The Polish Zloty is .28 USD but at a recent big piroshkis lunch for six the entire tab was about $40 US. Real cheap. No political unrest in Gdansk. Streets were not as clean as Sweden or Finland.



 Dunkirk the movie is a video game with no characters to speak of and no context to illumine the heroism of the English in defending their Island, the sordid cravenness of the French, and the amazing woeful strategic mistake of the Germans in halting their war effort in an attempt to accept their hoped for surrender from England. Particularly wasteful aside from the 1 1/2 hours of dog fighting with the masked pilot was the remaining 20 minutes showing some tars stuck in an abandoned ship wrestling with the French question. Almost as wasteful was the showing of an abandoned tar shipwrecked by a Uboat taken on board by a yachtsman who promptly kills a rescued because of shell shock. The agrarian nature of the only spoken dialogue downplaying the heroism of the individual and showing moral neutrality between the French, Germans, and British, with no mention at all of Churchill's energizing words to fight the Germans except for a listless Newpaper reading is in keeping with the agrarian nature of the film, and the need to gain good reviews by showing a lack of heroism.

Stefan Jovanovich writes: 

Whatever the French Army was at Dunkirk, they were neither sordid nor craven. Half of them defended the perimeter to allow the escape of the BEF and 100K other French soldiers (those who became the Free French Army that suffered higher casualties after D-Day than any other Allied Army except the Poles). German Panzers halted not because of any strategic mistake but because of internal quarreling between Hitler and the General Staff over whether or not von Rundstedt would have central command authority. When the unit commanders kept ignoring their own Chief of Staff, Hitler called a halt to all operations and demanded that the Army mend its ways. But for the miracle of the English Channel becoming a lake and the Germans discovering that ruined cities built of concrete and steel become perfect tank traps, the delay would have made little difference.



 From The Asylum:

Kaufman, a floor broker, talking: "I still remember the guy who had the record for the fastest knockout. He was a 300 pound former NFL linebacker. "Tiny took one look at him and just took him out. I personally got tackled by a floor broker once for nothing other than not checking on his trades fast enough"

Kaufmann's boss was Smith the senior, VP of operations. When a probe of the Manhattan DA ousted him over a bribe of just 75,000 his replacement came in. "I came into my the office that morning and my cubicle along with my boss's desk and and just about everything else was covered in police tape." Kaufmann remarked: "At the exchange you never really knew who was going to get nabbed for something on a given day… if a major trader let you stand near to him, that was a big deal because you'd be hearing all the information he was getting." If you were allowed to dual trade you could give the customer the bad trades and keep the good ones for yourself. Or jump ahead of the customer with your own trades before fulfilling the customers orders.

Fisher was hailed by the other traders as a genius. He has an MBA from Wharton. In his spare time he had written a book "The Logical Trader: applying a method to the madness" "We would start each day by looking at the pinup girls in the local newspaper. We would have playboy mailed to the office. The author remarks "the booths also had drugs and alcohol in them."



Competition: maybe healthcare just needs more of it:

"Merck, Samsung Accelerate a Biosimilar Price War":

Back in November, when Pfizer Inc. launched its biosimilar — a generic version of a drug made with living cells — of Johnson & Johnson's blockbuster inflammation drug Remicade, it priced the copy at just a 15 percent discount to the original's list price. That disappointed anyone hoping biosimilars would bring a golden age of cheaper drugs. But it was also relatively friendly, as far as legally risky launches of copycat versions of flagship products go. It left J&J not having to fear losing too much in the way of sales, while giving Pfizer a healthy margin on its own sales.

But then Merck & Co. and Samsung Bioepis had to ruin the party on Monday, by launching a competing biosimilar — developed by the Samsung biotech unit and marketed by Merck in the U.S. — at a 35 percent discount to Remicade's list price.

This has effects beyond Remicade and its imitators. The biosimilar market is developing just as Allergan PLC CEO Brent Saunders predicted: As more versions of drugs hit the market, prices will rapidly drop, eating away at the profits of everybody involved.

[ … ]



 There are at least three results of going from the stooped to erect position in our family tree that evolutionists miss when looking at our present species.

1.    The position removes the nose from the ground which, over generations, shortens the snout.

2.    The eyes from upright have a much longer range of view.

3.    The gases inhaled are lighter and less noxious.

The advantage of a shortened snout is more brain area for high development of mental faculties. The eyes become more far sighted. The lighter gases inhaled include more oxygen.

These items become apparent if one spends time on the ground sleeping, wrestling, gardening, or resting between hikes.

On the western side of Naples is a small cave that has been visited by tourist for centuries. It is called the Grotta del Cane (literally Dog Cave) for the following reason. Naples is surrounded by volcanic areas, and in the northwest are the Phlegrean Fields, an area of an old, extinguished volcanoes – and the site of the Dog Cave. It got its name because from deep down in earth, carbon dioxide from the ash enters the cave. Since it is heavier than air, the gas lies in an area one meter above the ground. In past centuries, when people entered the cave with a dog, it suffocated, while nothing happened to its owner whose head was well above the carbon dioxide. Rascals sometimes took their friends into the cave and held them down until they passed out. The unconscious animal could be lifted overhead into the overlying layer of fresh air, and sometimes revived. Today measures are taken to warn dog owners, children, and dwarfs of this danger, and of how to revive them in fresh air.

I believe this is also why I have always slept on the floor and ground throughout life in order to fall asleep at the drop of a hat, and not waste any time in beginning the next day.



