard. My working thesis is the Brexit is a similar exit, which I know qualitatively was a 24% currency move and close to the equity lows. I also know the UK lead 21 others ot break from gold with the US finally doing so fourteen months later.  Yesterday, in gold terms, UK shares moved most of that distance but not fully but I believe UK shares might be leading others but it all needs to be currency adjusted. They led on QE and now they will lead on fiscal policy changes.



Education and Age were major variables determining how people voted on Brexit - News Report

One has to love the premise that "school" = "education". If schooling really were so important, then why are the Remains so insistent of having more and more immigrants from people with neither schooling nor the ability to speak/write English?

That was the question that Boris' namesake, Mr. Johnson, asked; but he was unable to get an answer. The same question is asked here in the United States, in a slightly different way. Why should people with African and South and Central American heritage, who are citizens, vote for politicians who want to import - illegally - the very workers who will compete with them for jobs?

I can understand how, in a purely Marxist sense, this is "bad" news for "capital". I can surely understand how this is really "bad" news for the educated, almost all of whom depend on either direct government funding or the compulsions of the regulatory state for their jobs. (Stupid question: What is it that the 117,000 employees of the Department of Justice actually do, given the fact that every Federal agency has their own legal staff?)

What remains puzzling is why the old people should be considered immoral for voting in favor of their share of the spoils while the young and educated are part of the "progress" that comes from having people learn subjects that qualify them to neither take out the garbage nor understand how waste disposal can be better engineered.

Professors teaching environmental engineering throughout the world: roughly 800

Professors teaching sociology throughout the world: roughly 35,000

What should scare the American globalists, whether they are Paul Ryan or Hillary Clinton, is the fact that there is now a vocal opposition, with a candidate who is actually proud to have received the votes of "the uneducated" citizens.

The solution, of course, is to remove us "old" people from the voter rolls.



 1. "Understanding rogue ocean waves may be simple after all"

"You have to account for the nonlinearity of the ocean, which is manifested in the lack of symmetry between the crests and the troughs," said Fedele, who also has an appointment in Georgia Tech's School of Electrical and Computer Engineering. "These nonlinear effects can produce an enhancement of 15 to 20 percent in wave height, which adds onto the effects of constructive interference."

2. And here is an article about the math of it all.

"Real world ocean rogue waves explained without the modulational instability"



 Since I have done stress testing on 2 insurance companies, I could give you many details on the absurdities in the calculations and results, but rather I will give you the philosophical reasons. Neither side really wants to know the truth.

It's like going to a lawyer after the marriage has headed south, not to get a divorce, but so the financial aspects of the marriage are closer to bring the couple closer together rather than a marriage counselor so both sides can admit mistakes and learn to change the dysfunctions in the relationship.

First the government(s), wants to be the savior, not the bad guys in the stress scenarios. Yet if the big banks are to fail the government(s) policies were most likely the cause of the crash. To come the "rescue" of the banks they have to be able to do it without admitting error. They assume that "normal" channels are what will be available.

Further, admitting bias and ignorance of government is not part of the scenarios, yet in the last 60 years we saw a 30 year march to double digit inflation then a 30 year march to negative interest rates. In between a Savings and Loan scandal and a government push to free money for subprime fiasco. Pretending that government is by default "not guilty" and therefore the banks collapse won't result in a literal regime change so they won't be another bail-out is the unicorn assumption.

Second not just the To Big to Fails but all the financials want to assume that their advantage comes from their size an smart maneuvering, not from their government connections. That the markets and their customers/clients may react but won't revolt against them.

The test assume that the leadership acts in the best interest of the clients rather than doubling down and pushing for more and closer government favoritism in times of stress. They may test stress lapse rates but they don't ask if those rates can continue to accelerate or even if those lapse rates changes are in line with "normal" competitive pressure. Since the truth would hurt too much each side pretends they don't know the other is lying.



An expanded Panama Canal opens for giant ships  

PANAMA CITY — A mammoth ship bearing 9,472 containers and the unwieldy name Cosco Shipping Panama on Sunday will become the first vessel to officially pass through the new expanded Panama Canal, a $5.25 billion project designed to modernize a 102-year-old landmark of human ambition, determination and engineering prowess.

The Chinese vessel, which set sail from the Greek port of Piraeus on June 11, will cross the isthmus from the northern Atlantic Ocean end of the 48-mile canal. On Sunday morning, it entered one of the new locks, and during the day, it will transit the man-made Gatun Lake, slip along the widened Culebra Cut through a verdant mountain ridge, then descend through another lock that will lower it into the Pacific Ocean.

Like the channel that opened in 1914, the enlarged Panama Canal is a feat of engineering, albeit one that ran over budget and two years behind schedule. The contractors dredged enough material to fill the Egyptian Great Pyramid at Giza, one of the seven wonders of the ancient world, 25 times over. The amount of steel used could have erected 29 new Eiffel Towers. The Empire State Building could lie down and fit into just one of the three chambers in each of the new channel's locks.

Although cargo tonnage through the canal has risen 60 percent since 2009, Panama needed to expand the canal to accommodate a new generation of container ships, known as neo-Panamax, which are too big for the old canal locks. The new locks are wider than the old ones, 180 feet versus 110 feet, and are deeper, too, at 60 feet versus 42 feet. Officials say the larger locks and new lane will double the waterway's cargo capacity. More than 170 neo-Panamax ships have already booked reservations in the expanded locks.



A prospective client asked me a question the other day. He wanted to know the Jewish word that describes "being a good steward of your money".

Does anyone know what that word (or words) might be?

Thank you!

Marion Dreyfus responds: 


or saichldik  (sensible)

Being a decent chap all around



 Jack Dempsey ushered in the age of big-time sports. He rose from hobo to heavyweight champion to Hollywood celebrity to give boxing the stamp of legitimacy. He grew up in a poor family in Colorado and following his 8th birthday, the 'age of accountability' according to Mormon doctrine, he dropped out of elementary school to work and left home at the age of 16. Due to lack of money, he traveled on and underneath trains on brake rods and slept in hobo camps. Desperate for money, he frequently visited saloons where challenges for fights were common. If anyone accepted the challenge, bets would be made, drinks downed, and a ring cleared. Dempsey rarely lost these barroom brawls and fought under the pseudonym Kid Blackie. With a high-pitched voice under blue-black hair, the skinny kid would challenge anybody for a few bucks and bragging rights. He once walked thirty miles across the Nevada desert from Tonopah to Goldfield for a $20 purse. The use of judges to score these fights was often forbidden, so if a fight went the distance it was called a draw. Otherwise, there were only knockouts. He rode the rails to fights and odd jobs such as a miner, dishwasher, farm hand and cowboy, ditch digger, peach picker, timber cutter, and circus roustabout.

On July 4, 1919 Dempsey entered his first World Heavyweight fight against champion Jess Willard. At 6'1", 187 pounds Dempsey was dwarfed by the 6'61/2" and 245 pound 'Pottawattamie Giant'. Ultimately, Willard was knocked down seven times by Dempsey in the first round and suffered a broken jaw, broken ribs, and several broken teeth. He continued a career with a total of 83 fights, 65 wins, 51 wins by KO, 6 losses, and 12 draws. Dempsey became the prototype for every superstar athlete that followed, including Babe Ruth, by stepping from the canvas or playing field onto the silver screen. And it all started in a boxcar.



Is there a good empirical argument for the European Union? It started in 1999, and "from the cheap seats" (as Big Al says) it seems like things haven't gone all that well over the past 17 years. There have been two huge stock market crashes in 2001-2 and 2008. Immigrants have made large areas into havens for terrorists, off-limits to law enforcement. The "PIIGS" countries have had serial bailouts, and there is huge tension between them and the more responsible Germans. Are things supposed to be better than they were before, or better than they would have been otherwise?

Jeff Sasmor writes:

Doesn't the British parliament have to actually vote on withdrawing via article 50? That will be a rolling brou-ha-ha all by itself. If the British government needs to reconstitute, as they seem to indicate, that process alone could take the rest of 2016.

Furthermore, once article 50 is invoked, it automatically ends in two years, at least by statute, even if the parties have not agreed on specifics. And the UK will be out. The implementation of this untried process should be interesting, to say the least.

So it might be reasonable to think that this process will take perhaps three years to complete, potentially up to five years before a full resolution. So be prepared for endless press releases, speculation, bloviation, etc., from anyone who has a mouth or keyboard; from those who get paid to bloviate to those who can profit from increasing volatility.

But anyone who believes that they know how this will all turn out is either feeling quite grandiose or perhaps indulging in wishful thinking.

The idea that what's going on in the UK and Europe is a template for what's happening here is another example of people extrapolating that situation with their own filters and their own wishful thinking. Believing that you can predict world or market events aside from if-then relationships (i.e., Brexit = Cable slide) is an illusion and is a way to get your head handed to you. We saw this in action last week as those who believed polls and bet on "Remain" got zorched.

Stefan Jovanovich writes:

I do appreciate the irony of the advocates of the EU defending its freedom of trade. The thing is a customs union. If you are inside it, you pay more for foreign goods than the rest of the world does unless, of course, the country has adopted its own rules for freedom of movement. Isn't Trump's wall just another implimentation of EU trade policy? As for banning all Muslims, the Constitution is appallingly specific: Congress can make any rules that it wants and neither the 1st nor the 5th nor the 14th Amendments apply because foreigners are not citizens until they have complied with Congress' rules for naturalization. As Minford points out, leaving the EU will produce greater free trade for Britain because it will lose all the EU's regulatory costs and tariffs - except for those barriers that the current beneficiaries can wheedle Parliament into adopting all over again. It was about sovereignty, Boris. Democracy, as actually practiced, has one great virtue: if a majority of people care enough to get off their asses and vote, they can throw the current bums out and get a new set. That freedom to try something new is the one liberty that no authoritarian system like the EU ever allows, either for individuals or for groups of people.



Any injection of liquidity will look like a feeble effort by a central bank to fight off speculators.  The engineers of this one will claim it is inflationary if they can make their gold go higher.
It was impressive that even though the odds were so close for the brexit vote, that the money with more to move behind it was so lopsided on the wrong side. The engineers fooled those folks watching the gambling sites and BP curves while betting on their historic success rates.
Since this was the most bet upon political item in European history, it is likely it will move around for a while so that the winners are not determined yet.  Max pain is needed for the other side.

Paul Marino writes: 

I'm sure the pound drop has helped but still stronger than I would have expected. Along the lines of the Chair's French Revolution rally during the guillotine days. 



