One of the most interesting lessons I learned from Vic, and then during my time on the Spec-List, is how one can learn from people. Something that has been a particular surprise has been that we can often learn most from those whose values and ideas about things are most different to our own. The process of learning deeply from someone is an interesting one; it involves the withdrawal of one's own ego and a cessation of posturing to just listen and 'channel their thoughts'.

In my early days on the list I found 'Mr. E' quite fascinating. He seemed to go out of his way to offend people but at the same time was challenging their preconceptions. Our 'discussions' (for want of a better term) led to me channeling him on certain matters and causing widespread offense among left leaning associates. But thanks to E I developed a healthy skepticism about many commonly held views. And I remember him with affection and respect.

There have been other occasions where people were less thick skinned than E, without my realising or epecting it. I think I offended Larry Williams one time with an ill considered remark, and I'm not sure he knew I had read a number of his books and was trying to understand him. I hope he has forgiven me and will understand that I don't take an interest in just anybody.

Outside the list this learning attitude has also proven to be invaluable. I have become a much better chess teacher through an approach of 'deep listening' and learned tai chi by finding an outstanding practitioner and going through a similar process. I don't think he liked me at first and was unsure about whether to even take me as a student. But now, some ten years on, we are like family.



 We are in Ventura county, CA. As you have read, there were two major disasters in Ventura and Santa Barbara county beginning in Dec 2017. The Thomas fire in December, and the Montecito mudslides subsequent to a January downpour. Neither of these affected us directly, though we could see the fires clearly from our hill (the Mrs cried), and the mudslides destroyed the beautiful place we were married.

Since that downpour there has been no rain here, and it seems we're on track for one of the lowest rainfall seasons on record. This sounds horrible, but our drip irrigation is enough to keep the vines happy and create a good crop. You may also have read that 2017 was record high rainfall for many parts of California. Here it was about 50% over the average, and the vines showed it. Vigor was so high we wound up hedging the vines (with a lithium battery electric hedge trimmer), and dropping quite a bit of fruit to try to equalize ripening rates. Still, there was a large crop and I'm not sure what we're going to do with all the good wine we made.

Tonight's work on trellis repair is what led me to write this. A few years ago I read that Western Bluebirds were beneficial for vineyards because they are insectivores. In this area there is epidemic Pierces' disease - a bacterial grapevine infection that is always fatal, very contagious, and spread by the locally ubiquitous glassy-winged sharpshooter. We do try to control it by various means. I hung lacewing-egg cards in the vineyard 3 years ago because a lacewing instar is known to eat sharpshooter eggs. We also spray imidacloprid and use systemic granules. (A natural approach guy nearby lost his entire vineyard to PD two years ago. I am all in favor of organic/sustainable…..but this is war).

Back to Bluebirds. About 2 years ago I bought nesting boxes and mounted two at either end of the vineyard. The males are colorful and showy and the females are drab. The literature says the boxes should be a fair distance from each other because competing families will fight. Last year the box at the end of the Syrah block was never used, but the one at the end of Grenache hosted a nesting pair. Mom and pop were cute and I enjoyed them. When I was in the vineyard they both would sentinel on various nearby vine posts, and were alert but peaceful when I checked their nest. I'm not sure if they hung around because they were worried about me or if I scared up insects they could eat. I any case we got to know each other. I talk to them. "Get to work!' "Why aren't you hunting?". These birds went wild when there was a bloom of mayflies in various stages of dying. Protein paradise (I hope they see the sharpshooters but who knows).

This couple nested and produced young which I think fledged. Later in the summer I noticed the same or another pair again nesting in the same box. Only this time the babies were killed by the horrible heat of Aug/Sept 2017.

I cleaned the apartment and it is ready for new tenants.

Tonight there were at least 3 pairs of bluebirds flitting around and watching me. At first there appeared to be a particular male corresponding with a particular female, but I couldn't be sure. And it seemed early for nesting. But after a while there was a possible clue. Usually they fly and land in pairs - a male with his female. But tonight there wasn't as much pairing. In fact I saw two males perched on adjacent vine posts, chirping at me gregariously, for quite a long time. I also noticed that in spite of the sparse vegetation (and subsequent insect) growth, they were both pretty fat. How could this be, so early in the season, with record drought and slim insect pickings? Then I looked further and noticed both males were puffing their chest feathers to make themselves look bigger.

Shit! I did this same thing in high school.

So it looks like the pairings are still in process. I plan to still encourage them. And I plan to irrigate as much as it takes to make the vines grow, and hope this year's drought will still be kind to our little blue friends.



Well, as long as you are here, let's see what the entrails say:

Fundamentally, there is no recession in sight. Here's a look at one of our best indicators on that front, the comparison of Total Loans and Leases against Initial Claims. There were some fundamental data that foretold a problem, but they have dissipated with the recent selloff.

