Jul

23

One of the elements of posture is focus. In a fighting stance, the eyes should look ahead in line with the head. The eyes should not focus too sharply on a specific thing, such as the opponent's fists or head. The focus should be soft, and there should be a general awareness of the surroundings and behind, below and above. Specific focus on the opponent's hands leaves opening to the opponent for feints and deception, or telegraphs to the opponent the plan of attack to the head. It also leaves open side swipes and diverts alertness to attacks from left field.

In the counting approach to trading, with statistics and math, there is a tendency to focus too sharply due to the illusion of precision. It is better to keep awareness of things outside the area of focus or research to avoid blindsiding. Some examples of things to watch for are the increased margin required by brokers, news, regulatory changes.

Jul

22

There's a hurricane spinning out in the Gulf, and the waves have been good in front of my house. They were good enough for my 6' glassy rule to come into effect that says "If the waves are 6' and glassy, drop everything, no trading, and go surfing." Ignoring the markets today, I spent the day in childish glee that only surfing can provide. Earlier this morning, I called my local surf shop about piece of equipment, and had to listen to their surf report before speaking to an employee. The report was dated today, and said that there were ankle high waves in the Gulf, and not worth a go out. I joked with the owner, and he admitted that he usually misleads when he posts surf reports, his reason being that the number of waves are finite, and he doesn't want to increase the crowd factor from in-landers. While I respect the nobility of his intention, I wonder how often the financial press plays the same game of deliberate misdirection regarding market matters, for less than noble reasons. Since I live at the beach and pay a premium for doing so, I don't need to call a report to determine surf conditions, and get the first crack at the good waves. Living at the beach allows one access to the inside market on waves, and the locals usually get the cream. An exchange member on a floor that has active trading is much like a surfer that lives at the beach, in that he gets the first crack at the inside market, after paying the appropriate price of a membership.

As Sogi-san has said to me before, and I concur, "Many a lesson for trading in the waves as well."

Jim Sogi replies:

J SogiToday a new swell was supposed to arrive, so I headed down to the beach. When I got there the waves were small and junky. I timed it so that I would be out when high tide started coming in. Often, contrary to popular belief, the tide does not slowly seep in, it rushes in in the form of several big waves. So out there surfing junky waves all of a sudden big waves start rushing in all at once from a combination of the tide pushing in and a new swell. The big waves rush in.

It felt like that today (7/22) in the market as the new bullish swell rushed in in the afternoon all at once. Often the big up moves happen in a short time, and you got to be out there or you will miss it. Another little market lesson from surfing.

I hope you had a good session. My rule is go out no matter how junky the waves are. Then you'll be in shape for when they are epic. A lot of older guys like to wait until it's six foot and glassy, but when it is they are so out of shape they get worked. Got to surf the junk to get the goods. How many times is it junky and you're out there by yourself and all of a sudden it gets really good for an hour, then it goes away? Showing up is half the battle.

Jul

22

Dr RafterI purchased and have read Shinya's book. The early chapters were interesting, but further reading produced disappointment.

At some point he mentions chimpanzees and how their colons are clear of problems because they are vegetarians. At that point I lost some respect because he obviously does not know about chimps being huge meat eaters. It is actually pigmy chimps or bonobos that are vegetarians, and not normal chimpanzees. Scientists aren't supposed to make mistakes like that. Just like traders are not supposed to confuse General Motors with General Mills.

He believes that judicious control of enzymes are the answer. He makes several references to chewing one’s food fifty times to promote the salivary glands to produce enzymes. And he mentions that fruit is a good source of enzymes, but he never mentions where to enhance one’s supply of enzymes. I only know casually that papaya and pineapple contain digestive enzymes (I’ve used them in food preparation). I would have expected that such an expert would have elaborated on that, but he doesn’t even mention it.

From the first few chapters one gets the idea that he is going to be very scientific, but then nothing happens. Maybe his ideas are correct. Because of his experience he could have been a most credible proponent. Consider the concepts, but don’t waste your money on the book.

Steve Leslie extends:

I am sure Shinya's book is a credible book and I hope it works out for you. If on the other hand you wish to look elsewhere, I suggest you study the life of Jack Lalanne, an American icon in the field of fitness and nutrition. You may have seen him on TV representing his juicer. This follows in the path of the original Juice Man. This product was promoted by infomercial by the man with the gray furry eyebrows some years back. Jack Lalanne had the original show on television titled The Jack Lalanne Show which ran from 1951 to 1985. This is the longest running show on exercise ever in the history of television. He founded a string of health clubs that he eventually sold to Bally Total Fitness. He invented a weight and pulley system and was the inventor of the Smith machine. His feats of strength are accomplishments of Herculean proportion. At age 70 he swam 1.5 miles handcuffed and shackled towing 70 boats with 70 people in Long Beach Harbor en route to the Queen Mary. He once held the world record for pushups, doing 1033 pushups in 23 minutes. He performed this on the TV show You Asked For It. Jack is now 93 years young, still active with a thriving business, and exercises every day. If you want to study someone and utilize his advice, I suggest you go to Jack Lalanne.

