January - 2017
 S&P +16.40
 USB -0.03
 S&P +11.70
 USB +0.04
 S&P +0.01
 USB +1.26
 S&P +7.20
 USB -0.23
 S&P -6.50
 USB +0.30
 S&P -1.30
 USB -0.06
 S&P +6.90
 USB +0.09
 S&P -7.20
 USB -0.07
 S&P +9.10
 USB -0.10



These photos of NYC brought back many nice memories. I was born (Feb 1941) and raised in Manhattan.

The missing dimension are the smells. New York burned its garbage. All apartment buildings were equipped with garbage chutes in each apartment. Scraps, paper, plastic, bottles all went went down. Every two or three days the superintendent would burn it all in the basement incinerators. Acrid odors and black greasy soot spewed out of the smoke stacks and spread onto every window sill. Along the lower west side there were slaughter houses daily supplied by train with carcasses. The rotting renderings added another lovely aroma. Everyone was used to it and didn't notice it until you went to the countryside. Upon returning you knew when you hit the outskirts of the city.



 And you plan, hell or high water, to go. Once-in-a-lifetime, Divine Intervention miracle result, TG not to see that woman lie for four more years. Etcetera. So: What to do. How much will it cost? Can you do what needs to be done to make it through the dollar blizzard?

There's the train, if you're coming from a distance. Major bucks more than the bus. You can take the Chinese buses, not guaranteed to arrive on time, but only $30 each way, and reasonable as these things go.

Or the military skirmish-level of flying, squished seating, also sold out, and inadequate luggage space. And the pat-downs and stink-eyes of the airport Homeland Security types. Plus the major layout for last-minute ticketing, unaccompanied by your loved ones, since you have to pay extra for a
1. choice seat on the aisle, and
2. Seat next to a friend or spouse.

Then , where to stay. Pretty much every hostel, now $100/night for the executive manger straw and bunk-bed starvation accommodation, is all sold out. Compare and contrast: Back in 2009, there were supposedly 1.8 million hysterically thrilled up their leg visitors to the Obama Inauguration. The estimate for this year, 20 January 2017, is a shaved 440.000, poor-man's carnival visit list. (That lowball is probably going to turn out wrong, like the mavens of missing who got the election results 98% wrong.)

But now, all the big-buck hotels are pretty much filled by one week prior. So scrambling for guesthouses, B & B's, people you know who have a cousin whose sister has a nephew with a house in the 'burbs with a spare bed.

That costs $175-295 for 3 or 4 sharing. They involve a 20-minute ride from the outskirtiest skirts to a mere 15-minute hike to the parade grounds. If it's the cheaper alternative, you'll need to rent a car, or hire an Uber, or (my humorous alternative, which I have done in the past) bring along a bike. Once in the heart oof Inaugural region, you'll need a trainride to the spot. This all assumes traffic is moving, and that your 'short hop' from outside DC will not become a grueling hur in stuck traffic lanes and fraying nerves.

You have to eat. So if you don't pack a cumbersome suitcase or backpack to haul food, on the astringent diet budget spectrum, then you have to rely on local fare, all genially jacked up for the occasion. At least two or three or four meals, tip and tax, and not looking chintzy with your companions or spice. Figure another $200 for those blue-plate specials.

Hey, restaurateurs gotta eat, too, right?

If you can't cope with these details, as they say, then for a mere $2200, even, you get viewing rights, a nice bed in a good place, and a few invites to galas where your fellow Republicans will be jolly with wassail and beers. Hoisting a tankard or two, you'll justify the extra piracy for the day or two of rejoicing. Then, if you nix the Gala Package for "00 (low end: High end—unknowable digits), you can shell out $300 per gala. So don't forget your gay apparel, in that suitcase you have stored somewhere a headache away when you go back home. You can't be expected to wear your fancy duds all that stand-up time as Donald J. takes the oath of office and you freeze your tootsies waiting for the festivities to begin. The duds are for the nighttime fiestas. So you have one or two changes of clothing to think about packing.

These galas will of course provide tranches of delicacies, tables groaning with terrific stuff. (Even the Dems, when they celebrated, forwent the PC tofu and alfalfa sprouts to knuckle under bevies of branded luxe seafood and tenderest of tenderloin. And so on. So you'll chow down to hold you all the way back to Keokuk or Wainscot or Albuquerque.

Then home, not forgetting to race back for your stored bags and accumulate. Even without the Special Package, you're still in for a couple of thou.

Worth it?

How delighted are you we have finally prevailed over the terror of seeing that pant-suited panther for four extended Obamayears?

Letya know. I'm on the list.



Here is a nice invidious reference to Galton on herd like behavior.  