 The Asylum by Leah McGrath Goodman tells the sordid story of the history of the NY Merc from the time it traded potatoes in the early 20th century to its purchase by the Chicago Merc in 2008 as oil barrels went up from $50 to $150 a barrel and back to $25 in just a few months. The NY Merc was called an asylum and its members inmates because it resembled an unruly insane asylum where drugs, fights, vulgarity, drunkenness, sex, bribery, gambling, police raids, infighting, revolving doors with bureaucrats, corruption, and most of all illegal cheating of the public was rampant.

As such it provides a good baedecker of what the markets have been like while pit trading was rampant prior to the electronic screen trading of the current era. Some anecdotes give the flavor. A Hasidic trader was told to take off his yarmulke as it would give too honest an impression of the floor. One trader after another knocked the other out if they dared to stand in the way of a short term profit at the expense of the public on the floor.

The book provides interesting coverage of the chairmen of the exchange. Each one like an Atlantic City Mayor was kicked out and fined by the Feds for illegal activity of one kind or another. A particular favorite who the author seems to admire is Zoltan Louis Guttman, a Hasidic trader, who chaired the exchange for 6 years but was convicted of fake option trading and banned from executive and trading activities. Compared to the other chairmen she writes about Guttman was a saint as his activities were not at the expense of the public or the members but merely for self preservation.

The author is particularly sensitive to sex on the floor. She quotes with umbrage: "Whether you were the chairman of the exchange or the lowest of the low, blow jobs were the one thing everybody could agree on." She follows the traders to a sex bar adjacent to the exchange and is appalled at the sex acts she sees there. When in Washington, she is appalled at the lack of understanding of the politicians to the nitty gritty of the exchange and can tell from a distance that the politicians are more interested in the tight miniskirts of their assistants than the testimony of the exchange officials. Like Miss Clavel in Madeline she decries the women on the floor who wore high heels and tube tops and quotes approvingly a trader: "they took jobs on the floor to catch a rich husband. They'd marry a trader, they'd break up a year later, and she'd walk off the baby and half his net worth."

 There are interesting stories about some of the traders habits. One likes to play practical jokes on his assistants. Another is known as a great scholar because he schools his traders in technical analysis before they go on the floor. Another is very handsome and rich and smart and a martial arts expert who dines at Raos.

The book reaches a climax as the traders fight like mad dogs over their sale to private equity firms and the Chicago Merc. They see the end of their ability to cheat the public in the usual way when screen trading is imminent. They sue each other and fight with each other even after death as they decry the rise in the value of their seats from 50,000 in the 1970's to $15 million when they finally sell to the Chicago Merc and the price of their stock reaches 150. None of them seem to realize how lucky they were as the sale took place right before the crash of 2008 and the descent of oil from $150 to $25.

The energy market is important in many way for the commerce of the world. While there are competitive exchanges in Europe and Dubai the Ny Merc continues to be the premier market in terms of volume of trade. The exchange charges a fee for each trade by non-members, and this is the source of the valuation of seats on the exchange. Many interlocking webs with the regulators, politicians, and competitors maintain the oligoplistic nature of the market. I found the book fascinating, couldn't put it down, and would recommend it to all as both a warning and a education in what it was like, what they were up against in their own trading through the pits, and what the trajectory is likely to be in the future.



 The average monthly income is $600 US in St. Petersburg. The average apartment rents for $400 US so they share a 2br.

Food is relatively inexpensive and fresh. Caviar is $40 an ounce.

A cop stopped our limo driver. A long negotiation ensued resulting in a $100 payoff to avoid a one year license suspension. This is apparently common. Doctors also require payoffs for "free" healthcare.

Submarines and warships lined the river ahead of Putins visit to his summer house. The summer house was an imperial palace.

It hailed grape sized hail. The weather was sunny and 60s with occasional rain and thunderstorms.

The port is huge. It makes Oakland look small. It must serve the entire Russian economy.



 In a jam-packed life, with 24/7 markets and all other things to do, how do the voracious readers of this site, including the Chair, do so much reading?

Do you read word by word, line by line, or there are other reading techniques you use.

Overwhelmed eager minds to get back into good old days of lot of reading will benefit if you share your reading methods.

Larry Williams writes: 

I read 2-3 books a week. I used to speed read but now I skim a book to get the gist and if it looks good I plunge in. I read very few market books. Mostly history. I look to learn or be royally entertained—a few books do both. 2 I recently enjoyed were:

Today We Die a Little!: The Inimitable Emil Zátopek, the Greatest Olympic Runner of All Time

The Plains of the Great West and Their Inhabitants



 1. There are lots of signs in Grand Teton and Yellowstone National Park that read "Be Bear Aware."

Lesson for Investors: Even when things look great, bear markets come with the territory.

2. Every local has bear stories to share.

Lesson for investors: If you invest long enough, you will see more than one bear.

3. Hikers are reminded to carry bear spray – which is proven to be "90% effective"- but 100% effective in producing sales.

Lesson for Investors: Hold some cash, buy some insurance, and realize there is always someone selling protection from bears, but nothing is 100% effective. Per my river guide, statistically you are more likely to be killed by avalanche and Moose than bear. l still bought the bear spray and I am glad I did. It was a small price to pay.

4. Bears prefer higher elevations and are lazy. As a result, they prefer to run downhill.

Lesson for Investors: High valuations and high multiples make bear markets more likely.