Jul

21

J SogiIrrational behavior should be distinguished from the set of behaviors that are not based on rationality. Many of the issues GM Nigel has been raising recently in the areas of Eastern use of non rational methods such as Tao, Zen, etc. tapping into larger areas of the mind than cognitive thought are not based on rationality but should not be classified as irrational. There is great power in these methods. The Western idea of intuition could also be included. Recent work cited in Ariely's book Predictably Irrational shows that even those processes considered rational have hidden processes embedded in them that make their results decidedly irrational.

Jul

21

If you are a fan of comics, as I am, I highly recommend the show on the History Channel about Batman. Just an absolutely fascinating show. It gives great insight into the Batman character — a rare glimpse into genius. It is so well done it is indescribable.

Jul

20

I often say you can't appreciate one market without taking into consideration the backdrop of impacts and effects of other markets. No better illustration of that than last week's action. Here are some indicia:

TA-25 / VIX tableThus, Tel Aviv 25 broke 1000 and VIX broke 30, both for the first times since Mar 16, a nice four month anniversary.

Oil had its greatest one week drop in history, down $16 from from $145 to $129. Its previous record decline was $9.60 in the week ending Nov 30, 2007.

The S&P had its first up week of the previous seven, after spending the longest time in the last 25 years without a reasonable X day maximum.

Bunds, down 1.27 points on Friday 7/18, had their second greatest decline in history, exceeded only in Dec 2001. Corn dropped 20%, and most other grains and metals fell at least 10% on the week.

In short, there was a complete changing of the guard, and fulfillment of long frustrated dreams across the board. What other highlights did I miss?

Vince Fulco looks at the foreign policy scene:

Speaking qualitatively, if we change the term "frustrated dreams" to "frustrated pursuits", the extreme hardening of Iranian and Western positions the last few weeks with the then bolt from the blue US actions to meet in Geneva over the weekend and establish some base level of diplomatic representation within the country constitute a promising, albeit fragile reversal of trend.

Paul Marino adds:

Much as Vic and Laurel believe Fed members and the like have access to the information three days or so before reports are released, someone, somewhere knew the US would sit down at the table with Iran, albeit briefly and deadlocked. Oil knew of this well ahead of time. 

Jul

19

Leopard/ CrocAstonishing photos of a leopard making short work of a croc from The Telegraph, UK [hat-tip to Riz Din]

This is a perfect example of making sure you fight on your home terrain. The outcome would have been different had this altercation taken place in the water.

The lesson: become good at something and learn to dominate it. Stick with what your good at and don't try to compete, when competing means laying it all on the line, in an area outside of your expertise.

This applies not only to the wild, but to the markets as well.

I suppose it's ok to go outside of your area of expertise, but make sure you've had plenty of practice in a non-life or death situations or non-laying it all on the line situations.

Jul

19

Wright BrosDecember 17th, 1903 was when the Wright brothers had their first successful flight at Kitty Hawk, NC. I know this because of the fascinating 30-minute lecture and following 30-minute film at the Wright brothers Memorial Park, three miles from where we are vacationing in Kitty Hawk.

Without really looking into it, I had always assumed that the invention of powered flight was kind of a hit-and-miss thing, much like Edison ploddingly trying a thousand things inventing his light bulb, but not so. The Wrights were really bright guys who, though their main business was running a bicycle shop in Dayton, Ohio, truly proved to be both scientists and engineers. These guys were amazing. They carefully planned and calculated all of their moves, starting with segmenting the four main problems of controlled flight - pitch, roll, yaw, and thrust - solving each separately then putting it all together in the Wright Flyer of 1903.

Not only did they research and work out the theory, but they did exhaustive modeling and testing; starting with kites, scaling up to gliders and then finally the powered machine. They developed their own test and measuring tools, including a wind tunnel to test wing designs, and worked out how to measuring lift and drag using a tension scale, compass, and basic trigonometry (to optimize the wing shape).

All the elements first came together in their 1902 glider, which they tested successfully. The only thing left was to add power for thrust.