 Tesla's bid for Solar City should be interesting. SCTY is up 20%. I wonder if Chanos will roll his short over to Tesla.

Gordon Haave writes: 

It's impossible to know which companies shareholders are getting screwed, but with this massive conflict of interest where neither board can really expect to be acting faithfully, you can be assured that one of the companies' shareholders is getting a raw deal.

anonymous writes: 

Hypothetically, if SCTY was an Enron, then was this not a masterstroke in staying off the regulators? If there were no public shareholder or lender losers then there is nobody who is going to sue. They all got paid out at a premium. That action was far cheaper than a defense Musk would have had to have worked to defend his main entity. He paid cheap early without settling with regulators or losing his reputation. He also looks to have hurt the man who had it in for him.

Now Musk can turn around and sue for not knowing what he just bought and recoup some of the premium he paid. That will pay his costs when the shorts go after him again. He gained time and space.

Maybe the Chairman figured it right that shorting is a losing game that will lead to an early grave. Musk's server will not have email on it but Solarcity's will. I doubt you can sue for shortsale profits that you did not rightfully earn due to Musk's actions. There will have to be a roll as suggested.

Paul Marino writes: 

The lesson for me is to not short bad credits like SCTY during a bull market in playgrounds where billionaires like Musk play unless you have Chanos' AUM.

anonymous writes: 

I think the lesson should be "don't bet against those with fat wallets". The short game is not one about logic or company earnings, but about supply and demand for outstanding shares. A few years ago we saw a similar scenario play out between those shorting OPK and Phillip Frost, a very wealthy majority owner of OPK. Frost won.



 I wonder if listening to music that you listened to in the past during times of success would be beneficial to performance.

1. "Mamma Mia! listening to Mozart lowers blood pressure…but ABBA has no impact"

"It has been known for centuries that music has an effect on human beings. In antiquity, music was used to improve performance in athletes during the Olympic Games," said Lead author Hans-Joachim Trappe, of Ruhr University, Germany."

2. "Study Finds Brain Hub That Links Music, Memory And Emotion"

"What seems to happen is that a piece of familiar music serves as a soundtrack for a mental movie that starts playing in our head. It calls back memories of a particular person or place, and you might all of a sudden see that person's face in your mind's eye," Janata said. "Now we can see the association between those two things – the music and the memories." 



Release is a word I understood in a totally unique manner through the writings of Vic on the lists through the last decade.

Pent up emotions, that reach the bottled up state gradually over time, get released as any event that is scheduled to happen comes by.

For events that are unscheduled and happen suddenly emotions get pent up very quickly in the first place and then dissipate.

Whatever category of events we are inspecting, whether scheduled to happen or sudden, emotions are pent up and released.

Rational minds, systems, approaches, styles will focus on this process and aim to benefit from it and strive to be not part of this process. That's what perhaps the Reflexivist means when he says markets reward for playing the unexpected. He hasn't likely meant that the winner doesn't expect or speculate buy likely that the winning hands usually play the underdog.

At a scheduled event that has fear as theme puts are already expensive and when greed is around calls are already expensive. Do butterflies work well at the release moment of a scheduled event? When there are many butterflies in bellies, sell the butterflies?

For the surprise event types not talking here about how to handle existing position but leaning on Vic's favoured phrase of how a good trader has many rabbit holes should one be chinking the mind Into separate halves : the survivor and the opportunist working simultaneously? Find the rabbit holes for fastest risk control and simultaneously work on fading the pent up emotion when it arrives to play for the release ?



 Here is a topic of discussion to keep and eye on. "Locked and loaded" is a popular expression currently bandied about. Noise reduction statistics used to tease out vertical component may be of interest too.

1. "GPS Readings Showed Large-Scale Vertical Motion Along San Andreas Fault"

Vertical "lobes" along San Andreas Fault give likelihood of large earthquakes happening within the nex… Pulse Headlines noted that the US Geological Survey predicted a possible maximum earthquake magnitude of 8.0 along the San Andreas Fault, with a seven percent probability that the event could occur within the next 30 years.

In the same 30-year period, there is a 75 percent chance of a 7.0 magnitude earthquake happening. The difference between the two magnitude sizes may seem small, but an earthquake with an 8.0 magnitude is said to have 1,000 times more energy than the 7.0 magnitude quake. To help them understand better the possible damages that these events could produce, researchers modeled a 7.8 magnitude quake with a 2 to 7-meter slippage to represent the catastrophic consequences that it could have on California. They were able to determine that the most damage will happen to constructions straddling the fault. The area that will be most affected will include 996 roads, 90 fiber optic cables, 39 gas pipes, and 141 power lines across the zone.



 During yesterday's Yellen testimony, a Senator asked a profound economics question that we should all be considering:

In essence, he probed Yellen whether the sole effect of monetary easing is to shift forward consumption and investment–that's it's all about timing–and that after nearly a decade of ultra-low interest rates, whether all of the forward consumption and investment had been exhausted.Yellen somewhat demurred–acknowledging that economists agree that there is a shift, but that there are other lasting effects–notably in the housing market.

I was surprised by Yellen's response, especially with respect to investment (not consumption).

Do businessmen lower their hurdle rate on investment based on the market cost of capital? When companies issue new debt and buy back their stock is that an illustration of this effect? And if a company is planning to make a capital investment, does it look at the valuation of its stock as one element of the Capx decision. For example, if a company is considering building a new plant, surely the ability to finance at 3% versus 9% affects the decision…as does the implied cost of capital in its stock price??

Perhaps the counter argument is that this ignores the final demand for goods that come out of the new plant. And it ignores the potential overinvestment and malinvestment that will eventually occur when interest rates are "too low".

But if the Senator is right — then it's not going to be pretty…

Stefan Martinek writes:

Ludwig von Mises ("Human Action") would agree with the Senator:

Resource misallocations => liquidation.

Alan Millhone writes: 

whether the sole effect of monetary easing is to shift forward consumption and investment — that's it's all about timing — and that after nearly a decade of ultra-low interest rates, whether all of the forward consumption and investment had been exhausted.

From the cheat seats, this has been the theory of choice for a while. Of course cheap financing moves future consumption into the present. The problem is that every form of consumption has absolute limits unrelated to cost: We only really need one house, and moving is a pain no matter how cheap the financing is; we bought two new vehicles in the last two years, and my prediction is that we will not be in the market for another one for a long time, no matter how cheap the financing is; if Macy's puts shirts on sale for 50%, I might go buy some, but it won't fundamentally change the rate at which I consume shirts.

Add in the profound effects of China+globalization (and India and other countries as well) as an inflation sink, a strong downward vector on global wages, and a powerful upward vector on productive capacity, and it doesn't seem surprising at all that we are kind of muddling along. The real action globally is the chance for poor people to get less poor. The next big phase will be China and India developing and expanding new patterns of consumption.

Eyeballing the data, M2 fell by about 30% from 1929 to 1932. The Bernank's pledge was that no matter how bad things got in the Great Recession, a contraction in money supply was not going to make things worse, and the Fed kept that promise, as far as I can tell, though some argue they acted too slowly.

So here we are with negative interest rates, sub-replacement birth rates, seemingly endless productive capacity, the interweb allowing the cheap utilization of all sorts of physical and human capital…what's not to like?

Question: When a company buys back the last share of its stock, who then owns the company?

Stefan Jovanovich writes: 

A corporation does not legally exist without shareholders. The last share of its own stock a company can buy is #2. I have often wondered why Buffett did not follow Henry Singleton's model and use B-H's cash to buy in shares when the stock price was down and keep doing it until he is the last shareholder standing. The snarky explanations I have ever come come up with are (1) buy-backs would screw up his successful tax evasion use of the state insurance laws regulating accounting for reserves, and (2) he has calculated that saving the cash for large acquisitions is a better use of his talents, since he is not a particularly gifted trader.

Gregory Van Kipnis writes: 

Had I been Yellen and asked the question and felt free from political retribution I would have answered:

It's not so much a question of bringing forward as it is increasing the set of investment and consumption opportunities which would exceed the hurdle rate (cost of capital in the case of investment) and consumer time preferences (the marginal rate of substitution of present and future consumption). However, nothing occurs in a static environment where only one variable (interest rates) change. If pessimism, risk, and the profit margins associated with investments are worsening at the same pace as interest rates are declining, there will be little positive response from lower interest rates. Take note, however, that economic activity would be a lot more depressed were interest rates not lower. As for the outlook for confidence and profit margins much of that is being adversely impacted by fiscal, administrative and political policies.



 Everyone talks about the weather without defining 'warm' and 'hot' and applying a scientific plan to deal with it.

Yesterday Sunday was a 'warm' day in Slab City, CA. Warm by my definition means the ambient temperature is above the body temperature. One must move and breathe expertly to cool the body. Examples are volitional or subconscious control to move blood to and from the cool and warm body parts such as the skin, bone marrow and internal organs; and breathing in a manner to cool the air in route to the cool and warm lobes of the lung. A seasoned person who can do these things in outdoor activity is only 'warm'. My shirt left in the shade yesterday was too warm to handle comfortably, but shirts don't have the capacity to train themselves as the human body does. I've been out in the desert for fifteen years working up to the harsh summers by driving the car with the heater on full blast and the windows up, and by exercising gradually into the high temperatures. Yesterday it was 120F at 7pm in the shade of the town thermometer.

When it gets what I call 'hot' then I cannot brag so much. This is when even I can die on a leisurely walk without shade. Yesterday I was able to walk 4 hours with 10 lbs of ankle weights and no water. However, the 'hot' days are coming when it will be impossible for me, and I believe for anyone on a sustained basis. 'Hot' is another quantum leap that occurs when the body can no longer shunt blood and breath inside the body to cool itself. Outside resources are required to exist during exercise such as shade, water, and rest periods. Hot c occurs at about 120F or above depending on the breeze, alkalinity of air, elevation (we're 120' below sea level here in Slab City), and haze above a basin that acts as a magnifying glass of the sun's rays. The 'hot' days are coming in August and you may still be active outside using a baggy full of ice inside a hat that melts through a pinhole, drinking warm water (increases the rate of absorption), and resting ten minutes each hour in the shade.

There was a stream of bicyclers and walkers yesterday from Slab City along a 3 mile stretch to the little store that was sold out of water and nearly out of ice. The people thought they were suffering, but the hot weather is on the way.