5. Bear attacks are most common in the months of July, August, and September.

Lesson for Investors: During these months, bears come out of the winter hibernation looking for food and the number of outdoor recreationalist increases making encounters more likely. These months seem to line up reasonably well with stock market seasonality.

6. Bears are largely solitary animals. Lesson for Investors: Listen to the independent, solitary bear.

7. Hiking in groups and making noise reduce the chances of being attacked.

Lesson for Investors: When there are many people making noise about bears, there is a lower likelihood of being attacked. Worry when it is too quiet.

8. Older bears tend to be heavily scared.

Lesson for Investors: It is hard living as bear, but those that survive are some of the most dominant creatures of the forest.

9. Bears are curious and have a keen sense of smell.

Lesson for Investors: Bears and short sellers are naturally curious and are easily attracted by unprotected food.

10. Bears are fast and charges and attacks happen quickly.

Lesson for Investors: Mentally rehearse what you are going to do before you go hiking or invest because chances are you will not have much time to react when bears attack.

11. If attacked. DON'T RUN! Bears instinctively chase running prey and run 35 miles per hour.

Lesson for Investors: Stay invested despite your fear. It's not easy. I admit to being intimidated by the grizzly I saw 20 yards away given his size, despite being in my rented Toyota Prius. I had the bear spray ready, having seen Youtube videos of them climbing on cars.

12. If your bear spray fails. Get face down on the ground, protect your neck, and wait as most bear attacks are short.

Lesson for Investors: You are statistically better off submitting than fighting, though in rare circumstances you may have to fight. The key is to protect your most vital parts like you neck, ideally with your backpack, and wait before moving to insure the bear has left the area. For investors, this means you may need to sell down a few positions to protect your best positions and don't rush into a bear raid and wait until the bear has left the area.

13. Finally, most people do the wrong things when they encounter a bear.

Lesson for Investors: When I saw the grizzly bear, others were stopping, getting out of their cars and approaching for better pictures, which is exactly what the ranger information said not to do. Instead, Be a Bear Aware Investor. What I learned about Bulls and Bears while vacationing in Jackson Hole, WY: Lessons for stock market investors.

And now some insights about bulls from the Jackson, WY Rodeo.

1. Bulls can be tough to ride for 8 seconds, even for experienced cowboys.

Lesson for Investors: Bulls markets will try and buck you off. Hold on tightly.

2. Bulls are larger than bears.

Lesson for Investors: Bulls markets will typically last longer than bear markets.

3. Bulls and cows can be tough to corral once a stampede starts.

Lesson for Investors: It can be dangerous once a stampede starts. The running of the bulls causes more harm than bears (see part 1, #11).

4. Young bulls come out of the chute fast making them hard to lasso.

Lesson for Investors: Be ready to throw your rope and hold on as new bull markets start fast.

5. Bulls and cows are pack animals.

Lesson for Investors: Sometimes you may feel late arriving to the party, but that is how the herd rolls. Look for the crowd – what products and services are they buying.

6. Wyoming was the first state to grant women the right to vote and politically participate.

Lesson for Investors: Women live longer, so they should be active investors too.

7. There was a sheep chase for the kids.

Lesson for Investors: Consider 529 plans so your children or grandchildren can chase the sheepskin.

8. There were lots of twists and turns in the barrel races.

Lesson for Investors: There were lots of twists and turns in the barrel races, but the youngest rider was about 8 years old. There are long term advantages to starting early because the older riders were really moving fast.

9. The clowns play an important role.

Lesson for Investors: You may find your financial advisor is a stupid clown at times, but he is trained and there to protect you.

10. Faith, country, risk and return. It's the American Way.

Lesson for Investors: The rodeo started with prayer, the national anthem, and an announcement that rodeo is a dangerous sport, but that the cowboys are excited for the opportunity to go win some prize money. Sounds about right for the stock market.



There's a very good story by Jack Schaefer about a hunting lodge with Peyton, an excellent naturalist, who is as sporting as Scott when it comes to culling a sick or weak deer, finally a rancher calls him a predator like the wolf and tells Peyton that he's been searching for a word that appropriate for the predatory hunter. The word is "humility". It's good to have it in the market especially when shorting the stocks.

Jordan Low writes: 

The NYT wrote an article about short sellers, but is unable to find one willing to go on the record, except a retired short seller from 2008.



 Indian equities have been smoothly chugging along. Flagship indices at PE of 18 and some pink papers writing its already the most expensive market in the world. Another headline that caught my eye today was that Market Cap of Indian stocks has reached 2 Trillion USD, whiskers lower than that of Germany & Canada.

No, I am not describing the current moment as a bubble, AT ALL. Yes this market seems valued and while it is flirting very very close to the first 5 digit round number, the magical 10000, there is a much deeper bubble building up and the current market is nowhere close even its onset.

Before I lay my two line thesis, at the end of this note, let me share an image that was circulating much through market-mens' whatsapp here today.

In the local market-colloquilism, the market operators are typically alleged to make the public wear stock at the tops. So when a wearable cloth image was going around on Whatsapps today, one could not miss recalling old posts on the list regarding the struggle ahead of a big round and its eventual release. Well thats a digression into the short term.