However, the current growth of Payroll Taxes is disappointing, meaning that the stock market should not get a boost from the next Non-Farm Payrolls (i.e. Jobs) Report. Many of the changes enacted by the new Administration have not yet taken effect. You will know that is underway when you see the Payroll Taxes accelerate. It will happen; just not yet. Use any weakness as an opportunity to get long and longer.

N.B. The effective date of the Non-Farm Payroll Report this month is February 16, but this chart follows through another week. We have several ways of showing the Payroll Tax data. The view here is the one we usually display, and it is illustrated for consistency. However other views are considerably more pessimistic. Rather than be alarmed, look at this as opportunity.

What you must watch out for is sentiment, or its partner "exuberance", which had a monumental effect recently. Here's an update on the "Smarts vs. Amateurs" which we had posted before.

As always, please feel free to contact us with questions.



“Dancing and the Brain”



 The book Gotham by Burrows and M. Wallace details the changes in the fortunes of the American economy and New York from 1600 to 1900. As it moved from Dutch rule to English rule and from whig control to republican Jeffersonian control. It is amazing how many panics and complete major depression in the economy came almost every several years. All the depressions were recovered in the next year or two.

A recent visit to Muir woods shows the same dynamics to the growth of trees after fires although the fires were not as frequent. Indeed there hasn't been a major fire there in 150 years. Apparently the trees have developed resistance to fires.



 I've been surfing for many decades and once was the Grandmaster Champion of my island. We had some big waves a week ago, and it was one of those magic sessions where the wave comes right to where you are sitting in the ocean, you turn take a couple of strokes and drop in and ride to the end. I got three big waves without even getting my hair wet. A perfect session. As traders, you all know the feeling.

But things don't always go so well. Positioning and timing are the key elements in surfing and catching a wave. If you are not perfect, you can be off balance. You are less able to compensate for wind chop, or warbles in the waves. If you are too late, you might get thrown 20 or 30 feet through the air. Or if you are too far inside the outside set can catch you and you get "caught inside". Or you can just get thrown off balance on the drop in by a small chop. The initial place where the wave breaks is usually the most violent with the most energy. The energy from huge hurricanes in the mid Pacific have traveled thousands of miles and focus on you.

 As you fly through the air upside down you have time to think about the vicious thrashing in store and have to brace for the impact with the water and the hundreds of tons of water flying through the air with the consistency of cement about to snap your neck and arms off. People have broken bones in wipeouts and worse. You also try to get a breath of air to survive the hold down. Upon impact with the water, often as not, your breath can get knocked out, as you are driven down up to 30 feet deep. The water throws you around like rag doll inside a washing machine. Everything is dark. You have no idea which way is up or down. The key here is to relax and conserve oxygen. Though the biggest waves are only 20 seconds apart, if you don't catch a breath at the end of the first wave, drowning becomes ar real possibility. Your board is attached to your leg by an elastic cord and will drag you backwards at high speed. Better, the board will float towards the surface and pull you up from the depths towards the surface. At the surface, the foam can be a foot or two thick making it hard to catch a breath. The air in the water does not float your body as you struggle to catch a breath. As you break the surface, the worst thing to see is another 20 foot wave looming directly overhead ready to smash you down again. You know you are in trouble as your head starts spinning from lack of oxygen. You feel like vomiting. You fight panic and fear. Eventually within 20 to 40 seconds, as you know it will, the waves pass and you catch a wave.

At that point you are utterly exhausted. Your life force is near zero. However, its not over yet. By this time, the currents and waves have pushed you near the rocks and you have summon your last strength to paddle as hard as you can to avoid being smashed to death on the rocks. After catching your breath, you paddle out to rinse and repeat. I love surfing. As traders, you all know this feeling of the wipeout as well.



Why So Many Men Die at 62

Researchers think the reason is linked to Social Security and retirement

About one-third of Americans immediately claim Social Security at 62 and 10% of men retire in the month they turn 62, according to researchers.

Stefanie Harvey writes: 

Locally, this was called "Lockheed" syndrome because so many men who retired from Lockheed in Northern California (usually at 65) died within a few months.

Perhaps there is utility in the gig economy (/sarcasm).

anonymous writes: 

I think in order to get a more robust picture of what's really happening here, the researchers need to dig deeper into the demographics of the people involved.

They hinted at that with the comment about laborers retiring young.

I've done a lot of work with laborers of the country in my 31 years in this business. One recurring theme I've noticed about those laborers (blue collar types) is that their bodies are broken down and stop working around 60. Really, to be fair, their bodies are broken down in their late 30's and early 40's. If you've ever seen a bunch of union laborers, one thing you notice is that by the time they're around 35 - 40, they look 10 years older than white collar workers of the same age group.