Chris Tucker writes:

Stefan J. recommended Essentials of Sea Survival by Golden and Tipton recently and I cannot praise the book enough. It has a very thorough and scientific discussion on how the human body retains and sheds heat and the physical consequences of each.

Pitt T. Maner adds: 

My worst experience as an environmental geologist was working in 95 degree South Florida heat, 80 percent humidity, in modified level C with a full-face respirator, fully enclosed in impermeable Saranex.

Young and not overly cognizant of proper heat stress avoidance procedures, my teammate and I would saw cut through cement and then twist and turn a hand auger to collect soil samples to about 4 feet while a nearby gear testing unit engineers went through throttle up and throttle down torture tests.

It was a taste of what the upper circle of hell might feel and sound like. A couple of red devils with pitchforks were all that was needed.

We soon figured out that we could get fully dressed in our PPE and survive in our suits for about 30 minutes at midday before our gloves pooled with sweat and the level of perspiration inside our masks reached our lower nostrils and began to fill our chemical resistant boots.

We tried hard to avoid the feeling of claustrophobia but a surge of panicky adrenaline paid a visit once or twice a day to both of us.

Getting smarter (by trial and error) on the second day we began working earlier in the morning and wore cheap ice vests with pockets for those cool containers you can freeze over and over in the fridge. Each morning session lasted about 3.5 hours and then we weighed in on a scale (usually I was 7 pounds lighter by then) and headed of to an early lunch and rehydration. After and hour or so we would head back for a quick session to get in another 2 hours in the afternoon.

My teammate and I did this for 5 straight days. On Friday we collected our last samples , filled out the chain of custody and lab task order sheets and shipped the samples coolers to the analytical laboratory. Off to 7-11 for water, Gatorade, and 2 cold beers (wasn't a good idea).

For the next week I felt like I was battling the flu. The accumulation of heat stress and environmental stress each day sapped energy–there was no real training effect–there was a breakdown and exhaustive effect on the body and mind.

Fortunately after about a month the symptoms went away.

So if you are doing heavy work outside in high heat conditions you need to not only be physically trained but also aware of the how insidious heat stress can be. Best to know what the health and safety guidelines are on the matter too and take the advice of experienced medical personnel. Hydration, sitting down and resting, getting out of the direct sun, etc. etc. And for the amateurs a buddy to come along or at least someone who knows where you are and when to expect you and/or radio or smartphone at hand. 

Best regards to the desert dwellers. 



 Disclosure: I'm not an expert in this topic. However, I met with my physician. I took the test. The results suggested one critical deficiency. I'm currently on a 12-week prescription of Vitamin D (50,000 IU).

Dylan Distasio writes: 

Based on the fact it's a script and that dose, I am guessing your doc put you on D2 versus D3. Not a biggie, but there is a fair amount of evidence D2 is inferior to D3. D2 needs to be converted by your body to D3. I would recommend just picking up a quality D3 supplement OTC once your script is done. My doc did the same thing as yours when my levels came back low. I don't think your average one is familiar with the nuance.

It's an incredibly important vitamin, the RDAs for it are way too low, and it is one of the few vitamins you are probably not getting near enough of especially during our winters. I don't take a multi but I am taking 12,000IUs of D3 a day divided in two doses. I'm not recommending that as your circumstances may vary.

Carder Dimitroff writes: 

I checked. You are right!

Next visit I'll ask about D3.

Thank you.

Do you have recommendations for sourcing high quality D3? 

Dylan Distasio writes: 

I should add that the best source of D is the sun, and that monitoring blood levels regularly is really the best way to know what is going on (not that I am currently doing so). Regardless of D2 or D3, be sure to take them with some food that has fat in it, as neither is water soluble. In terms of a source, I use Kirkland but a lot have good test results.

anonymous writes: 

Vitamin D follow up from a n of 1…

As mentioned, I had not been monitoring blood levels regularly, but have been religiously taking 4,000 units of D3 a day for a year+ as a conservative dose since I really don't get much sun, and was deficient even by conservative standards on my last physical.

I just got bloods done for a physical tomorrow, and even with 4,000IU a day, I am just barely at the low end of the normal range (>0 ng/mL) at 31 ng/ml.

I should add that through genetic testing, I've discovered I am likely prone to Vitamin D deficiency due to an issue at this SNP rs2282679:

This gene encodes for the vitamin D binding protein which affects the delivery of 25-hydroxyvitamin D (precursor to vitamin D hormone) and activated vitamin D (1,25-dihydroxyvitamin D) to target organs, as well as clearance of vitamin D metabolites from the circulation.

This genotype, rs2282679(A;C), is associated with an increased risk of vitamin D deficiency.

It is known that supplementing with 1,000 IU of vitamin D3 per day generally raises serum 25-hydroxy vitamin D levels by around 5 ng/ml. This may not be the case for people with the affected genotypes, rs2282679(A;C) and rs2282679(C;C), which may require higher vitamin D supplementation doses to achieve the same serum levels as individuals without these polymorphisms.

Blood levels of 25-hyroxyvitamin D below 20 ng/ml are considered deficient, less than 30 ng/ml is inadequate. Individuals with levels between 30-60 ng/ml are considered adequate. Meta-analyses have shown that people with serum levels between 40-60 ng/ml have the lowest all-cause mortality. Regardless of an individuals genotype for this particular SNP, a 25-hydroxy vitamin D blood test available from most health care providers can be useful for providing insight in how to optimize overall vitamin D levels.



Can events be classified into those that have a certain date, but are uncertain in magnitude as opposed to those that come out of blue sky and are uncertain in both magnitude and time? Is there a difference in the market reaction? At a more general level, how many qualitative events such as Brexit have come down the pike to create terrible fear in the market and is this bullish or bearish? And for what time?

Allen Gillespie writes: 

This question is near and dear to my research efforts. If any one is interested in discussing further I have been attempting to get DARPA to reconsider the question as they shut down their program after 9/11 [DarpaPAM ] and instead choose to record all information and to what effect? I have attached a few items on the question.

Biotechs would be in the first class of events given the known timing certainty of FDA events and ability to estimate markets for drugs, pricing, distribution, etc.  Political events to a degree fall in the second - though there may be some momentum towards the event and ability to contingency plan but the time and magnitude of the event may be unknown and the pressures building. Also, political events and calculus are different than market events in that control is the key independent of price (think old school corners, like the Northern Pacific, or strategic petroleum reserves for the US and CHINA in 2008).

Historically, whether an event is bullish or bearish depends on the positioning in relation to the object in question. For example, it would be a negative squeeze if a key commodity (i.e. wheat prices prior to Arab Spring or Oil in the US prior to recession) one imports rises quickly in price and bullish if it falls quickly in price. 

All I known is that defense stocks had momentum before 9/11. Gold has momentum now, however, momentum tends to have a reversal pattern from Mid April thru the third week of august before a re-acceleration. Momentum also tends to turn around calendar points particularly if there are legitimate season patterns or tax effects (for example Jan 1 in the US).

The central banks say you can't recognize bubble but in my experience you can recognize a bubble the following way - when leverage continues to increase and price accelerates despite rising interest rates and future returns are negative - then there is a good chance there is a bubble - I think German Bunds futures reached that point as there are only three reasons to own negative interest rate bonds.
1) You have to [e.g. German life insurance companies]

2) You are so scared as to the future you assume your loss is less than on something else.

3) You believe Central Banks can maintain their corner on the market.

The Euro is Europe's gold standard and has choked many countries. Britain was the first to leave gold in 1931 - so as least some magnitude estimates can be developed as well as an outline of subsequent events. The central planners would hate for Britain to spread freedom once again around the globe and let it be known that markets set prices better than planners. 

After 9/11 it took the market about 3 months to reprice stocks like INVN when it correctly opened the stock around $9 from $3 ran it to $50 by year end which was the cash value GE ultimately bought the stock for year later.

The Japanese and Fed broke the bond corner last week.

Stefan Jovanovich writes: 

A minor historical correction. Britain left the gold exchange standard in 1931; it left the gold standard in 1914, as did all other countries in Europe, when their citizens and foreigners both lost all rights to convert bank notes into coin. The U.S. took a slightly different path, first shutting out stock and bond holders from any exchange rights by closing the NYSE for 6 months and then by allowing exporters to have the Federal Reserve guarantee their customers' IOUs to be as good as gold.  Since all modern academic histories are written with the standard Bernanke assumption that money and its legal tender definitions (and their changes) have no economic effects, nothing written on this subject after 1940 has any relation to reality.



 I was at the Burj Khalifa last week. I am told even before the world's tallest tower currently got completed, the Royals of Dubai went bankrupt.

Yes! The Tower had to change its name from Burj Dubai to Burj Khalifa since the Royals of Abu Dhabi had to buy it out to ensure it reaches commercial delivery!

Now I am told the tallest tower of the world is coming up in Saudi Arabia! What can it do to crude oil? What can it mean for geopolitics?

Since the hubris indicator has a 100% hit rate, I shudder to think of the implications of Saudi Arabia choosing to embrace it now.

anonymous writes:

Could this arguably be different than the other towers as a hubris indicator (I'm aware of the dangers of "this time is different")?

I say this in that the other tallest buildings were built when things were seemingly remarkable.

In this case, it's known the issues of oil and the implications it causes. Instead of hubris is this a last ditch effort?

Gordon Haave writes: 

My opinion is that it is not economics, but rather politics. The wind has been blowing strongly against the Saudis for the last few years. Meanwhile, the Saudis have noticed that the political class and the banks do, literally, whatever they want in the US without consequences. This is just an attempt to tie Aramco into the western financial system so that there will never be any embargoes or political actions against it.



In the gas and electric industries, deregulation began in the early 1990's. For electric utilities, New England was the first region to restructure utilities and create an independent wholesale market. California followed and faltered. MidAtlantic learned from New England and California and they created the most sophisticated wholesale power market in the nation. The MidAtlantic market was called PJM, which referenced their Pennsylvania, Jersey, and Maryland footprint. Over the years, PJM's territory expanded to serve parts of North Carolina, Virginia, Maryland, Deleware, New Jersey, Pennsylvania, Michigan, Ohio, Kentucky, Indiana, and Illinois.

Since the 1990's, new markets formed, old marketed expanded and new players emerged. In addition, physical trading was replaced by financial trading.

The transition from physical to financial created new opportunities for the financial community. Trades have become complex, sophisticated, and fascinating. Some of the most impressive shops create financial packages that combine transmission rights, fuel options, generation assets, and power (one of the nation's most sophisticated operations is owned by Exelon). The result is big players can profit by delivering bulk power at prices below generating costs.