The real big bubble factors could be:

a) The world needs its next, bubble. This is a key surmise for one to guesstimate where the next bubble will rise. [More on this on a separate thread, why the world needs the next bubble]

b) Sobriquet of fastest growing economy already bestowed.

c) Political risk computes on India are at all time low with a uber-dynamic CEOesque Prime Minister. Valuations are a function of confidence and quality of management in any security. India was ranked as having the highest confidence in its Government amongst all countries recently, with 76% of the sample stating so, highest of all countries.

d) Cutting the long list of so many other potential factors that may appear to be mere bones, when I put this piece of meat on the table: The Government may very likely drop the Income Tax Rates from the current 32% to almost 12% or 10% before the General Elections in first half of 2019. It might do so by way of a policy to bring the Income Tax rate down in 5 years from 32% to 12%. Many reasons for the Government to do this:

i) Very low rate of compliance right now. The Laffer Curve may be put to play or expected to put to play. ii) Black Money, or unaccounted wealth of Indians, stashed in the banks around the Alps has been a key element of all political rhetoric. Destroy the device that motivates c reating black money, a.k.a. high Income Tax Rates so there will be huge jump in disclosure of incomes. There may be a huge flight of capital inwards into India too.

e) For now, the thing that may be important is, whether or not this much of a tax regime tectonic shift comes or not by 2019, these expectations will be taken very very seriously in the next eighteen months.

So while through the school of mumbo & jumbo, with this indicator or that indicator or this study or that study will keep pointing to a 5% dip for traders to keep playing, the huge huge short gamma, short delta risk on India will be out in the open pretty soon.

In the long run, before we all are dead, the expectable income is truly only gains in taxes and reduction in the cost of capital.

Alston Mabry writes: 

Thanks for the analysis, Sushil. I notice too that most estimates of currency valuations show the rupee as one of the most, or the most undervalued.

Peter Ringel writes: 

This sound like wonderful news for India!

I am quite a Modi fan boy myself. I am happy to read, that his administration has not lost it's drive yet.

I think there was a lot of FDI into India because of Modi – like a Trump-like catalyst and these tax reforms sound very healthy to me.

I am very surprised that Modi is able to do this.

After decades of socialism, related red-tape/corruption and state-sanctioned monopolies I had pretty much given up on India.

I was wrong and now I think the potential in India is huge.

Thank you for the update, Sushil.

Charles Pennington writes: 

As of January 2015, the Big Mac Index had the rupee 60% undervalued. The only two currencies that were more undervalued were the Russian and Ukrainian currencies, 72% and 75% undervalued, respectively.

By a long shot, the Swiss franc was the most over-valued based on the index, 57% over-valued. Second place — Norwegian krone at 31%.

Only 5 of the 57 currencies listed were over-valued against the dollar.

I was a little surprised to see Hong Kong at 49% under-valued. Supposedly a Big Mac costs $2.43 in Hong Kong and $4.79 in the U.S. The U.S. number seems high — does that include fries?



It looks to me as though the high is about in here. Maybe a drop of 5-10% over a period of at least a few weeks. All of this in the context of a very powerful bull market that will carry for at least the next 4 or 5 years (with fits and starts, decades) driven by lower rates, lower unemployment and low inflation in a world fast transforming on the energy and transportation arenas.

Anatoly Veltman writes: 

I only glance at the charts, and I see no difference between the 2007 topping action and the current chart juncture. So to me it looks more like agreeing with Ralph about no charting reason to hold Long here, but also not anticipating reasons to look for Long any time soon. What was that about "lower rates"??

Paolo Pezzutti writes:

Charts are useless. Your perception can be biased by what could look like specific formation. I think we should discuss the possibility of a top based on a more scientific and measurable approach. It's been years since we've heard about analogs with past topping formations and distribution patterns. Sooner or later stocks will move to the downside anyway.

anonymous writes: 

If we are in an analogous market to 2007:

Have we had any "warning shots" similar to Feb. 27, 2007 in which the underlying weakness of credit markets began to be evident? Is there reason to suspect that commodities are at bubble levels, or that a commodity bubble may form as in 1H2008, in divergence from the trajectory of earnings growth and equity prices? Are quant funds blowing up, indicating a sudden change in historical relationships between markets?

Ralph Vince writes: 

Giant bull market in bonds for the past 35 years.

I KNOW I'm not smart enough to call the top in that one. There's no great insight on my part, I'm just sticking with the bass line here, and that brings us to a 1 big-handle on the thirty constant mat.

Larry Williams writes:

The bearish Cassandra's on bonds miss the point. The Fed can't raise rates much here in a struggling economy. 2% GDP growth looks like about it based on velocity of money and credit. The Fed has to stop using Phillips Curve model.



What a contrast with the current Wimbledon champion. Becker's rough and tumble play has led to many skinned knees. An anti-role model to ponder:

"How tennis legend Boris Becker blew $167 million"

"Mr Briggs also said Becker was 'not a sophisticated individual when it comes to finances,' and that bankruptcy was likely to have an adverse effect on Becker's image."



"George Soros lost nearly $1 billion in weeks following Trump's win"

I don't know how reliable the sources are, but I wonder who the other side has been on the not quiet flash crashes but quick down and recoveries on many negative Trump news…



 On the topic of comparisons, there are many being made between 2017 and 1999, because of the run-up in tech stocks.

In early 2000, I looked at the top stocks in the Nazz 100 and found that they were selling for 83x earnings and 14.7x revs.

Here is a quick take on the top stocks in the QQQ now, using ati instead of earnings.