These blue collar workers live a hard life, they party hard (smoke, drink, get DUI's), and eat in a less healthy manner…and die sooner. 

anonymous writes: 

This phenomenon was also observed, anecdotally, by certain friends of mine and I with respect to the retirement of senior NCOs - Sergeants Major (SGM) and Command Sergeants Major (CSM). They seemed to, despite their fitness and stoic outlook on life die uncommonly young (late 50s and early 60s). Virtually all of them had, in the latter 75% of their career, virtually abandoned the alcohol consumption that so often characterizes pre-E-5/E-6 time, and none were smokers.

Larry Williams writes:

My psychiatrist son adds: "Don't forget, studies also show delaying retirement also delays onset of alzheimer disease."


Pete Earle writes:


You are going to die either way.

The idea would be to make enough the SS was a rounding error and you can do whatever the hell you want for as long as you want.



The current VIX is priced above both the first (F1) and second month Vix futures (F2). I looked at times  when Vix>F2 and the subsequent moves of SP500 holding until Vix<F2, since 2012, non-overlapping.

Nbr of trades             :  40
Total points              :   475.00
Avg points                :    11.88
Stdev                     :        26.92
Z                         :              2.79
Pct Win                   :        0.73
Max Trade P&L             :    81.00
Min Trade P&L             :   -81.25
Avg PL Win Trades         :    24.09
Avg PL Lose Trades        :   -20.32

The average length of the trade is 3 days.  The current trade was entered on 1/31, 9 days ago and down -160  points and not included above because it is still open.  After this long it is another 11 days on average before the term structure flips back to contango and this trade would be exited.



There has been some comment on the timing of the so-called "smart money". Just how good are our betters at trading these exciting markets?

While we have no specific knowledge of who bought when, we have an algorithm that identifies when the average "smart money" goes from bullish to bearish, and vice-versa, while at the same time the amateur money is betting in the opposite direction. This link will give you its recent history.

This is a sentiment indicator and it has its theoretical roots in the Efficient Market Hypothesis. It plots the best fit over successive N days, where N varies from very short term to say more than a year. The best of the best fits are the smarties, and the worst of the best fits are the amateurs. The smarts are attentive and the amateurs tend to be complacent. This model is not perfect but it tells some interesting tales. At the most recent peak, the smart money turned bearish as of the close on January 30th. They have not yet turned bullish as of February 12th.



Since 2006, I find 13 non-overlapping instances in which the S&P 500 was down 5% or more since 5 trading days ago. The average net change during the next 5 days was 2.5% with a standard deviation of 3.7% and a drift-adjusted t score of 2.32.

   Date        5-day change   Next 5 day change
   1/22/2008          -7.8%               4.0%
   10/7/2008         -14.0%              -0.3%
  11/11/2008         -11.0%              -3.0%
   2/17/2009          -9.2%              -2.1%
    3/3/2009         -10.3%               3.8%
   5/24/2010          -5.6%              -0.1%
   6/29/2010          -5.1%               2.3%
    8/8/2011         -13.2%               7.8%
   8/22/2011          -6.3%               7.5%
  11/22/2011          -5.7%               5.3%
  10/15/2014          -5.9%               4.2%
   8/24/2015         -10.9%               5.2%
    1/8/2016          -6.1%              -1.9%

            Average                       2.5%
            Std deviation                 3.7%
            N                               13
            t                             2.32
            Drift                         0.2%



An interesting metric to be tested from a Bloomberg article in a vein similar to Bill's metrics.

"This Unusual Link Between Stocks and Volatility Says the Turbulent Times Aren't Over"

The entire VIX futures curve is in backwardation, a signal that investors expect more volatility in the near-term. That's seen in the contract pricing, where front-month contracts are more expensive than second-month. The inverse is normally true.

"The M1-M2 VIX futures spread can be used as another temperature gauge for the market, just like spot VIX," said Dave Roberts, an independent trader of volatility derivatives and associated products. "That graph works really well in tight time frames when the curve is in extreme backwardation (like now) because the M1-M2 spread is currently very sensitive to the S&P 500's movements (both up and down)."



 “Inflation is About to Appear ‘With a Vengeance’ Paul Tudor Jones Says”

Larry Williams writes: 

I’d defer to Hoisington Capital over PTJ on inflation.

anonymous writes: 

Hoisington has an interesting comment about the low savings rate now vs the normal 8%. Ancedotally I’m seeing lots of consumer spending and travel due to the “bull market” euphoria.



 A 20 year old chess associate of mine has asked me about a possible career in markets. He's International Master strength at chess (close to getting the title), a second year maths undergraduate, has an interest in poker and was in the Bolton Wanderers soccer academy until he was 16.

I've suggested he reads up on the field and sent him links to the Daily Speculations book list. What other steps should he take?