Up to now, federal regulation in this space has been relatively light. One area where federal regulators intrude is market power abuses. After the Enron debacle, regulators have been motivated to monitor markets to assure that no single entity can influence or control a market.

One example is Duke. Some may recall that the Federal Energy Regulatory Commission (FERC) delayed Duke Energy's acquisition of Progress Energy over the issue of market power. The FERC believed that unless there were changes, the combined utilities could dominate and control prices paid by small utilities.

In recent times, market power concerns continue as new players emerge and grow. New players have grown through acquisitions and mergers into large holding companies. Previously small utilities are now part of huge holding companies, which are largely unknown to most Americans.

One such utility has become so large that the FERC has developed concerned about their "horizontal and vertical market power" in the Western United States Concerns have reached a point where the FERC is in the process of revoking the company's authority to sell their power into the wholesale markets.

That large utility holding company is Berkshire Hathaway. You can bet they are reconsidering every option possible to resolve FERC's concerns.

For more, see Law360.



The thing about votes like Scotland and brexit is that after having their say and shaking their fists, many people get nervous and change averse when it comes time to actually mark the ballot.

Stefan Jovanovich writes: 

Big Al's comment needs a footnote. People do not actually change their minds at the polling place. If, as he notes, "they get nervous and change averse", that shows up in the turnout itself. The turnout for Scotland was below what was predicted. My completely ignorant hunch is that the turnout for Brexit will be slightly large than anticipated.

The 2012 Presidential election failure by Romney was the last example of people not voting in large numbers. If the "evangelicals" had, in fact, voted for him in the numbers that their own internal polls predicted, we would be seeing the end of the the first term of our first Mormon President. Romney thought he was going to do as well as Bush had in 2004 and win 78% of the evangelical vote but he only go 76% and there was no greater turnout than there had been in 2008. My back of the envelope calculation is that Romney "lost" 2.5 million potential votes from lack of turnout and a failure to match Bush's percentage. That would not have given him the popular majority; but he would have carried Florida, Ohio, Nevada and Virginia and gained 272 electoral votes. (President Tilden, anyone?) The interesting question is why Romney's campaign did so little to enliven the evangelical vote during the last few months of the campaign; his speech at Liberty University in May was the last time he specifically reached out for the God vote.

You can chalk these back of the envelope calculations to a fit of ecstatic lunacy, if you want. (Eddy just re-qualified for IFR this morning and officially finished her medical residency yesterday and the Giants have won 7 straight.) But, there is an inescapable fact about the 2012 results that does give at least some support for my hunches; President Obama was the first incumbent President to be re-elected with a lower electoral vote total and lower popular vote percentage since the end of WW II. (If you want evidence of how sick Americans get of incumbents by the 3rd year of a foreign war, consider this; the last President to match Obama's poor showing as a successful incumbent was Franklin D. Roosevelt in 1944.)

Happy Father's Day to all.



This is a beautiful rendition of how the public feels when flexions ply their trade.



 The last time ten year german bonds went negative

Orson Terrill writes: 

No. Every episode of hyperinflation involved government essentially going to debt markets, spending it all, going to debt markets to cover interest and raise new money, spending it all….each iteration increases inflation, reduces demand for the debt, and undermines the perception of the currency as a store of value (all equivalents in this case). The plummeting value of the of the currency (hyperinflation) is the end game.

Stefan Jovanovich writes:

The German, Austrian, Hungarian and Italian currency collapses after World War I had nothing to do with "going to debt markets" because the domestic markets for private debt had literally disappeared. In each case the collapse of the exchange value of the currency began with wage indexing; payments to government workers and all those covered by union labor agreements were linked to price indexes, and the governments literally printed the money for those increased payments.
There is one part of the suggested parallel to the present that is accurate. The governments "borrowed" the money from the central bank in the same way the Japanese and American Treasuries now cover all current fiscal deficits.

But there was no problem for these nations' Treasuries to "cover the interest" on their domestic debts; while tax revenues fell behind price increases, they were still more than enough to cover the "old" coupon interest charges on the government debt issued before wage indexing had begun.

As for "the plummeting value of the currency" the German central bankers and Treasurer were completely convinced that their funding the government's wage increases had had absolutely no effect on prices; after all, the price level in Germany as measured by the pre-war gold standard had not gone up at all and German exports were thriving! What stopped the wage indexing was the realization that German domestic assets were not keeping pace; at one point, the entire value of Daimler Benz as a company was reduced to the price the factory was charging in dollars for sending 4 of its phaetons to America.

Bresciani-Turroni's book, Economics of Inflation, is essential reading on the subject. The Mises Institute has a PDF; but one should ignore their own explanation by Thorsten Polleit. He refers to B-T's book but does not seem to have actually read it.

Peter Tep writes: 

Have you read Martin Armstrong's work? He relates Weimar Germany to previous episodes of hyperinflation, which is just collapse in confidence of government and then currency.

Look at Argentina, well at least few years ago. You could go to the street "cambio" to get better rates than the bank. That's loss in confidence.

Don't mean to sound condescending because you gents are far smarter than me! Doesn't hyperinflation require a high velocity of money?

Seems gold bug narrative is fixed to the issue of "money printing", and I don't know the specifics of how repo market works but I thought QE was a swap of bonds for cash and not helicopter money, hence US velocity of money down due to the banks parking at Fed, or in this case the ECB.

Just my two cents, but an interesting conversation for sure!

Gordan Haave writes: 

Stefan, you said "Here in the bleachers we have a hard time understanding the fine distinctions of the forms of central bank lending/purchasing in a fiat currency scheme."

This is by design.

Anyway, it reminds me of art history. When I went to Greenwich High School I spent my senior year in a program called "shapers of the world" which was a western core art, music, and literature program. Then I went to Columbia which had, and still has, the finest western civ core curriculum.

I studied art history for years. One day, sophomore year we were looking at slides in an art history class. I wish I remember the name of the artist and painting, but anyway, it was a landscape painting with a tree in the foreground. One of the secondary branches of the tree was crooked, and the professor said that it was the artists way of rebelling against the conformist society he lived in.

Bear in mind that prior to this I liked my identity as a high-class protestant western civ genius. But, when he said that something clicked. A lightbulb went off in my head that said "you know Gord, this is all bullshit".

Anyway, later in life I studied economics for years and years. I can tell you all the mainstream answers about why creating money left and right is not, in fact, "printing money" as Mr. Tep said above.

However, my conclusion about it is the same as my conclusion about art history. "It's all bullshit".

They are creating money and giving it to themselves to print first, no differently than the way roman emperors called in coins and re-issued the with less silver content.

The rest is all obfuscation.

The key in all of this is not to become a paranoid permabear, but rather to learn to accept reality for what it is and learn to play the game.



 What is the reference to the famous cricket match where a bowler was up for the last pitch and bunted the ball. They protested "this isn't cricketlike" thereby insuring the win?

Rocky Humbert responds: 

From the preamble of the Rules of Cricket:

"Cricket is a game that owes much of its unique appeal to the fact that it should be played not only within its Laws but also within the Spirit of the Game. Any action which is seen to abuse this spirit causes injury to the game itself. The major responsibility for ensuring the spirit of fair play rests with the captains."

I find Vic's reference somewhat amusing as I daresay that Ayn Rand might find the rules of cricket an antithesis to the notion of unchecked self-interest. Too, I wonder how differently the world would look today if finance (and other industry) participants cared about the protecting the "spirit of the game."

Kora Reddy writes: 

At the other end of the spectrum there is Mr. Walsh. I haven't watched chappels incident on tv live, but this 1987 world cup moment is still fresh in my mind almost 30 years later.



 I needed a hook to start in business in 1962.

Perhaps an audited record of market predictions would help.

I enlisted Laventhal and Horwath to audit the predictions.

They were 70% accurate over a 3 year period but they weren't useful at all because there was no futures and they didn't take account of the Fisher Effect.

Many stocks only traded at the open the next day.

But a Hungarian Palindrome found out about the predictions and we started a 10 year partnership.

We played a lot of tennis and chess.

And my kids really enjoyed staying at his Hampton estate in the summers.

But the palindrome was always bearish and he hated free enterprise and speculation.

I was the opposite.

He severed his connection with me in 2008.

The last words he said to me were, "you are going to lose everything when the market goes down but just turn your positions over to me when it happens."

While we were working together a backgammon player introduced me to options.

I saw a big anomaly.

The vol of the out of the money puts was much higher than in the money puts.

What I didn't realize and what I believe no one else realized was the margin rules were such that those who were long the puts held all the marbles.

Among other things, they established the rules and the margins.

A very astute banker once told me whenever a relative asks him for a loan he always gives half and says "That way we'll both lose half".

I believe both players mentioned above lost at least half as well.



In all fairness, the Central bankers must really believe that it is appropriate for them to plan the economy of their country and the world. Indeed, it's in their mandate to stabilize inflation and employment. It's natural for them to try to help along those who share this view which is in the main the party in power now. So we could only believe that what I have suggested for many months now is that they will do whatever is necessary to help the cattle trader along to win, including making sure they don't raise rates right before the election, they will do out of benign purposes to prevent what they see as a Sorosian collapse of civilization from speculators and other evil people who act in their own interests.

anonymous writes: 

"Could Fed rate moves shake economy, White House bids?":

"Whether or not the Fed's actions bring consequences for the presidential candidates, there could be political ramifications for Yellen. Just ask Volcker. After he raised rates, Democratic Rep. Henry Gonzalez of Texas made his displeasure known.

"My friend Henry Gonzalez — I think for, I don't know, 400 straight days or something — at the closing of every congressional session made a speech calling for my impeachment," he said."

Note Sept 09



 It is tempting to think of the Fed and its machinations as stooges for the World State and now the cattle trader and the idea that has the world in its grip, or to think of them as robots programmed to create a backdrop for the firmament, the vast infrastructure of the market, especially the dealers in bonds.

There is a rhythm to their activities that helps the automaton to do their job. One such rhythm is the series of speeches they give, designed by a hand sometimes visible to prepare the market for their fulfillment of their activities. Another such rhythm is that 11 of the last FOMC day meeting announcement occurred 2 days before the quarterly expiration. What shadows lie in the hearts of men?