 Developing nation no longer refers to a country where the average income is lower than in industrial nations. Rather, I pick the rarer developing countries to travel to where there are no Smartphone thumbs. Mayo Clinic researchers and CBS News report a condition that doctors used to only see in factory workers and athletes is becoming globally widespread due to the penetration of Smartphones, even in the poorer countries. The repetitive movement of texting has led doctors to dub it the Smartphone thumb. It's actually tendinitis, when the tendon that bends and flexes our thumb becomes inflamed. When my airplane lands in a new country, I keep heading out into the more remote regions until the crooked, painful thumbs disappear and I can catch a glimpse of a disappearing pristine life where people can still give me the Ugly American finger.



 Mr. Wheat asks for a few Wiswell quotes great for trading:

"We suffer defeat gladly, as we know that is the only way to learn, and improve, and ultimately to win"

"The world can't guarantee you wins. You must depend only our own good moves for success"

"Look twice before you move once, and do it every game"

"The board supplies no easy answers. Therefore it is necessary to take a calculated risk: that is not the same as gambling"

"If you want to knock a player out, you have to go for the solar plexus"

"How can a genius make all the right moves in a board game, and then make all the wrong moves in the game of life".

"Occupy, or attack the center. The sides and corners are lifeless. The center radiates warmth and energy"



 One of the themes on DailySpec is the triumph of the optimist and human adaptability and ingenuity.
I found this article on social media: "The Uninhabitable Earth: Famine, economic collapse, a sun that cooks us: What climate change could wreak — sooner than you think."

I post this, not to debate climate science and what may or may not happen in the future. Rather I was struck by the overall tone, defeatism, and agenda pushing (rightly or wrongly) that talked about all things wrong with the world and none of the things that are right. That there was allowance that there may be a way to solve any of these possibilities.

Fortunately I read very few of these things or else I would likely be mired in perpetual depression. But it is probably healthy to be exposed occasionally to this as a reminder that defeatists are all around us.

(There is probably a joke about defeatists, realists, and optimists in here too)



 It's been ten years since the iPhone came out. Walking around NYC I see they have 100% penetration. What I have noticed is that the most vulnerable seem the most entranced and glued to the screen: children and people who appear uneducated. While the benefits are clear and the social connections good what I wonder about are the more sinister aspects of controlling visual and audio input using well proven methods of subtle influence. Much of the content is powered by ads and commerce. I wonder if there is a unifying effect? I wonder how many are killed by walking in front of buses or hitting something while driving. Definitely a major world changing trend in in progress.



 In Animal Husbandry class for vet school we went to the Michigan State rodeo ring every Saturday at 7am to palpate and judge the various large animals: goats, pigs, cows, and horses. i learned to say such things as, ‘There’s a lot of daylight between that hoss’s legs’ indicating he was many hands high to impress the professor. Then at 9am we walked over to the slaughter house to judge other animals after they had been killed and skinned, but not yet butchered for eating. In the slaughter house I learned never to trust a mouthful of chicken, because chicken cancer is arbitrarily determined by counting the # of enlarged lymph nodes. One node under the allotted # meant a trip to Colonel Sanders, but one node over and the carcass was cancerous and put in the incinerator. Another judging lesson at slaughter was the fat marbling of pigs. A professor made us experts in quantifying the amount of intramuscular fat located inside the skeletal muscle that we had palpated and judged externally earlier in the morning. Fat marbling up to a tasteful point especially in pigs is associated with high quality meat in the butcher’s shop or supermarket. On Saturday nights I began palpating females on dates, and learned that in humans excess accumulation of intramuscular fat is associated with conditions such as insulin resistance and Type 2 diabetes. It’s odd to look back and see how our food and health habits form.



 I continue to be amazed that anyone takes Warren Buffett's public comments seriously. What the man does in his tax management of ongoing businesses deserves absolute attention; what he says is the kind of stuff that used to be dispensed by every barker at a medicine show.

The only people who make money buying and selling shares are the rocket scientists. Sometimes their experiments blow up, but they are the only people who have ever made a killing on Wall Street, since the Morgan family was blessed with not one but two genius partners (Peabody and Drexel).

Buffett pretends that his great fortune has come from buying socks and stocks when they are on sale; but his actual stock portfolio's performance has been mediocre ever since the quants and index funds joined the party. Buffett's actual success has come from copying what the best merchant bankers did in the 19th century: buying whole companies and eliminating internal their bureaucracies and combining their income statements and balance sheets to turn the government into a minor partner in the future gains. (The merchant bankers in the 19th century did this as well, with tariffs and what they called "money shaving".)

The world Buffett describes is gone. There are no times now "when no one else is (interested)" and patent medicines are readily available everywhere.



 In Georgia (the country), the most amazing thing about it is the drinks the country offers. It's said wine originated in the region thousands years ago. Now one can buy many very good wines and beers at low prices. And craft beers are sold in supermarkets where they fill a plastic bottle from the tap directly. So we tried to take good advantage of it by tasting as much as we could. But the effect is that we got more sleepy than normal.

In Vietnam, the most prominent drink is the coffee the country produces, mostly robusta. In every corner of any town there are coffee bars where local people drink and chat with friends. One can also easily buy freshly ground coffee in many shops, and a unique handy coffee maker that is very convenient for travel. So we also tried to take good advantage of it by tasting as much as we can. The effect is that we stayed high-spirited most of the time.

Does the drink in a country affect its productivity? My experience says yes.

anonymous writes: 

Except that you could add a control and look at the success of Vietnamese immigrants in the US, academically and financially. Perhaps the booze is less cause than effect.



 Pakistani equities are down 20%.