Again, they had to invent the necessary elements. When no car company would build them the type of engine they needed, they improvised their own simple but ingenious four-piston engine cast in aluminum. They then also had the insight to design their propeller to act like a wing, and optimized the shape so accurately that they were within a few % of what you would optimize with modern technology. Orville, hacked, carved, shaped and polished the propellers himself. The one engine powered two propellers, which were driven by essentially bicycle chains mounted through bicycle frame tubing.

They accomplished the whole thing in a well thought out systematic and truly scientific way, having to invent most of what they needed as they solved one problem after another. I found it to be so much the more impressive because of that - their methodology.

The lesson for traders or investors designing a system is to observe from different perspectives to gain insight, segment problems into more manageable components, transfer ideas from other disciplines or seemingly unrelated areas, try to establish some theoretical basis for why what you are attempting should work, build models, test, and optimize. Also, you need to be persistent, adaptable, and resourceful.

Jul

18

Years ago I knew well a doctor who lived up in Litchfield County CT. It's surely one of the more picturesque areas in that part of the country, but since the general store was the social center of the town, not the easiest place around for a young (read: randy) woman such as she to stalk her prospective prey.

So she would troll the New York Magazine personals, arrange her NYC assignations, then invariably seek sanctuary in my Westside apartment when those evenings' proceedings would go awry. Apparently false advertising runs rampant in that game.

Not one to be easily dissuaded, she modified her tactics a bit by trading up to the presumably more princely personals found in The New York Review of Books. Of which, the Wikipedia profile pretty much says it all: "…Esquire has called it 'the premier literary-intellectual magazine in the English language." And, "…what Tom Wolfe has called 'the chief theoretical organ of radical chic'."

It's got lit cred.

According to the lady doc, though, its personals also had some of the most pedantic poseurs ever to slither down Riverside Drive. Turns out there is some sort of cluster of them up there in Morningside Heigths. Check out some of these cats. The self-descriptions read like the composite of a singles scene sociopath:

"…Contributes to the community, sits on boards…Very creative, but sadly no green thumb—buys plants and apologizes to them…Cambridge-based scholar, slim, pretty, fit, interested in tennis, travel, stargazing…thinks deeply, politically liberal…Interested in social change…Actively enjoys trekking in Nepal, tapas in Barcelona, snuggling at home, The Economist, Mozart sonatas…seeks arts-loving, progressive travel companion for Rockport, Napa, Machu Picchu, Paris…Especially interested in food, engaged in political action…Passionate brunette—long legs, slender good figure, classic features very Ava Gardner-esque, with irreverent and intellectual twist…Embraces life’s possibilities, insatiably curious about the world, calm, unafraid of fun, projects a whimsical, articulate sweetness…Willing, attuned, gives the moment her all. Drawn to history (European, Japanese, Russian), gestures of simple caring…Described as having depths…Without cliches…"Alas, the lovely lass is married now. Though not to the London metals trader I introduced her to.

Upon first meeting her, by way of a cheeky compliment he said that it was his express desire to do to her what he claimed I typically did to his orders in the pit. (I've always found the English to be so delightfully elliptical.)

But back in the day (mid-80s-mid-90s), the office she worked at outside of New Haven was quite a well-stocked pond. Unless it was a total anomaly, it was where I learned that female doctors tend to be equally as forthright in their dealings with guys as they were straightforward in their studies. Nothing elliptical there on either count. There was my friend Tamara from up in Washington CT, Babs (the Yalie equestrian), Kirana (The Piranha) from McGill University up in Montreal, et. al.

Jul

17

Pull towardNever in my life do I experience such a force, an intense unbelievable drive to right my wrongs in the quickest form possible by doing something completely and utterly insane, as when my account suffers as a result of a poor trading decision, outside of my trading plan. In line with James Sogi's piece "Mistakes were made" and its reference to Cognitive Dissonance, and how a chain of events can spiral out of control, I believe it's not the initial mistake, and not adhering to your trading plan, that causes the major issues in remaining profitable and being successful. It is the subsequent immense urge that wants to right these wrongs, and drive you into oblivion.

The human seems to be at its weakest at this time, or maybe the natural competitiveness to stay on a righteous path and motor forward is the primitive instinct. However what I do know is that it takes every bit of my will power to fight this urge, and it only loosens its grip when I have a success and have the account moving back in the right direction.

This could explain why a lot of people do a lot of stupid things, as they meander through life without any discipline plan or focus: we need these to take stock and have something to measure against, when all goes pear shaped. Without a game plan, we are all doomed.