Stefan Jovanovich writes: 

The hermit and I are teaching political economy to the E*E and his friend, both of whom are smart enough not to bother with Mensa. As the hermit cracked (before he went in search of King Crab), it is the students who took an incomplete hiring the A's. The most recent chapters in the syllabus have been two "name" people who are As - one an academic (Steven Keen) and one the Milo of hedge fund managers (Kyle Bass). (The hermit insists on saving EdSpec for the final lecture - which I (non-counter, non-trader) will be barred from attending.)

We have been using Keen's lectures from his current course at Kingston and some old Bass interview videos to teach E*E and friend our tectonic theory of the credit chain, which goes like this: wars and major inventions (coal and wood fired steam power, small A/C electric motors, telegraph, etc.) are the manias that produce credit expansions. (Kindelberger et. al. have it backwards: the mania is what begins the credit bubble, not what ends it, if you properly define financial mania as the willingness to spend without any regard to immediate reward.) The vastly increased amounts of financial credit (debt issued plus equity valuations) are maintained or further expanded as the new "normal". What breaks the chain is a foreign exchange/credit earthquake. The war winners and the initial adopters of the major invention find themselves being undercut in price by the war losers and secondary adopters and things go snap. The market prices the calamity but it cannot offer any broadly successful hedge because there are no counter-parties who are themselves rich enough to be able to endure the loss of wealth. Then people pick themselves out of the rubble and the lucky and the tough and the enterprising all get to work forging a new credit chain - unless the utopians take hold of the state and abolish markets themselves (Lenin in 1918, Mussolini in 1923, etc.).

The E*E, who is a very quick study, has already come back to us with a comment along the lines of "if Kyle Bass is still so smart, how come his short sale of Japan, Inc. has failed so badly?" The hermit's answer has been "because Mr. Bass has not followed his work to its logical conclusion. Japan can do what Steve Keen wants - have a debt jubilee - and have its central bank buy every Japanese government bond that matures or is offered for sale by the institutional holders - Japan Post Bank, etc. - for yen deposits without affecting the country's exchange rate, even if Japan's current account goes into deficit. There are no large foreign holders of Japanese debt; and with the decline in Japan's exports, there will be lower and lower holdings of yen by Japan's trading partners and other central banks. There is nobody "out there" to make a run on the Japanese currency." My contribution to the discussion was another snarky comment from the bleachers: "As a Texan and the creator and owner of a successful enterprise, Mr. Bass is still an innocent abroad (Mark Twain reference - read it, his best book). At heart he still expects currency to have a fundamental exchange value that is not controlled by the government's sovereign authority. What he sees as xenophobia in Japan is something quite different: a culture's complete acceptance of money as a purely domestic commodity."

"Ok, then, when's the next financial earthquake."

"That is the Slezak question."

anonymous writes: 

Not to put words in anyone's mouths, but if markets were about rules, laws, algorithms, etc, maths and physics types would rule the world.

However they don't but promoters do.

So choose your parents well.



It is good to remember that a "yes to Brexit" vote doesn't mean next day the UK is out of the EU. But if the vote is "yes", there could be meaningful consequences, because it should shift a lot of political capital around within HM's govt and give the brexiteers some leverage. Then the question is whether the EU makes meaningless concessions while dispatching their bag men to pay off the brexit side, or whether they are forced to make real concessions, in which case the brexit/concessions process could become a blueprint for other EU states to follow.



 The feds got word I was holed up at my Uncle Jimmy's farm in Bond's Crossing, SC. I had pole vaulted out of the Utah State Prison. Somehow they got a lead and eight police cars, a black Crown FBI sedan, and helicopter pulled into Uncle Jimmy's driveway. They rushed the front porch so fast the best strategy was to stand still with my newly dyed red hair.

'Do you know James Hydrick?' The FBI agent asked me.

'Shore,' I drawled, 'But I ain't seen him.'

The cop radioed the helicopter, 'Is Hydrick's hair black?' and they answered, 'Yes'.

Uncle Jimmy entertained them as I slipped into the house and got into my Ninja gear, and out the back door.

Before me lay a hilly woodland ten miles in diameter cross-cut with animal trails and streams that I knew like the back of my hand. I was wearing the Ninja black leotards, climbing claws and mask, and melted into the forest.

I ran like a deer for a mile before the baying of the bloodhounds started. I cross-cut my tracks to throw them off at the junctures, and waded in streams. That night I slept in a tree.

The next morning the barking of dogs and shouts of six divisions of law enforcement totaling about 100 filled the forest. The helicopter couldn't see me through the canopy except in meadows, and I risked going into a farmhouse because I was hungry. An elderly lady fed me scrambled eggs and I had just finished when the sound of the hounds drew near. I hid under the crawlspace and one of the bloodhounds came up.

'Nice doggie,' I whispered offering it my knuckles to smell. It licked my hand, and then backtracked me in the opposite direction that threw the police off, and I escaped.

I had taken some Cayenne pepper from the kitchen and sprinkled it on my trail. Otherwise the hounds had my scent from the clothes I had left at Uncle Jimmy's. When I heard the hounds sneezing like crazy I knew I was safe. That night I slept in a tree again.

On the third day I risked going to Uncle Jimmy's.

'Who's going to be Santa in church?' Uncle Jimmy bawled. It was Sunday, December 11, 1982, the Sunday before Christmas.

'I'm going to be Santa, Same as always.' I said.

They put me in my Santa pants and black boots, stuck a pillow under my shirt and donned the top, patted red rouge on my cheeks, and I put on the white beard, spectacles and a red cap. We drove Jimmy's jalopy to the Bonds Crossing Pentecostal Church.

I sat up near the alter in a high chair and one-by-one the kids came up and told me what they wanted for Christmas. Their parents in the pews listened closely.

One little boy tugged my beard and asked, 'Is that you James?'

'I'm Santa.' I replied. 'What do you want for Christmas?'

'Lordy, Santa. You stink!' he said. I hadn't showered from the manhunt.

The congregation chuckled and the door burst open. The FBI agent walked in and down the aisle looking for me.

'Ho Ho Ho' I laughed. What do you want for Christmas?

The assembly laughed and the agent and cops got red-faced and retreated out the church.

When I returned to Uncle Jimmie's a note was stuck in the front door with the agent's card.

'Hydrick. I know we're not going to catch you. Please call me and we'll work something out.'

I called, and promised to turn myself in after Christmas.

I did. It was the best Christmas I ever had, almost as good as the manhunt gift.



The old grain room of the CBOT was converted into an urban golf course for an event. May the ghost of Cutten haunt them.



 Time to torture you all with another of my disreputable acquaintances. This one makes the hermit seem like a publicity whore. He (male, age 30) is not on Facebook or any other social media but is long Pandora and Etsy. I have been pestering him about Bitcoin because (1) I have no understanding of computers, software or any mathematics beyond algebra and geometry, (2) my lawyer brain says "scam" (so does the hermit's FWVLIW), and (3) the parallels with Ivar Krueger (and Ponzi and Madoff, for that matter) are too delicious to ignore.

Here is what the E*E has told me about Bitcoin:

"All computer systems are rife with security vulnerabilities, most of which are due to flaws in the software themselves.

Often times, this pattern occurs

1) Developer realizes flaw in software (like Windows for example)
2) Developer fixes flaw and releases patch
3) Users download and apply patch (via Windows update)
4) Hackers realize how to exploit flaw, and use it to attack people who haven't yet been updated

Although steps 1, 2, and 3 must happen in order, step 4 is relatively independent, and could occur at any time.

Let's say instead the following happens (also a very common occurrence)

1) Security researcher discovers flaw and goes public to the whole world.
2) Developers race to fix bug while at the same time hackers race to exploit it. The hackers finish first
3) Innocent end users, despite always following best practices and being vigilant about updating their software, fall victim to the flaw and get hacked
4) Developers finally fix the flaw, and release a patch to the world. Now, the hackers can only go after people who haven't yet updated.

The worst case scenario is also quite common, and very popular among state level actors

1) Hackers find the flaw, figure out how to exploit it, and start attacking innocent people in the wild.
2) Developers finally discover that there's a flaw, but only because the hackers are actively using it! They now have zero days to fix it, and deploy the fix (hence the term "Zero Day Exploit")

According to a Forbes article, here are some black market prices for zero day exploits.

What that's basically saying, is that for $100k, you can buy an exploit that could potentially let you into any and every windows computer in the world. Why so cheap? Because for now, there isn't a lot you can easily do to make money by hacking some random person's computer. Up until just the past few years, people would sell remote access to compromised windows machines for about $0.10 each, and they were used to either send spam email or launch denial of service attacks (basically, buy 10,000 hacked computers and have them all try to access the same website over and over to bog its server down with requests and thus not let legitimate users in).

Gibbons Burke writes: 

It seems to me that companies such as Apple and Microsoft would be prudently advised to purchase zero day exploits from the intrepid entrepreneurs who discovered them, potentially saving R&D expenses on internal staff who might spend years not finding these vulnerabilities. Seems like a bargain.

The scarcity thus created by eliminating the vulnerabilities from the wild would drive up market prices for exploits, putting them out of the reach of ordinary evildoers, but only within the budgetary abilities of national security agencies and the like who, we presume, can be trusted (!?) to make use of these vulnerabilities for the purposes of compelling national interest, if not simply to take them off the table, denying them to national enemies.



 Forgive the length, but I thought this was too good not to share:

Let's take their model, their parable, their most extreme case, and walk through it for a moment. It takes Frank Ramsey's basic model, in which savings equals investment equals capital growth, and extends it to a world in which capital can flow freely around the globe to wherever it earns the most interest.

If savings can flow across countries to wherever the interest rate is highest, and if people can borrow across countries without trouble (say, by mortgaging their home to a bank that borrows money from investors in Japan), then in the long run there's only one possible outcome: the most patient country owns everything. The most patient country owns all of the capital equipment in the world, all of the shares of stock, all of the government bonds, all of the mortgages, everything. What happens in all of the other countries? [the "Impatients"] Eventually they spend essentially all of their national income repaying debt to the most patient country. They literally mortgage their future through decades of high living, decades during which they borrow cheap money that is gladly lent by more patient countries.

…After years of enjoying a grand life of consumption, the average Impatient [country] eventually ends up spending its whole income on interest payments, forever.

Well then, who are the Patient countries? Those who lend and export. Who are the Impatient countries? Those who borrow to spend in the short term. Okay, that's definitional. But is there another way to define the Patients/Impatients? It turns out that national average IQ defines them well. And here's the shocker: The U.S. has an average IQ of 98. The U.K's. is 100. East Asia (i.e. China, Japan, South Korea, Singapore) have average IQs of 106. If we look say 25 years into the future, it's likely China's average IQ will have increased. What do you think will happen to the average IQ in America?