It could very likely be a case of spurious correlation, yet worth taking a glance at.

Down 20% from the highs of the year, so far.

Interestingly, in the last 15 odd years that it's allowed foreign participation, it moves like the highest beta stocks would. Races up and comes down ahead of most other markets.



 What is this thing called vig?  See old man vig from Mr. Grain.

"Bored Traders on Tinder Are a Symptom of Wall Street Revenue"

By Laura J. Keller (Bloomberg)

One bond trader says he's been slipping out early to watch his kids play sports. A fund manager says his office just staged a golf retreat. A trading supervisor at another bank confides he's swiping through a lot of profiles on Tinder, the dating app. Welcome back, Wall Street, to the doldrums. After four straight quarters of rising income from trading, the biggest U.S. investment banks spent the past few months in a renewed slump. Shareholders will soon see how dull it's been. Analysts estimate the five largest firms will say their combined revenue from trading dropped 11 percent from a year earlier to $18.4 billion — the smallest haul for a second quarter since 2012. The banks start posting results July 14. Behind the scenes, traders grouse about a lack of market- moving news. Congressional gridlock is eroding optimism that President Donald Trump can enact a sweeping, pro-business agenda. Other geopolitical frictions have yet to jolt markets. The Federal Reserve is sticking to its interest-rate path. Among the hardest hit are fixed-income traders. Combined, the five firms are likely to say revenue from that business fell 16 percent to $11.2 billion, according to estimates gathered from nine analysts. At Goldman Sachs Group Inc., it probably tumbled 23 percent to about $1.5 billion, the estimates show. At JP Morgan Chase & Co., it likely fell 17 percent to $3.3 billion. In equities trading, analysts estimate total revenue slipped 2 percent to $7.2 billion. Stock-trading leader Morgan Stanley may post the sharpest decline, about 6 percent. Spokesmen for the five banks declined to comment.

Jeff Hirsch writes:

It's seasonal….

Victor Niederhoffer writes:

The market needs vig regardless of the season. 

Jeff Hirsch writes: 

Of course. But vig has seasonality too and that may be part of what drives market seasonality. It is clearing repetitive collective human behavior at work.



Here is a copy of Richard Proctor's 1887 book, "Chance and Luck". Proctor thoroughly describes luck and chance in a very thorough but antiquated way. He also gives a very complete treatment of lotteries, horse racing, gambling on the stock market, and notes on poker. He delves into gambler's fallacies, coincidences, and Martingale systems. His stock market gambling chapter is basically covering the types of wagers at bucket shops and is full of holes….A caveat, he does make some mistakes, minor math stuff and wrong sentiments taken as fact. Proctor tends to moralize, a paraphrase of his, "If one has more information regarding a wager than another, then any wager between the two parties is immoral." There are plenty more examples of this type of moralization. However, Proctor's book, like Bacon's, contains a hundred practical useful nuggets and several meals of a lifetime for the speculator. Coming in ~ 150 pages, it's an easy read and very interesting. Frankly, I just like how he thinks and heartily recommend this book as a good addition to any spec's library.



I noticed an article today a la E that some sort of weed killer is accidentally killing crops and another that marijuana crops may displace food. Unintended consequences dept. RJA finally trying to stop going down?



 The humorous one didn't inflict any joke hurting anyone, it seems.

Commodities Up, Bonds Up, Equities Up & even the USD Index Up.

Everyone is Happy. Capital Markets are trading like it's communism everywhere!

Or there can be a sustained move in the same direction everywhere?

So is there really no joke today? Or when is the joke going to be understood? Which of the four is the deception?

How does one try to figure out the answer to such questions?



In our shop we consider ourselves "data monkeys" rather than quants, hoping that the disrespect of the moniker will limit wannabees. But if it looks like a duck and walks like a duck…

The problem of ever changing cycles/ figuring out the current regime/ the Church of What's Working Now is solved by most in a brutal fashion rather than a subtle one. Suppose you drive an old car from sea level to say 12,000 feet and it struggles. You could lift up the hood and tear the engine apart. You could also make an air-intake adjustment. Both methods work.

We data monkeys believe that the only things that count with regard to markets are sentiment and momentum. That is, it's all behavioral, and it's reasonably efficient. Sure we like to comment on fundamentals, but the fundamentals to us are only important because they influence the behavioral. When a market has been moving in a certain regime, sooner or later a market Watcher gets the inkling that a change is afoot. His action or inaction will disseminate exponentially to others, and then the regime really will change. The key to keeping up with this is to watch what the Watchers are watching.

To us this means that if you are monitoring data with human input (e.g. price) you had best be making your inputs adapt to what they are watching (i.e. usually the length of past data) and it should have an exponential component to it, rather than linear because human knowledge moves exponentially. If the in-crowd has switched to watching the last week and you are watching the last two months, a change will occur before you become aware. Non-human influenced data (e.g. most fundamentals) can be fixed and linear.

Rocky Humbert writes: 

Roy Niederhoffer wrote a prescient piece 3 years ago. It's worth re-reading this as I think he makes some excellent observations: "CTAs Could Face Historic Challenges From Rising Rates"

anonymous writes: 

Roy Niederhofffer's piece points out that the structure of futures markets for interest rate futures has favored those that didn't expect rates to rise. A large portion of the earnings of investors around these markets would make money because futures had a bias to be priced with an expectation of higher rates than eventually occurred. Those who took the bet that rates would rise lost, and the reverse. We've had a long run of this bias back to the rate peak in 1980/82. Certain types of investors made better than market returns because of this.