Peter Pinkhasov writes: 

Not that I know anything, but I lost my roll a few times with all the money I've saved up from folding towels at the jewish community center from grade 7 trying to lever it up my last year in college. I think $ is a product of work for which discovering that one doesn't have the emotional capacity to do could be costly in terms of time value. I wasn't blessed with having a mentor when I started but it would have saved me a lot of time and efforts if I had read Education of a Speculator many years earlier. I think trying it yourself with self capital is good start.

anonymous writes: 

Take up some sports. It teaches you how to lose regularly and hopefully with grace and dignity. I suppose chess does that, but the physicality of sports, and trading, makes it helpful.



 A graduate of Evergreen, the school that treated Eric Weinstein’s brother Brett so badly, has set up a Feminist Business School. Instead of profit seeking, students are taught to “adopt more feminine traits such as gratitude, intimacy, and connecting with nature.” An article further describes this folly as “shunning the profit seeking motive of traditional commerce.”

One postulates that their graduates will not be recruited very heavily by the Fortune 500 companies. They cobbled together an addled brain mission statement that includes:

“We endeavor to topple the patriarchy, internally and externally. We see business as a site of personal power, radical creativity, and meaningful social change. We know that we can survive and thrive in business without compromising our values. We believe work can be fun. We hold fast to our declaration that……..


Here are two delightful testimonials from their website and course description.

This was a life changing experience. I learned so much about the economy, business, feminism. But most importantly, I learned about myself. If you feel out of place in the capitalist economy, you’ll likely feel at home here. — Tina C Jenn

[the school] helps us gather tools OUTSIDE the patriarchy, so we can tear it down with some efficacy. These tools are already within us, they are us. We have been so disembodied that we have picked up the tools of the patriarchy to survive, this is about rediscovering our resilience, our natural resources, ourselves; and in doing so, we find the strength to create a new way of being in the world and in business. — Caitlin M Maybe

The mere existence of a “school” like this is part of the downside of legalizing weed.



 I am in Hokkaido, Japan, skiing. There is a Sumo Championship going on. It's interesting to watch the wrestlers. 77% of the bouts are won on the initial charge when one of the sumotori is pushed out of the ring or to the ground. In each bout there is a tipping point at which one of the sumo fighters gets the other off balance and wins the fight after gaining the advantage.

In markets there is a tipping point when the momentum or balance shifts. It's also interesting to identify that tipping point when it happens. It's been a bull market for years now. I wonder when and where the tipping point will be.

In sumo TV coverage there are always replays so one can see if you identified the tipping point in real time.



 I certainly do recognize that trees can only grow so tall, also the base is much larger than the top while the root structure is equal to the width of the branches above ground and most trees.

So there is a lesson there… all things end.

Just like hurricanes… After living through two of them here I understand them a little better. The take away points are that they are predictable in a general sense but exactly where there will land no one seems to know.

All the hotshot weather forecast systems did give us ample warning to prepare but nobody got it right as to exactly where they demolished these islands.

Even at that several friends had their homes totally destroyed while there neighbor's house, just a few yards away, was not touched. As they say in real estate: location, location, location.

What my hernia doctor said was, "hurricanes are great for my business" and that explains some of my lack of recent posts. Not only that (the recovery has gone quite well, everything is fine) but I also have have been very confused by the stock market.

I know we are in a bull market and prices will go higher but I did not participate in the last part of the rally. That frustrates me.

Now however another buy point is being set up hopefully I'll figure that one out. I think we have seen the top of the trees for a while but there is a base in here for much more growth.

It ain't over yet no fat ladies have sung.

Happy trails to all.



An interesting question arises now. The market has declined 115 points in last 5 days. That's incredibly bullish up 2.5% next two days, but on the Fridays it happened one of them was down 101 points the next days on 8/21/2015. How to combine?

Alston Mabry writes: 

 Here is a take, using the SPY daily data, calculating the 5-day move into the close as a %, and then the 2-day forward move, and then sorting all the days by 5-day moves and getting means for the deciles. 



 Markets can experience contagion. I remember from trading futures (nee commodities) that a crash in one market tended to bleed through to others. We would always remember it as though someone who had a great position in beans would sell it out to meet a margin call in silver that should have been dumped. That is, cutting your profits to let your losses run.

In that vein I wonder how much the recent hit in Bitcoin contributed to the equities decline.

Jim Lackey comments: 

Ben K Green Horse Trading.

Bitcoin the gypsy trade
Currency Rebel Commander 
Nazz Maniac Mule



For all the 200dMA lovers:



"Are Longboat Key Cameras an Invasion of Privacy?"

A scary advance of the state surveillance apparatus. Don't let this fool you, these cameras are a printing press of revenue. Don't drive in this town if you ever even jaywalked, they will use anything as a pretext to detain you and search you and your car. There is a bright side, just think how safe you will be.


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