This is from "Hive Mind" an excellent book by economist Garett Jones of George Mason University.

anonymous writes: 

Mr. Jones ignores a few minor problems. The first is default; the second is that Ramsey's equation only works in a world where Marx and monetarists are the only people who keep the tally sticks. The patient people may think they own everything but only until they discover that their debt claims are not going to be paid, that neither principal nor interest will be forthcoming. then there is all that investment in apartment blocks and bullet trains. they certainly cost a great deal; by labor theories of value they should be an enormous accumulation of wealth, except there are no actual tenants who can afford rents for the apartments and no travelers who want tickets for the trains. the last and worst fallacy of aggregation is the ranking of average IQs. the world tuns on the machinery and thought that the very smart people produce and the grunt labor that the rest of us do. we depend on the really smart people's discoveries and enterprise and the scut work done by people who stack the grocery shelves and vacuum the think tank carpets. Whether on average people score C+ or B on what is a school exam called an IQ test makes no difference, except, of course, to the people whose livelihoods depend on the rest of us paying ever increasing tithes to the priestly class of schoolies.



Blood on the streets in Europe…

TOP of oil…IMHO

Andy Aiken writes: 

In Rothschild's dictum, isn't one supposed to BUY when there's blood in the streets? It didn't take much to turn everyone bearish.



Vigilanted and Palindrome cronies in S. Hampton trying to force world state by shorting stocks.

Stefan Martinek writes: 


Andy Aiken writes: 

The event guaranteed to elect President Trump is a break in the U.S. Stock market that hits the better people in the 401k. The hermit says the only reason I like his counting is because I share Queen Milo's hope that the Donald will beat the hag. He may be right, but I think the recession is what will make the hermit's numerology come true. If there is one thing Trump's election will kill, it is the one world currency order.



When we research strategies, there is a need to measure performance. Some techniques like volatility targeting tend to improve more the equity based measures (e.g. Sharpe, Sortino) but damage or not improve the trade based measures (e.g. Profit Factor, Expectancy). Some techniques like term structure used in asymmetric sizing tend to improve more the trade based measures. Is there any clear argument for or against equity vs. trade based performance statistics?

Rocky Humbert writes: 

Ed Seykota was fond of saying "Everyone gets what they want out of the markets."

That's an elegant way of saying that every investor has their own utility curve.

So an answer to your question is it depends on what portfolio/trade parameters that you are trying to maximize and minimize. Each of the approaches that you describe involves some sort of a trade-off. Academics will talk about optimally efficient frontiers, but for practitioners who are in the markets for the long run, I believe it's a function of what you and your investors want to achieve and most importantly, maintaining the discipline to consistently apply the tools that you mention.

There are many paths to heaven. There is no free lunch.

Bill Rafter writes: 

We prefer equity stats. Our primary metric for longer term research is (Compound Annual ROR)/(Max Drawdown). For example, the equities markets depending on the period chosen tend to have a CAROR in the single digits, while having max drawdowns of ~55 percent. With work and diversification you can invert those numbers such that the ratio is greater than 1. Most of your success will come as a result of reducing losses.

In theory one might argue that if you take care of the trade stats, the equity stats will take care of themselves. As in, fight the battles and the war will take care of itself. This is most exemplified by HFT. If that is the trading time frame of your choice, then by all means go with that. However it is hard for the individual to compete in the HFT framework, meaning that you will probably have to lengthen your trading, gleaning greater gains, but also larger losses. Eventually I think you will come around to preferring the equity stats. But your choice is going to be subjective or trading-plan-specific, which agrees with Rocky's every investor having their own utility curve.

anonymous writes: 

The conception of Seykota's quote as a utility curve is Rocky's. Seykota might have been making a point about market psychology more akin to a Deepak Chopra quote. That's not to say that Seykota did not make money trading. My sense was that his idea about everyone getting what they want from markets applied to those who might have hidden motivations in things other than in optimized financial gain according to a risk adjusted measure.



 Here are some food caching strategies from squirrels. It wouldn't be easy to earn a meal off of one of these guys.

"After hoarding food items, animals begin to protect their resources from pilfering by patrolling the caches. First, animals move around the caching areas and check whether the cached food items are safe. However, animals generally change their behavior after they experienced pilfering. Of particular use in this study is an interesting deceptive behavior observed in the food protection strategy of certain squirrels."

"However, if potential competitors are present nearby, tree squirrels visit several empty cache locations. This deceptive behavior attempts to confuse competitors about the food's location, so that they can protect against the loss of their hoarded food. After the potential competitors leave the territory, the tree squirrels move the location of their stored food items, if pilfering occurs."


"Where audience members are attentive to a cache event, it pays for individuals to alter their behaviour to reduce the risk of theft and/or a competitive interaction. One of the ways a number of different species have been shown to do this is through re-caching, when individuals move a food item from one site to another (Emery et al. 2004; Zhang et al. 2014b)."



I'm convinced (*) that it's a great long term idea to just buy-and-hold IBB , the biotech etf. It's some kind of hybrid between market  and equal-weighted, so that you do get a big slug of the big names like BIIB and AMGN, but it also saves room for the small and micro-caps. 25% of the portfolio is either small or micro, and another 19% is medium.

Fidelity's biotech fund has beaten the market since 1988, and I'd guess that biotech was more of a high-flier in 1988 and more reasonably priced now. Anyway the performance of the Fidelity fund is evidence that a fair number of biotech stocks tend to work out very well, well enough to overcome the duds.

* partly via reading Michael Brush, although he tends to recommend individual biotech stocks rather than the etf



 A non-invasive colon cancer screening has finally arrived. News Item about the Cologuard test.

What's missing in all the tests, all the double blind studies, is taking into account dynamic decision making under uncertainty. The flexions love the double blinds because it costs 500 million to do one, so you can't do a long range or preventive study, or any study outside of stage 3.

More particularly, what no one takes into account on these blood tests, is that a good one like CEA would be taken by everyone if available as an early aid to decision making.

Let's say it has a 90% true positive rate. And the incidence of the disease is 2%. That makes it about 18% you have the disease if you get the positive. All of those 18% would then take the scope. Let's say that would lead to a 25% increased survival rate. And that 100,000 people took the test. That would save 4,500 lives a year. The point is that with a 5 buck test, everyone would have the incentive to take the test compared to say 5% that take it now.



 What are the investment implications of this FT article?

What happens in Italy may actually be more important than the UK referendum. Consider Italy's place in the Euro, macro imbalances, and the size of a bond market which is too big for the ECB. Renzi must regain a zeal to reform for Italy's sake

Matteo Renzi has long been regarded as one of Europe's more assured and charismatic leaders, with a tangible record of economic reform to his credit. But two years after coming to power in Italy, the wave of populism sweeping European politics is now threatening his centre-left government.

Last weekend's local elections in Italy have cast a spotlight on the challenge he faces. Back in 2014, Mr Renzi's Democratic party won a commanding victory at the European elections, securing a 40 per cent share of the national vote. This has now slumped to about 30 per cent, putting the centre-left only slightly ahead of the populist Five Star Movement founded by the comedian Beppe Grillo. The populists scored a notable success in Rome where Mr. Grillo's candidate won the first round in the race for mayor and looks set for victory.

Given that the next general election may be two years away, the decline in the Democrats' popularity might not seem threatening for Mr. Renzi. But it comes ahead of a referendum on constitutional reform in October that aims to overhaul the country's gridlocked legislature. The prime minister has staked his future on the plebiscite, saying he will resign if he loses. Such an outcome now looks a possibility and would throw Italy into a period of fresh instability that it can ill-afford.

It is easy to see why some Italians are becoming disillusioned with Mr. Renzi and tempted by the siren voices of populism. Although the economy is growing at an annual rate of 1 per cent, it remains well below its pre-crisis peak. Many voters feel the government has failed to tackle what they view as a detached and corrupt political class. Mr. Renzi's tendency to run his party as though it were a one-man show has drawn particular criticism because few of his allies are allowed to shine.

For some of his supporters, the prime minister has also proved disappointingly inconsistent on the question of reform. In his first year he showed zeal, overhauling the country's sluggish labour market, its cumbersome electoral law and parts of the banking sector. More recently he has been tempted to mimic the populists, most notably by resorting to tax giveaways that have done little to boost economic growth.

Mr. Renzi's flaws need to be placed in their proper context. As the constitutional referendum approaches, Italians should be in no doubt where their interests lie. The plebiscite, if passed, would rightly shrink the Italian Senate and strip its legislative powers. For decades, parliament's work has been hampered because bills ping-pong endlessly between its two chambers. An end to the deadlock is sorely needed.



 Book bought over the weekend at the Harvard bookstore:

Dean Abbot, Applied Predictive Analytics (A layman's guide to predicting without knowing what you're doing, highlighting neural networks and Kohonen maps, which sounds like it works with individual observations and builds itself up.)

Peter Frankopan, The Silk Roads: a New History of the World (tries to explain how China and Islam were way ahead of us)

Lewis Lockwood, Beethoven Symphonies   no musical notation within but artistic words about each

Robert Bruce Thompson, Illustrated Guide to Home Chemistry Experiments (a substitute for a high school lab).

Great American Stories, a CD of which there are only 10 or 20 in most stores now. Apparently CDs are as much out of style as cassettes these days (Mark Twain, Stephen Cane, Bierce, London) anything is better than the public radio hateful stories about American humor and failings)

 Ben Applebaum, Recess (from dodgeball to double dutch. Modern with tips. Gives strategy but not as good as the commentary reference in edspec.)

John Hands, Cosmosapiens: Human Evolution from the Origin Cosmology in the spirit of Thomas Kuhn. Very little Darwin.

Chris Woodford, Atoms Under the Floorboard Tries to show the physics of houses, but leaves more questions unanswered than it solves. But good non quant ideas on length versus width.

Henry Petroski, The Road Taken a good supplement to Hayes Matthew

Monk, Minecraft Mastery (something for Aubrey)

James Traub, John Quincy Adams (a worthy president and great lawyer, I think)

Christoph Woff, Johann Sebastian Bach. Always good to know more about Bach's personality, duels, finances, and music.

While I'm at it, I like to read some books that will extend my knowledge of what I do every day

Yvonne Bishop et al, Discrete Multivariate Analysis How to use logarithms to do categorical analysis.