The source of this has been Fed led by their providing excess liquidity, and making pronouncements that they would continue the low rates so carry trades would transmit low Fed funds rates to other instruments. THese low rates provide under pinnings for other business investment, and for increasing stock multiples as the only game in town.

What's next?



It is funny to see some of the European performances year to date, like Russia and the Americas always moving in opposite directions, and Turkey up 28% or so, the best [Chart of Istanbul 100 below]. As Haaretz says, the markets don't care much about authoritarian rule, or democracy, or individualism or religion, as long as there is a rule of law so that the investors can get their money back. But rule of law not even upheld there.







In the book Presuasion recommended to me by The Chair the act of reciting or singing together or marching instep creates subconscious feeling of group unity leading to greater willingness to help other group members. A similar technique is used by churches and armies.



I find it to be a much different game involved when managing a big winning position than dealing with any size losing position. Sometimes the market moves render even the best trading plans moot, either side, win or lose. The Mistress broadly encourages one to abandon reason and science, imploring one to trade in an emotional, "seat of the pants" mode. The mistress tends to endow a winner with self doubt and adds a double dose of hindsight just for kicks. She messes with confidence levels, tries to decrease humility, increase hubris, and whispers in your ear some small suggestions, that if followed will cause personal ruin. It is important to note that the mistress is fastidiously equal opportunity, sowing discord among winners and losers alike, and all at the same time.

Losers are easy to deal with…..get rid of them quickly, learn whatever lesson is presented, and move on. It's the very rare big winners that are most perplexing….there's not much material out there on how to deal with them.


anonymous writes: 

Jeff writes: "I find it to be a much different game involved when managing a big winning position than dealing with any size losing position."

I agree with this statement.

And why might that be? Is it because we have trouble keeping positions open — that is, "cut your losses and let your winners run" is much easier said than done. Or might it be that we suffer from a personal guilt/insecurity that subconsciously believes we don't "deserve" to have an big winning position? (See: Prospect theory). Or perhaps it's more mundane: a lack of strategic tactics and discipline.

Whatever the reason, it's what I call a "quality problem" — so long as one doesn't believe that "no one ever went bankrupt taking a profit." Taking small losses and small profits is a surefire way to bankruptcy.

Julian Rowberry writes: 

How many times a year do you have to cut losses? How many times a year do you have to manage a big winner?

anonymous responds: 

The Pareto Principle states that, for many events, roughly 80% of the effects come for 20% of the causes. But in fact, if one is trying to beat the S&P500, it's much more concentrated than that. According to Cliff Asness, each year for the past 20 years, the top 10 stocks have accounted for about 45% of the total gains. (There are different ways to calculate this — but the gist is the same: if you are long-only and own a concentrated portfolio, then owning those few winners is absolutely essential. It's left as an exercise for the reader whether this is one and the same with the so-called Momentum Effect.)

Similar phenomena occur in commodities…

This underscores the difficulty — perhaps even futility — of calling "tops" and "bottoms." This isn't a recent phenomenon either. I've seen some studies that show the most outsized gains occur in the final stages (so-called "blowoffs") of markets. So if you are trying to beat a benchmark (which is the most intellectually honest way to invest), then the only way to explain away those missed gains is to (a) pick a different timeframe for the benchmark and/or (b) couch things in terms of "risk-adjusted" returns or (c) pick a modest, absolute return benchmark. 

Raph Vince writes: 

Je me regarder.

There is absolutely nothing to consider here on this question but to further muddy the answer, and the only way to arrive at the answer is to first solve the fundamental, personal reason as to why you are here.

What are you seeking to do? This is true whether you are looking to trade Cook Co GOs, Natural gas futures or at the cheapie blackjack tables in Biloxi.

What are you trying to do? what is your criteria? And if the answer is simply "To make money," or "To make more money than ybidyblibidyblamgozoo," then you are among the deluded masses who will part with what you've brought in this in only a matter of time.

The single clearest denominator between those who loose what they have and those who do not is that the latter know, very clearly, and with respect to risk and timeframe, what they are doing here. Whether you're playing cards at the caddy shack or venues higher up the food chain. Once a person goes through the rough the honest and realistic self-evaluation, given their abilities, of what they can do and seek to do given their personal limitations, can they then attempt to answer such questions as posed on this thread.

Galen Cawley writes: 

I have found that piecemeal exits work best based on three different mechanisms: first, your personal utility curve (this can and should be programmed), second, a bayesian updating of the premise of your original entry, and finally, pure market action (some sort of trailing stop). The first type of exit is based on your psychology but has the beauty of not being made in the heat of the moment. The second type is logically based on your methodology, and the last one lets the position run as long as the market dictates (which can certainly escape the logic of your particular system). Occasionally, I'll give in to discretion by throwing a virgin into the volcano, e.g. selling a one lot during a runaway market, or liquidating a small portion after persistent daydreams of fantastically extrapolated returns, knowing and hoping that I'm usually wrong.

anonymous writes: 

The problem with getting out of trade too early, is "you don't know what you had until it's gone". In other words, you fail to realize the true value of the trade, until you're out. In essence then, it comes down to a problem of "recognition". One must be able to identify and acknowledge if a trade is simply a random move, or if the market has crossed some threshold; and one has been presented with the opportunity to take full advantage of "the move". At times, the argument is logical, intuitive, and almost compelling. But, at other times, the process can defy logic, be counter-intuitive, and render one doubtful. Of course, with the exception of a post trade analysis, one never knows for certain if their assessment was correct; so one attempts to eliminate bias and doubt, and reduces everything to past experience and probability.