Riz Din adds:

On the occasion when trading off-plan blows a massive hole in one's account, I have experienced another base sensation that reminds me of some personal accounts of gruesome shark attacks. The adrenaline rush is so strong that these people sometimes feel no pain during the worst of it. It's nature's anaesthetic. One man describes a feeling of almost beautiful serenity, knowing his time was up as he bobbed about helplessly in the water, but feeling no great pain. This chap was apparently saved by dolphins and went on to have hundred of stitches. If you live, the pain comes later. 

Jul

17

BullIn Damn Yankees the hero leads the hapless Washington Senators out of their losing streak by trading his soul to become the much need long ball hitter they need. If I were to play that role with my friends on this site, and all those who read the column, I would remind them that when things look really, really bad, that is the time to buy. I would remind them of the Rothschilds' advice, both the founders and John, that the time to buy is when things look hopeless and there's blood on the street. Such a situation occurred this week, with oil looking as if it would never go down, and the Fannie-Freddy duo looking like imminent bankrupts. Everything fell in place, with all major indexes including Tel Aviv, falling below round numbers, and truly disruptive moves following the Bernanke testimony, to 1201 on the S&P, both within the day and the next morning in England, to say nothing of a 2% drop in one hour from 3:00 to the close on Tuesday night. You have to hand it to that diabolical evil hand, the weak could not even bear to look any more, let alone hold or add to their positions. We've gone pretty much the longest in history without a reasonable multi-day maximum or a couple of up days in a row. How much more of a silver platter do you need, and how many Lolas must you resist to come back to the Lorie, Dimson, triumphal kind of view?

Alan Millhone concurs:

BellYesterday was something to behold, and for all Americans to build upon, with oil dropping $10 and the DJIA up almost 300, its best rise in three months.

There is still some more dust to settle, for instance IndyMac, but all will shake out in due time and we will get back to business in the US.

The late great GM of Checkers Tom Wiswell once told me he liked to eliminate the negative and accentuate the positive. His admonition holds true in all facets of our lives.

Vince Fulco wryly notes:

Perhaps this is what is needed to maintain the overnight lows earlier in the week:

Pakistani Investors Stone Karachi Exchange as Stocks Plunge : The Karachi Stock Exchange 100 Index fell for a 15th day, the longest losing streak in at least 18 years, prompting hundreds of investors to walk out of the trading hall, throw stones at the building and shout slogans against regulators.

But how do you stone a distributed set of server farms and fiber optic communication links?

Sam Marx remains cautious:

Martin Zweig concluded from his studies that bear markets quite often end with a violent move upside. We had a good move yesterday but, in my opinion, it needs more of a move on the upside in the next day or two to be considered violent. Four things came together this week to cause this 276 point upmove: the SEC made shorting financial stocks more difficult, the Dow was slightly below 11,000, Sen. Obama's campaign took a number of hits, because of changes in some of his positions, with much of the criticism coming from his closest followers (the New Yorker cover did not help either) and President Bush took a stronger stand in favor of offshore drilling. A short squeeze will occur if this rally continues.

On the subject of the Yankees, the last All-Star Game was played in the 85 year old Yankee Stadium yesterday. The stadium will be torn down this year and last week Tab Hunter, the star of Damn Yankees, was 77. Time moves on.

Jul

17

UPDATE 2-Nigeria locals blow up Eni oil pipeline, output shut…oil rallies $1.5 [news headline]

As I sit and watch Crude rally a buck and a half off the back of the headline above, I wonder what will be the attention span to traders on this headline, how long will it hold their focus (Can this even be measured… does it vary market to market? Can information like this be collected, grouped and categorised for further study? ) before their mind moves elsewhere and either the massive long position that has been built up within trend for the last 6 months + looks to continue yesterday's liquidation, or whether the bulls will resume seizing control at any opportunity.

Jul

16

No market is immune from potential fraud, criminal activity, or outright fakery. Whether it be in the equities, commodities, currencies, financial, or art markets, one should remain skeptical about what is offered for sale, and know your market. I consider myself to be rather knowledgeable about several different markets, including the art market. Although I don't claim great expertise in the art market, I do know how to avoid paying retail in most cases, and have a good eye for art. Since I'm not an insider in the art market, I have to rely on the expertise of others, trust the provenance being offered, and trust the dealer's due diligence. Sometimes, even those safeguards fail. I recently had my entire collection checked out and verified for insurance purposes, and one of the pieces was determined to be a fake, a forgery. This opinion was confirmed by a third and fourth party, and the insurance company dropped the coverage on the piece. The rest of my mid-sized collection passed with flying colors, and the company only raised my premium by 30%. The dealer I bought the work from went out of business in the 90's, so I'm out of luck getting any restitution. Although I can get tax treatment on the loss, I'm feeling the sting, and am just glad the fake was only a minor piece in my collection. Whereas losing trades are a cost of doing business, and don't rile me much, I was always of the opinion that beautiful art would never be a losing proposition. The fake that was hanging on my wall is beautiful, but it's still a fake, and therefore a losing proposition. The mistress of the market can offer objects that appear to be very enticing and beautiful on the surface, but scratch that surface, and the ugliness of deceit, dishonesty, and criminality will be evident. Whether it be the art market, used cars, the grains, stocks, bonds, or anything… one can be assured that there are participants that are less than honest, that have absolutely no conscience when they rip you off. Frankly, I'd prefer to be mugged in a back alley than be swindled in the purchase of fake art. Since my art is so beautiful and completely moves my heart, there's something very tawdry about the idea of that a fake invaded my personal space.