 Deshpande, Statistical Analysis of Nonnormal Data, an Indian book with many elementary rank tests explained.

Jan Swafford, Beethoven: Anguish and Triumph The best book on B that I have read. Scintillating. Gives all his fights with his patrons including the time he walked out of the house of Prince Lichnofsky because he asked him to play for the French, thereby losing half his income. It's so good that Laurel refuses to give it back to me when I loaned it to her, and I bought it from the same book store I originally bought it from at the same shelf from 2 years ago.

One is reminded that Beethoven liked to walk in the Vienna Woods every day. And as he walked he sang like a madman and gestured because he couldn't hear. He met some school children on his morning walk, and they ran away screaming thinking he was a madman. Then on the kids' way back from school, they met him again, and ran away again.



 Have you noticed how everyone starts all their phrases with, "So…" I hear it everywhere now. It has crept in, and I find my self saying it.

It's an example of how behaviors and patterns creep in, spread, and take over.

Ideas can be like that also. I get ideas into my head from random readings and sometimes they take over my life. Some ideas have taken over the world, such as what Chair calls "the idea that has the world in its grip".

Jim Lackey writes:

So, at the end of the day, is from Carnegie type PR training courses. Like is from the kids and FB. I have been training the children how to steer the conversation. Yea, that is a marketing rep. Problem with some Millennials is their inability to carry on a conversation. They will say "wait what" as you state some crazy half joke funny mumbo in between as they do the 1x a minute phone check.

Hey dude! What is going on in the world? Huh ( I can't take huh), my reply is Huh, duh, what? Hey dude, you were just in the cyber space, somewhere else in the world, anything important going on in the WORLD….WIDE… WEB? Surprisingly, the kids will have some fantastic story to reply with. Other times it was a ghost text auto reply, NLP reaction on their 1 minute phone check. Ghost text, that is when you physically feel your phone vibrate on your leg, from your pocket, but it did not!

This thread is a few years old. I know it is greater than two, yet less than three years old because I feel pain. That is the sting of loss in the markets.

"What is interesting". That is the new conversational or transitional word replacing "so" for the past year.

What is interesting is I found a new way to judge if you're ready to trade. Play blackjack, count play basic strategy 5/10$ for four hours. If you can remain cool under fire, you're good for trading.

What is interesting is… I have zero business trading the markets. I found that the jacklegs on the table, dragon lady dealer and a bad run of cards pissed me off. I bet wrong once and the second I did it, I knew it and thank goodness I lost. That made me laugh. I got up tossed the dragon lady a 20 which was the best money spent. I went back to the bar and watched the Cubs destroy the competition. I trust I will not visit another casino for more than a decade.

Back to the kids. My age Gen X and above you mirror what the customer is doing with their phone. If they have it out, you put yours on the table. They feel comfortable. Perhaps they are waiting for a very important call. Ask.

Kids, when working with the 20's, you are well served to ask to see their phone. Then show them yours, which is funny. Then set yours out and every time they touch their phone grab yours and flop it back down with a dannng… Or best, if they have theirs out and do not touch it as it is turned over out of some sort of respect. Do the same.

Kids blow a fuse if they lose or leave their phone at home. Hey dude I understand. With out my dirtbikes I was hurting. The second we hit the road trip I wondered did I leave the iron on? Just joking, I wondered if I brought enough Extra Long MX boot socks and extra tear off lenses for my goggles. These kids today need their music, headphones and their computer in their pocket. I wish I had one when I was 12. 



 "The economic consequences of a Donald Trump win would be severe"

by Lawrence Summers

On June 23, the UK will vote on whether to remain in the EU. On November 8, the US will vote on whether to elect Donald Trump as president. These elections have much in common. Both could lead to outcomes that would have seemed inconceivable not long ago. Both pit angry populists against the political establishment. And in both cases, polling suggests that the outcome is in doubt, with prediction markets suggesting a probability of between one in four and one in three of the radical outcome occurring. It is interesting to contrast the way that financial markets are reacting to these uncertainties. The markets are highly sensitive to Brexit news: the pound and the British stock market move with every new opinion poll. Analysis of option pricing suggests that if Britain votes to leave the EU, sterling could easily fall by more than 10 per cent and the British stock market by almost as much. It is widely believed that the uncertainties associated with Brexit are consequential enough to affect the policies of the US Federal Reserve and other major central banks.

It would in all likelihood be economically very costly for Britain to leave the EU and would raise questions about the future cohesion of the UK. It would also threaten London's role as a financial centre and curtail British exports to Europe.

What I find surprising is that US and global markets and financial policymakers seem much less sensitive to "Trump risk" than they are to "Brexit risk". Options markets suggest only modestly elevated volatility in the period leading up to the presidential election. While every Fed watcher comments on the implications of Brexit for the central bank, few, if any, comment on the possible consequences of a victory for Mr Trump in November.

Yet, as great as the risks of Brexit are to the British economy, I believe the risks to the US and global economies of Mr Trump's election as president are far greater. If he is elected, I would expect a protracted recession to begin within 18 months. The damage would be felt far beyond the United States. First, there is a substantial risk of highly erratic policy. Mr Trump has raised the possibility of more than $10tn in tax cuts, which would threaten US fiscal stability. He has also raised the possibility of the US restructuring its debt in the manner of a failed real estate developer. Perhaps this is just campaign rhetoric. But historical research suggests that presidents tend to carry out their major campaign promises. The shadow boxing over raising the debt limit in 2011 (where all participants recognised the danger of default) was central to the stock market falling by 17 per cent.

Ralph Vince writes:

What is not addressed is the question of what would be the economic consequences (and contrary to Dr. Summers musings, let;s keep it something measurable, like GDP growth) of another negative 100-500bln/yr in further deteriorated balance of trade over the next several years?

Are we willing to suffer another 2.5-3% drag on YoY GDP growth?

John Floyd writes: 

Yes, as with another winner of the John Bates Clark award in the year prior the reasoning leaves much out and is ingrained in a certain hue. Nonetheless I find the tack interesting as we approach UK referendum, FOMC, US elections, Italian referendum, etc. in the coming months and the potential impact and opportunities in markets. Not quite up to Patton's statement to Rommel, but along the same battle lines.

Ralph Vince replies:


This is a period that is a serious test of traders and nerves now, more so than the usual, more than the past four or five hours at the bridge table. With this hand, it gets particularly interesting now, for those who haven;t dozed off and know what the t the contract is now.

anonymous writes: 

As an extension to this line consider that one of the key tools in forecasting Bernanke’s reaction post 2008 was knowing his previous writings and statements as well as direct words including something very close to “a Japan type situation will never happen on my watch”.  To that line of reasoning consider and read Yellen’s work at SF Fed on the US economy and the influence of housing, etc. and I think that is a good roadmap to her speech today and actions coming in the future.



It is interesting to note that since 1999 there have been 94 days when both the S&P and bonds closed at 10 day highs like they did yesterday [June 2cnd]. Only 2 of these occurred before the 205 employments.



 The two greatest hoodoos are back in the news, J.R Smith, and D'Antoni. One can predict that both their teams will suffer grievously. Is there a hoodoo of the market?

The Davos meetings are always good because all those who hate business enterprise get together and confirm their bearish feelings.

Speaking of that, any big party at the Palindrome's during the summer is a hoodoo for the same reason as he's always bearish and with all his followers there, they control trillions.

How else could these hoodoos create the average returns they achieve with their large quantities moving markets and costing so much vig?



 I watched Game 7 of the Golden State Warriors and Oklahoma City Thunder NBA playoff matchup the other night and was amazed at how sloppy the game became at times. Not to be overly critical, but the fundamental ability to make a lay-up seemed to be a challenge for a few of the professionals playing.

That being said, the fantastic shooting ability of Warriors Stephen Curry and his sidekick Klay Thompson in the end lead to victory and entry into the NBA Finals. Curry's 3-pt shot is built on tremendous hand-eye coordination, strong legs/core and repeated, consistent practice. Although some say his form is not that far a departure from past great shooters there are few subtle things that appear to make a difference.

While watching Game 7 it was difficult, for instance, to understand how Curry could get off outside shots from around 25 feet over an agile 7-foot center (Adams) with a standing reach of about 9 feet 4 inches (say 112 inches) and maybe a 34-inch vertical leap. But then I started reading a few articles about Curry's 3-pt shot and found that his shot is highly accurate and rarely blocked (unless from the side) for several reasons.

From: "Outsider Artist: Understanding the Beauty of Steph Curry’s Jumper"

1) Quick release and on the rise: "Curry can gather his dribble and release his shot in about 0.4 seconds, much faster than the average player."

2) Almost unblockable shot straight on with say 2 feet of separation: "Furthermore, thanks to an unusually steep shooting trajectory, in the time it takes an average NBA player to gather and shoot the ball, Curry's ball has already made it 12 feet above the surface of the court.

It looks like a 7-footer like Adams with his highest vertical jump and perfectly timed block attempt might still swat air with finger tips 146 inches above court surface unless he has somehow managed to close to within a foot of Curry."

3) He practices being unperturbed as large forwards and centers try to block his shot. "Curry makes 44 percent of his contested 3s. Let me make this totally clear: Curry is as good with a guy in his face as the average NBA shooter is when wide open."

From an article that appeared in the WSJ a couple of years ago it appears that Curry's arc on his shot is higher than the NBA average.

I am looking forward to seeing a good NBA Finals with Curry and crew against Lebron James and his Cleveland Cavaliers.



 After the Battle of Malvern Hill, Phillip Kearny wrote this in response to McClellan's order to retreat:

"I, Philip Kearny, an old soldier, enter my solemn protest against this order for retreat. We ought instead of retreating should follow up the enemy and take Richmond. And in full view of all responsible for such declaration, I say to you all, such an order can only be prompted by cowardice or treason."

Kearny was right. Because of McClellan's vanity (his most abiding trait), the Army of the Potomac threw away its best early chance of total victory and the war lasted three more years.

But McClellan still has the last laugh. There are only two equestrian statues in Arlington - one for Kearny - whom Winfield Scott called "the bravest man I ever knew" - and one for a British general who is the perfect representative of the McClellan school - John Greer Dill. This link has the photo of Truman dedicating the Dill statue in 1950; it is a perfect image of why, since that time, the best the United States has ever done in a war is win a tie.