Jim Davis writes: 

Are big winners really that rare? What’s
rare is holding long enough to capture the ‘big’. Of course, it’s
easy to hold everything you own as long as you don’t mind the many
backsliders from highs.

How many sold their beloved Bitcoin or Etherium at prices that today look like zero.



First the technology changed. This improved the cost. The improved cost changed changed the mix.

Better materials of construction permitted the maximum allowable inlet temperature for gas turbines to increase from about 1500F to 2300F. This resulted in efficiency improving from about 25% to about 40%. Even with the higher efficiency, the exhaust temperature of the gas turbine increased by several hundred degrees. This higher temperature resulted in higher efficiency for the steam portion of the combined cycle and lower relative capital cost. Now total efficiencies are in the range of 60%.

Horizontal drilling and fracking resulted in falling gas prices in the face of rising demand.

Steve Jobs (and maybe Rick Perry) was right–sometimes supply creates its own demand.

Via technology.



I thought this was an interesting paper on Autophagy and Lifespan.

Is there a market connection? Nutrient starvation and caloric restriction sound like a market with low energy/volatility. During those phases autophagy starts working replacing dysfunctional hormoneles and proteins from the cells making them stronger. Similarly a market that has low volatility like the last year's market is getting stronger internally as strong hands are buying from weak hands who are dysfunctional.



@vicniederhoffer the definitive explanation I believe for flash crashes. It's margin calls triggered by the notorious broker and fellow travelers. As Bacon says: "The public has no right to lose as much as they do". But it's perfectly legal and unmentionable; but in fairness you have 2 minutes to meet a margin call by wiring money at 2 am to an unreachable counterpart before they take the opposite side to you. You can often see seemingly unnatural huge bids and offers away from the price just waiting to devour you in this context. As mentioned to add risk to injury in the event that one out of a thousand customers isn't exited in time for the broker to take all their chips, they add a risk fee to you next time around to take account of what might happen to them if the market moves 10%or 20% or so in a minute and they can't avalanche you out.



 The Match King by Frank Partnoy covers the Swedish Match company and Ivar Kruegar who committed suicide after developing many derivatives, forging Italian bonds, and developing new methods of manufacturing buildings and matches. He did real trading unlike Madoff but used many of the same techniques. He tried to follow the example of the south sea bubble and Mississippi bubble to get us lenders to funnel money through him to loan to foreign governments in exchange for monopolies.

Author is a respected attorney with Wall street experience. Very resonant. Also A History of the United States in Five Crashes by Scott Nations. Cover the 1907, 1929, 1987, 2008, and flash crash of 2010. Insightful, interesting and anecdotal with some analysis.



After a week of low volume two weeks ago, last week was highly volatile and erratic. It coincided with the advent of a new intern in the office. During the day, we don't talk much but as the market gyrates we try to quantify many different regularities. In the last 5 minutes of trading the market swung back to the lows before a holiday and a shortened day of trading before the first day of the month with gold, bonds at low, and the S&P who knows where. The moves raised a number of queries. And I realized that to a new intern and a outside observer it sounded very much like we were inmates in an insane asylum. It reminded me so much in retrospect of the idiot savant that the collab and I met at the baseball hall of fame who came up to us, and recited the batting averages of every player on every team from 50 years ago.

Anatoly Veltman writes:

I realize that one thing hasn't changed: institutions need to be invested. But other than that one thing, every other market make-up and mechanism has changed due to globalization, algos (especially HFT) and the incredible successful CBs experiment of 2010's with long-lasting zero-cost of all major currencies.

So that would mean to me that pre-2010s patterns are unreliable. And if one follows only a few years of pattern, then the problem lies with different placement within economic and election cycles, as well as most recent hacking waves. Which leads me to believe that the only constant is a CHANGE, and patterns that still CAN be relied on need constant adjusting of sorts…

In conclusion, I venture say that institutional investing has grabbed an oversize share (of course at the price of individual investing). Thus, given my introductory sentence, I have recently expected a Bull phase to last as long as it is - and then switch over to a lasting bear phase to wipe out 50-80% of the preceding gain. Now in that sense, not much change from 2007/2008 grand pattern - except for the exchange execution mechanics (with politicians dominating haphazard rule changes). So yes, lots of fun ahead for the intern.

Ralph Vince writes: 

The relentless move continues throughout the Summer, the majority waiting on the sidelines, assessing the virtues of each thumb, and the litany of those who should know better who all were looking for a top at various points up.

Yes, things are overvalued by most metrics. It's a bull market. That's how they go, have people forgotten this?

We've gone from a market of fear and disbelief, to merely one of fear now - a dangerous environment for weak stomachs as we have seen the past six weeks. The kind of market that wants to shake out those who are and have been aboard, and tempt those who aren't with a certain legerdemain only Mr. Market could do so as to get those who want to get aboard, unable to by crossing their feet and getting their weight going the wrong way.

Voir venir as mom would say.

anonymous writes: 

"Wait and see."

Anything to make us think it's no longer a bull market. Quick, volatile drops in speed and magnitude like we saw this past week, or long, slow, drawn-out affairs where new highs haven't been seen for months, yet still within the context of this bigger, overarching, fear-driven bull market.


Resources & Links