Jul

16

NigelHaving recently abandoned the barbaric practice of shaving in the morning I've been looking into the history of facial hair. It seems that the killer blow was dealt by Gillette in 1903 when they started making razors with replaceable blades that could easily be used by anyone at home. This certainly made shaving easier and more convenient (not to mention safer), and when you add in a modern obsession with youth the clean-shaven look was bound to win out. But will this continue into the future? Who knows.

The impact Gillette had on beards got me thinking about what higher energy costs and ever greater wonders on the technology front might do. I think there may be many different effects, not least of which will be to make home based working a lot easier and commuting a lot more difficult to justify. So perhaps a new paradigm will govern the property market with people wanting to live in either the city (no commute) or genuinely pleasant places whilst 'commuter towns' will become an anachronism.

What does this mean in practical terms; bullish on York, bearish on Milton Keynes. And the coming viability of working remotely via tech might also explain the relative strength of the Naz, despite the fact that conventional wisdom would have us believe it should lead any decline.

Misan Thrope adds, somewhat off topic:

Shaving a 'barbaric act'? Until I recently I thought a 'barbarian' was someone who did not shave (from the Latin Barba = Beard).  However it seems that there is some controversy on this point and some say barbarian derives from the term ba-ba-ba which the Greeks used to caricature those who spoke any foreign (i.e. non Greek) language. You learn something new from Daily Speculations every day.

Riz Din remarks:

I have spent most of my life in Milton Keynes and am living in the town at present. It is a strange place, made up of extremely straight roads intersected by endless roundabouts. In my childhood, I would often venture to Birmingham or London to see my family, and for a long time, I thought these places were very strange, what with there bendy roads and the like. Over time, I realized it was Milton Keynes that was strange. Fortunately, the town managed to avoid the tidal wave of ugly concrete buildings that swept across the country in the 70s and so is relatively easy on the eye. It is still a somewhat sterile place though, and because the 'new city' was created by top-down city planners, it lacks any sense of organic evolution. Personally, I think it is a fine place to grow up as a child, or to retire if you want the quieter life with all the conveniences. For one's middle years, it isn't so much fun - the proximity to London maintains my sanity. That said, Milton Keynes is growing, and growing. Some people clearly like it. Technology reduces barriers and makes remote working possible, but the impact on the workplace has been less marked than many expected. It still pays to be in the thick of it.

P.S. I was disappointed to learn that the name Milton Keynes has nothing to do with the great economist and investor.

Jul

14

"Mistakes Were Made, (but not by me)" by Carol Tavris and Elliot Aronson is the best of the recent books about cognitive biases. It succeeds by convincingly extending the theory to the broader social issues of politics, divorce, criminal justice, and war. Ariely's book "Perfectly Irrational" described the quaint academic experiments but did not extend the theory well to broader issues. Aronson answers Dr. Taleb's Black Swan issue of process vs jump by describing the process of how an initially honest cop or politician or executive starts honest, but ends up as a criminal (or society ends up in war and genocide) in a series of small steps down a pyramid of self deception, cognitive bias, and end up unknown to them, in a manner mysterious to them, at the bottom of slippery slope of deception. This process is the unrecognized missing element in the Black Swan, which upon retrospect when at the bottom of the slope appears in the mental narrative as a catastrophic anomaly but which in fact was a step by step process.

Cognitive dissonance causes great pain. The thinking goes: There is no way a good person like me could do something so stupid? That causes a chain of alteration of memory, selective cherry picking of evidence agreeing with a preconceived result, self justification, even false memories, shifting of blame and justification. The result is war, divorce, wrongful conviction of innocent people, prejudice, mistaken governmental policies, plain bad decisions. We have all seen people place blame on others for their own faults. This is the heart of many, many failures. The simple recognition of this phenomenon is critical to its avoidance.