It is interesting to consider whether certain month's employment announcements tend to be consistently bullish or bearish. A former employee,  writes to me that the May employment numbers have been quite bearish for stocks.

Bill Rafter writes:

The NFP report is always murky to me. It always needs "interpretation" which is why it looks different several days after its release. The big interests (from the media, at least) are the unemployment rate and the number of new jobs. Both are the result of rather obtuse calculations. I prefer the growth of payroll tax receipts which require no interpretation. The source is the Daily Treasury Statement, effectively the bank account of the government. Attached is the data from last week; no change in appearance since. It may not agree with the early or late interpretation of the NFP report, but it speaks truth about the actual job situation.

Stef Estebiza writes: 

Employment data are smoke and mirrors, are more a political need to do to accept further cuts/taxes and justify these policies. The new jobs are precarious and at reduced wages.

anonymous writes: 

I suspect that I read about the Chair's views on the unemployment rate in years past, but is it safe to presume that the numerator smoke/mirror terms cancel out the denominator smoke/mirror terms?

Or does the science of people counting treat the employeds different than the idleds at the tabulation level?

I've generally treated the unemployment rate as a good bit more reliable than the overall jobs number.



 The strangest thing about being the oldest person in the world is that on the day you were born there was a completely different set of people in the world than there are today. Shortly, the entire cohort of humans on earth on the day of you were born will cease to exist.

Another odd way of looking at this: Very soon there will be no humans on earth who were alive in the 19th century.

Here's another: Chances are, we are very close to running out of humans who have come into physical contact with people who were alive in the 18th century.

Why do I mention these things? I used to work in a nursing home back in the mid-1980s. There were a lot of people in that home that were born in the 1800s. We had several residents who's father fought in the Civil War.

The residents used to talk to me about their lives and the things they experienced. More than one told me about the fleeting nature of life and how quickly it goes and how they never understood when they were young how quick and precious life is.

One lady told me about how when she was very young, she was sitting on the knee of her great grandfather who was born back in 17-something (1790's probably…I don't recall) and how he told her about how his body was old but he still felt like he was young. She remembered him telling her how fast he got old.

He told her about his father (her great great grandfather) who had him late in life. He told her stories about his father had fought in the Revolutionary War.

As a man in my early 20s at the time, that story really hit me hard. Here I am speaking with a women who was hearing a story about the Revolutionary War…something that seems so distant to as to be almost incomprehensible…yet this women was only one person removed from the person telling the story.

How quickly time passes. If we measure history using war as the benchmarks….All those that fought in WWl….gone. Within a decade or two, everyone who fought in WWll and Korea will be gone. The Vets who fought Vietnam…the war I grew up watching on TV…are now getting old.

As I get older, I believe I am better understanding the preciousness of life…and just how short it is. I can remember my first day of Kindergarten (that's a story for another day…but let's just say that I got sent to the principals office within the first hour of my first day of school).

I remember my first kiss, I remember winning various sports championships, I remember getting married and the birth of my children…all seem like they just happened…but in reality, it happened in a place that will eventually be lost forever in a time that has passed.

I wonder what the next 50 years will be like…and I hope that I'm here to enjoy them!



This forthcoming presentation might be of interest to some Spec readers.

IAQF/Thalesians Seminar Series - A Talk By Dr. Tobias 

Nonlinearity and Flight-to-Safety in the Risk-Return Tradeoff for Stocks and Bonds

When: June 16th 2016, 5:45 PM

Where: NYU Kimmel Center, Room 914, 60 Washington Square South, New York, NY



 Embracing discomfort can lead to good results. This excellent TED talk talks about going beyond the comfort zone to achieve results for adventure photographers.

Trading can be uncomfortable even though you can have a passion for it. Embracing the discomfort gets one through the difficult times of uncertainty. Having been there, having experience is key.

Some of the speclist exchanges can be uncomfortable, but help to weed out chaff and mumbo and improve thinking and reveal more about the writers than they might intend. The adversarial legal system is very uncomfortable, but can, and historically has, led to better results through honing in on the truth. Most cannot handle it and criticize it, but it is their weakness. Same with markets. There's no place for weakness.



 A media hullaballoo was stirred this week when, at the Cincinnati Zoo, a longtime veteran gorilla resident named Harambe [which ironically means "all pull together" in Swahili, as in communal action for social benefit] was shot and killed when a 4-year-old boy crawled along a railing and fell into the gorilla's enclosure, into a watery moat. Gorillas, of which there are Eastern and Western gorillas, and further subdivision of 4 or 5 subspecies, are the largest living primates, with DNA very similar to our own.

In terrestrial zoology, gorillas are ground-dwelling, mostly herbivorous apes that inhabit the forests of central Africa. They have been unjustly slandered as being brutish, as when people call a shambling, loutish big male an "ape." In the wild, gorillas are said to live 35 to 40 years. But in captivity, despite what appears to be ferocious resentment and acting-out episodes, they have been seen to live 50 to 60 years. So Harambe could have lived maybe another 40 years, had the zoo officials not rushed to fell him.

New video footage of Harambe, the 17-year-old silverback, suggests he was trying to protect the four-year-old who fell into the zoo enclosure just minutes before the 400-pound animal was fatally shot.

For a few moments, Harambe and the boy had held hands, and footage shows Harambe was indeed being protective of the boy, not aggressive. There is now significant question as to whether the gorilla needed to be shot. Zoo officials said that a tranquilizer may have taken too long to take effect, had there been imminent danger to the child. Protests are already up and running against the shooting.

So our treatment of animals is in the public eye. Again.

I somewhat share the sadness and grief of our poor treatment of our close cousins, the primates, as well as the intelligent elephants, dolphins, whales and; I would include, another favorite, giraffes, all of whom require huge acreage to feel at home, feed, forage and thrive. I also believe, as does the writer of this piece that in the future, we will regard the current-day treatment of these sentient beings with huge discomfort and embarrassment.

Who doesn't love seeing animals in the wild? I have been 8 times to Africa, but a zoo, for all its convenience, is a prison of hopelessness in many cases–it is rare to find a zoo (one exception is the wonderful San Diego zoo, with large roaming spaces, though in fact never enough space, for the habitat needs of these mega-fauna) that does not enrage and defeat the spirits of these noble creatures. In China I saw domestic dogs caged in zoos, and the Westerner's heart broke for the evident senselessness and cruelty. These loving companion animals do not warrant a cage.

The killing of the mature gorilla this weekend may have been necessary (I was not there and cannot tell) to save the life of the child who invaded the cage-space, but I think they could have tranquillized the animal rather than killing it. A full-grown gorilla is in a sense sacred. There is not a huge oversupply of these magnificent near-humans. They are being hunted and shot and 'accidented' out of existence, their numbers steadily dwindling. It is estimated that there are some 150,000 to 200,000 left in the wild, numbers notably reduced from a century ago, when habitat was less invaded, less violated by hunters, and assuredly less touristified.

In years to come, when more research is done, we will know much more of the intelligence of these creatures given us by a beneficent Deity. Our magnanimity to them will enlarge. Perhaps the zoos will be emptier, but larger. And the inhabitants of these zoos will be less afflicted and diseased, wracked with sores and grieving expressions.

Satisfying, to me, is the flamboyantly fabulous aquarium in Dubai's largest mall and hotel complex. There is an enormous depth of voluminous water, and thousands of genera of fish and mammalia, all fed steadily to avoid cannibalism of some of the species who would eat each other if not provided food. I loved the vastness of the swim-space, hundreds of feet deep, which afforded the species room to circle and dive and explore and propagate. I know fish have split-second memories, but the kindness of the aquarium's capacity cheered the children and adult viewers, instinctually.

Zoos need to be like that, too–expansive enough to let the animal's nature not be constricted and bruised for all his barred and minimized life.

This is not to say we should all be in court clamoring for Raymour & Flanigan bedroom suites for chimps, or the latest tablets for orangutans. But a measure of empathy and kindness would not be out of place for humans as they regard those less free than we.



John Stuart Mill wrote 150 years ago: "I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage."

"Why Does Pessimism Sound So Smart"



 I hope the topic of hobos remains fair game for the Specs, in the same manner as commodity pit hand signals and tip sheets and various other anachronistic and tenuous links to rudimentary communications of the past:

"Anthropologist Follows Los Angeles Trail of Century-Old Hobo Graffiti"

Phillips had uncovered a peculiar, almost extinct form of American hieroglyphics known as hobo graffiti, the treasure trove discovered under a nondescript, 103-year-old bridge spanning the Los Angeles River. At the time, she was researching her book, "Wallbangin': Graffiti and Gangs in LA."

"It was like opening a tomb that's been closed for 80 years," the Pitzer College professor of environmental analysis said of finding the writings and occasionally the drawings of people who once signed their names as Oakland Red, the Tucson Kid and A-No. 1.

"There's an A-No. 1, dated 8/13/14," she said, pointing to a scribbling during a recent visit to the bridge just around the bend from a modern-day homeless encampment.

Although all but forgotten now, A-No. 1 was the moniker used by a man once arguably America's most famous hobo, one of the many itinerant wanderers who traveled from town to town in the 19th and 20th centuries, often by freight train, in search of brief work and lasting adventure.

"Those little heart things are actually stylized arrows that are pointing up the river," Phillips said, pointing to markings next to the name. "Putting those arrows that way means 'I'm going upriver. I was here on this date and I'm going upriver.'"

Upriver would have been in the direction of the city's sprawling, wooded Griffith Park, in those days a popular jumping-off point for hobos looking for a safe, common gathering spot.

Bo Keely writes:

There are many groups having the adjectives you describe of subculture, anachronistic and tenuous, but hobos step out from the rest in learning to survive a harsh environment on the rails. Therefore they are also self-sufficient, hardened, and deal instantly with new bends in the road. 

My hobo sign since 1985 has been the blue head of a mouse with a toothy smile and a teardrop in the corner of one eye. I got it at Tattoo Pete's in Denver. My mentor, Hobo Herb, suggested I slip myself a Mickey at a a local bar since I didn't drink, and to stagger into Tattoo Pete's for a discount and to cut the pain of the needle. However, I walked in sober and gladly selected a mouse head from a stencil album and had him add the smile and drop. The left shoulder tattoo became my symbol across America, where you may still find it written in chalk, charcoal or magic marker at the Denver BNSF yard on a then sapling, a wooden bridge strut at the Salt Lake DRG yard, a bridge pillar in the Roseville, CA RR yard, and some peoples' basements to form a colony of mice from coast to coast. 


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