As traders we are uniquely confronted with cognitive dissonance and cannot easily escape the reality of our mistakes as the stats make clear what our weaknesses and mistake are. Trading has been the main tool in my life to face up to my personal weaknesses and to try do something about them and has been worth way more than the money gained. The difficult issue for me is to realize when I am right and to press the attack, rather than to worry maybe I'm wrong. It's a tough call in balance.

I recommend this book most highly of all the recent books.

Jul

13

Just came home from Columbus, OH Airport and outside of Athens, OH on Route 33 a roadside billboard ad caught my attention. The large billboard featured a stately home covered with a red brick veneer and a steep roof (likely 12 on 12) and black dimensional shingles. The company advertising is Schumacher Homes and the home featured (my estimate) would be around 5,000 ft2. Now for their ad: They are offering to make your house payments for a full year! Now, all of us know there ain't no free lunch and somebody will have to pay for the year's worth of mortgage payments, right? Most likely scenario will be that the payments for the first year will be built into the mortgage and either will lengthen the loan or make the payments higher when they ' kick in' after the first year. It is creative advertising — flawed though the concept may be.

Vitaliy Katsenelson adds:

I saw a Jeep commercial advertising $3 per gallon gas for a year (limited to 12k miles) if you buy a new car. I guess automakers are using similar tactics to try to sell gas-guzzlers.

Jeff Watson recalls:

I remember telling my wife that the real estate market was hitting a top when I saw signs everywhere, offering mortgages for 130% value with no income verification.

Adam Nelson explains:

I think these sorts of gimmicks are a way for the builder to offer a discount without lowering the house price (which would thereby officially lower the price of the houses they sold to your neighbors as well). Because appraisals are made in part via property records or MLS sales figures which don’t include discounts structured as something given in addition to the house, the builder hopes to preserve the valuation of the other houses by giving this kind of sneaky discount.

Jul

13

Horse StanceThe concept of a stance is critical to all aspects of life, as pointed out by Nigel Davies and Jeff Watson. Your stance is more than just a physical posture, or manner of walking and approaching the physical world as it reflects the inner self and affects your interaction. You can see it in others and can tell much about them from their stance, the way they carry and comport themselves. A strong stance enables strong feelings, and practicing strong stance encourages a strong inner self. In fighting a balanced stance is preferred in neutral situations over a strong stance. A balanced stance is evenly balanced between advance and retreat, attack and defensive movement.

In trading stance is of utmost importance. At multi year lows and on the bull moves it is very important to maintain a strong stance. In the Red Queen trade down, a balanced stance is required despite the fast pace. At highs, a defensive stance should be used.

Jul

13

I recently read "The Age of Abundance: How Prosperity Transformed America's Politics and Culture", by Brink Lindsey, a vice president at the Cato Institute.

Lindsey's thesis is that the mass affluence that began in the United States at the end of World War II was a watershed event with far-reaching implications (the book is U.S.-centric, but Canada and Western Europe quickly followed the U.S. into mass affluence). With basic material needs largely met, many Americans shifted attention to pursuing higher-level needs in Maslow's hierarchy. The generation born after the war, the Baby Boomers, never knew the bad old days of scarcity and had radically different priorities from their parents.

As this era of abundance unfolded, practices and institutions that stood in the way of self-fulfillment came under "sustained and furious assault". The civil rights movement fought racism. Women fought discrimination in hiring and promotion. Sexual taboos were overturned. Alternative lifestyles proliferated.

People's reactions to these sweeping societal changes increasingly determined their political allegiances. "On the left were arrayed those elements of American society most open to the new possibilities of mass affluence and most eager to explore them … At the same time, however, many on the left harbored a deep antagonism toward the institutions of capitalism and middle-class life that had created all those glittering new possibilities. On the right, meanwhile, were the stalwart defenders of capitalism and middle-class mores. But included in their number were the people most repelled by and hostile to the social and cultural ferment that capitalism and middle-class mores were producing."

Lindsey believes the most important story is that the majority of Americans who are not passionate political partisans have been gradually forging a "libertarian synthesis" that allows for individualized pursuits of self-fulfillment while supporting capitalism, rule of law, and intact families—a balance of personal freedom and personal responsibility. "Most Americans … embrace the traditional, Middle American values of patriotism, law and order, the work ethic, and commitment to family life. At the same time, however, they hold attitudes on race and sex that are dramatically more liberal than those that held sway a generation or two ago." Lindsey argues that this synthesis, as yet unrecognized by the major U.S. political parties, is the basis of the social order of the 21st century.

The book has a copyright date of 2007, but appears to have been written before the 2006 congressional elections. I found myself wondering how well the apparent sharp left turn in American politics since then fits Lindsey's hypothesis. As the Collab noted the other day, there is an anti-market cacophony in the air these days. It feels like the mirror image of the late 1970s, when Keynesian economics was so thoroughly discredited that President Carter felt compelled to support deregulation and appoint Paul Volcker as Chairman of the Federal Reserve Bank. Now, "your own men", as Mr. Zachar would say, such as Ben Bernanke and Henry Paulson are advocating increased regulation.

Michael Bonderer adds:

Relatedly, check out the good piece in Time magazine by Nathan Thornburgh on the Libertarians' freedom agenda and how it's transforming America's political landscape and the potential for the "Naderization" of McCain in a few states.

Jul

13

I find the paper Simulating Collective Misbeliefs in the Journal of Artificial Societies Simulation interesting.

Notable how it predicts a tendency for cults to grow based on the beliefs of dead individuals.

I think the same techniques may be applied to look at trading systems and trends, as shared beliefs can become self-fulfilling prophecies, sometimes weakened when a bubble bursts. In life it is equally hard to distinguish between consensus belief and reality. Even time and space are human concepts, although when people look for aliens they scan with their telescopes the vast reaches of outer space.

Sushil Kedia adds:

Wonderful. May I be permitted to generalize Mr. Glazier's statement further that everything that mankind debates as within the possible and not within the possible is again a matter of the human cognitive faculties. Recognition is subjugate to cognition. Observation, testing, conclusion is but a chain in the ever improving cognitive processes.

What would the list suggest be a good way to read, learn and think about the history and or the evolution of human cognition? What may be the must read sequence of works in that area?

"Cogito, Ergo Sum" - Rene desCartes

Jul

13

The Athlete's Paradoxical Commandments by Russ Sears adapted from Dr. Kent M. Keith "The paradoxical commandments "

The Races are inconsequential, brutally tough, and self-centered.

Race hard anyway.

The talent you spend years training may be destroyed overnight and certainly will quickly fade with age.

Train anyway.

The most talented men and women with the biggest dreams can be destroyed by the smallest virus or felled by the mindless cramp .

Dream big anyway.

Sportsmanship and Integrity make you vulnerable.

Play fair anyway.

Few truly root for the unknown underdogs, most follow only the top dogs. Revel in being an unknown underdogs anyway.

If you do win, people will accuse you of cheating, being a druggie and egotist with selfish motives. Win anyway.

The victories you have today will all be forgotten tomorrow. Celebrate anyway.

With more success, you will win fake friends and true enemies. Embrace them anyway.

Cynics will berate you, referees will misjudge you, opposing spectators will belittle you, fans will abandon you and even coaches will move on. Love them anyway.

Race your best, even your body will betray you, exposed to many who will indeed kick you in your most tender spots . Race your best anyway.

You'll find the prize on the inside each morning's as you've learned to always kick back as you run.

Steve Leslie adds:

Excellent insights. The truly great teachers are able to use simple statements to explain the complex. Jesus, Mohammad, Buddha, Sun Tzu and many others conveyed their wisdom through the use of parables and analogies. This website functions at the highest level when it maintains its esprit de corps and engenders this spirit. You have helped further the mission through your sharing. Someone once said "We don't necessarily need to be told things as much as we need to be reminded."

Jul

11

Yesterday I was just putting my 7 year old son to sleep; he asked me to tell him about my childhood.  I told him that when I was growing up in Russia we did not have VCRs and so on.  He asked me: "Pa what is VCR?".  I was shocked.  I did not realize that his generation will not know what a VCR is.

Steve Leslie reminisces:

Here is the technology that I had in my home when I was seven years old in a middle class neighborhood in Ohio: One black and white TV with rabbit ears, three networks and a local TV channel that signed off no later than 2am. A record player (mono). Two telephones and one line (my cousins had a community line where you could hear other people's conversations. A few radios — AM dominated the airways (CKlW was out of Detroit). I think I did have a combination clock radio in my bedroom. That was pretty much it. A typical day: We got home from school around 3pm. We usually walked home, most likely a mile or two. Watched American Bandstand and the Merv Griffin show. A few years later an episode or two of Dark Shadows. Did our homework, ate our family supper, went outside to play until dark then came in cleaned up for bed. Fell asleep listening to the Cleveland Indians ballgame. On Saturday, if we were lucky we could go to the movies for a Saturday matinee. We brought our own popcorn and candy. I never thought then or believe now that I ever lacked in anything of value in my childhood.

Leon Mayeri writes:

We cancelled our cable TV subscription several years ago when our youngest son was born. We have a 13 year old who enjoys watching occasional PBS documentaries with our rabbit ears analog TV. Our six year old selectively watches sports on what amounts to only three local stations, but we also actively encourage reading in our household. There’s an alternative to the plethora of mindless commercial shows: you can rent the occasional DVD for the whole family to watch, or watch something fascinating on PBS together.

Our teenager has, predictably, become fascinated with other screens: first it was game-boy, then iPod, then a MacBook laptop. and now he has hit the grand slam with his state of the art Samsung phone. His Bar Mitzvah brought great fortune and instant distraction.

Simply stated, the best plan of attack with all this heightened technology is to have active discussions about science, technology, and worldly events with your children at the dinner table, and make frequent visits to your local library. Amazon and Barnes are most helpful as well. As long as they learn to read, they have a chance to succeed.

Jeff Watson remarks:

Having converted my entire music to digital format by the mid 90s, my large collection of LP’s has sat boxed up in a closet unused for years. My turntable died in the early 90s. Last year, my son discovered the LPs, bought a turntable on eBay, and has been playing LPs whenever he is home. He considers it retro, therefore “cool.” Those pops, clicks, and hiss from the vinyl bring back a wave of nostalgia every time I hear one played. One thing I really miss is the “album art, which was a valid art form in it’s own. Albums covers and liners in the 70s from bands such as Yes, Pink Floyd, Fleetwood Mac and the Stones provided some of the best examples. Unfortunately, album art just doesn't translate very well to a CD cover.

Jul

10

I personally believe that the Uptick Rule should be reinstated or large money pools will be created to drive stock prices down on selected companies.

Alex Forshaw replies:

Why do you find it ok that speculators drive prices up, but not down?

Sam Humbert counters:

I will show you an article, the subject of which was how CNBC was unknowingly complicit in the fall of Bear Stearns. You might find it informative. 

Jason Goepfert says:

So one of the largest investment banks and securities traders in the nation was taken down because traders didn't have to wait for an uptick to sell short? It didn't have anything to do with the fact that they had bitten off way more than they could chew and should have been deleted as on ongoing concern? That seems a little fanciful to me.

There were hundreds of stocks that were taken off the uptick rule for a couple of years prior to July 2007, in a trial balloon run by the regs. They studied the trading patterns on those stocks extensively compared to those that were still subject to the rule, and found little difference in trading patterns. The rule was not lifted by whim.

With penny pricing, it doesn't take much to get an uptick in a stock. If a large fund(s) really wanted to take down a company, the uptick rule makes no difference. They would just buy a bunch of shares, get the stock on an uptick, then short the hell out of it again. Or buy puts, or any of the other derivatives they have available.

The stock would go to zero whether the rule was in place or not. See Enron et al.

Blaming the uptick rule is lazy.

Sam Humbert  comes back again:

Marty Whitman of 3rd Ave Value Fund has issued a statement in effect also blaming the elimination of the Uptick Rule as one of the factors that the bear raid on Bear Stearns was successful.

I agree with Marty Whitman.

As to driving prices up versus driving them down, there is a difference. Quickly falling stock prices can cause a panic which could cause money withdrawals from some stocks such as brokerage and banking firms, which in turn can cause bankruptcies and job losses. 

Dylan Distasio recalls:

The fact of the matter is that uptick rule was easily avoided prior to its elimination through the use of married puts aka "bullets." When I traded intraday (before the SEC essentially eliminated this use of them in 2003), we used to use them on a daily basis. 

Gibbons Burke also disagrees with the uptick rule:

If all the artificial barriers [such as the uptick rule] are removed the knowledge that stocks are more susceptible to bear raids will temper the irrational exuberance that lofts stock prices far beyond their real value, which causes them to correct just as dramatically.

Wall Street is institutionally bullish, and it extends even to the press covering the street, so support for the uptick rule is understandable, if not reasonable and rational. For example, I know from personal experience that Dow Jones requires all employees to sign agreements when they're hired on to never ever sell short, or be effectively short with options. No one on the entire staff of the Wall Street Journal has any interest in or ability to benefit from stocks going down. It renders the Journal a tout.

Jared Albert has the day trader's perspective:

1) the nasdaq 100 had no uptick rule for quite a while before the general repeal

2) S stocks on the Nasdaq, certainly the most subject to bear raids as they have much shakier financials and tend to be story stocks, never had an uptick rule since I began trading in 1996

3) none of the SHO pilot stocks was more volatile than the comparable non Pilot stocks