This is rather amazing:

"Ultra-low-cost, hand-powered centrifuge is inspired by whirligig toy"

"A high-speed camera showed that the human-powered centrifuge could reach rotational speeds of 125,000 rpm, generating centrifugal forces of 30,000 g. This is faster than many commercial centrifuges, yet the device costs just a fraction of a dollar to make."



What were memorable round numbers breached during the week? Gold played footsie and breached 1200 the 30 year went above and below 3% yield with abandon. Dow made abortive runs toward 20,000 but didn't come that close. What else, what are the predictive properties? Nice move down in bonds on Thursday of 1 full point in afternoon after 30 year auction and then again in morning next day.

Anatloy Veltman writes: 

Well I didn't notice anyone contributing examples of footsies yet, so I'll pitch a humble question.

I just glanced at raw longer term price charts (just price history, no internal indicators or anything else), and this is what struck me: if (Ralph, for instance) says it's a great buy at this stage, then when is it EVER a sell?! It seems to follow that (likely) never… Somehow, I'm not convinced there is no alternate answer

Ralph Vince writes: 

When the back end of the yield curve, especially the 20 yr constant maturity is above the 30. That's a good time to sell…..and look to start slowly building the position back again as it drops, for the relentless, upward climb of man's resourcefulness, as expressed in the broad indexes themselves.

The yield curve gives a great picture of the health of the market If there is multiple inflection points (another one outside of that 20 year point) that's even more negative, and if the far left, the short durations, start flippering madly, quickly…..you definitely want to be out of. People look to see if it is flat or inverted, but there is much to be gleaned by the finer details of its personality.



Brett is always endlessly speaking of market cycles, I found this to be an interesting take and an analysis I had not thought about before:

"During the first quarter of 2000, the dotcom bubble famously peaked after setting a new record high for corporate equity valuations. Today, we haven't quite matched that record in terms of equities, though, by some measures, we are very close. And when you look at corporate valuations more comprehensively, including both debt and equity, we actually have now matched that prior period. The chart below shows the value of nonfinancial corporate debt and equity relative to nonfinancial gross value added (data provided by FRED), essentially a measure of enterprise value-to-sales. I'll let you come to your own conclusion about what this might mean going forward."

Dylan Distasio writes: 

This is interesting, thanks. However, shouldn't duration and average interest rates on the debt have some relevance to using it to calculate valuations? I'm asking the question, not necessarily drawing that conclusion. Just wondering if my betters have an opinion on the linked chart.

Larry Williams writes:

So what if we have matched the all-time high valuations of 2008? Provided that the all-time valuation high was in 1960 8C would've stopped investing in 1995?
I am convinced there is one and only one thing that really causes bear markets– recessions. That's the key, certainly not technical analysis.

Happy bullish trails to all.



"Sorry, the ‘January Barometer’ Is a Market Myth"

John Bollinger comments: 

I applaud the work of Messrs. Harvey and Hulbert and others of their ilk and I encourage them to be even more vociferous. Over the past several decades I have successfully used many of the tools and techniques that they denigrate. Investing/trading is a hard business and if they want to scare off the competition and help me maintain my edge I say "Go guys, go! Give it your best.".

As for Yale: It is true that Yale included the sample in the forecast in the early versions of his work, a forecasting no-no for which he has been tarred and feathered. I had the pleasure of meeting him on several occasions and my impression was that he was quite bright and capable, so I always wondered if he didn't do that on purpose, deliberately throwing a wrench into the works…

Good trading,




 In memory, Alba spoke French to her cats, Spanish to the dogs, and English to me. She spoke to me out at her remote property because I was educated and had seen a hundred dollar bill, unlike our desert rat peers.

Alba was born in Managua, Nicaragua tremendously premature. She was a cherub in dancing tights at age 7, pictures showing a resemblance and charm to Shirley Temple. Her father before she was ten took her frequently to the city skid row with coins, and later she went alone, to give them to the needy. Dad was a multi-millionaire hardware man with businesses around the world including Europe. Alba wanted to become a nun, but dad ordered her to University of Pennsylvania to study accounting in order to control the family business. She graduated with honors and, at 4' 11" in the college yearbook is the star of the basketball team. She then handled the hardware business records, got a CPA in Nicaragua, and I saw pictures of her in mink stoles in the Caribbean, Mediterranean, and other exotic places on business or pleasure. Then tragedy struck when her beloved father was murdered in Europe. Alba took over the business, but was actually freed to pursue the nunnery, if she could find one to accept her. She gave the business away, and moved to San Francisco, where she was a popular character on the wharf fishing for sailors. She was involved in a head-on collision and would let you stick your fingers in the in the depressions in her head, where she was laid up in bed, comatose for a while, then immobile, and then recovered to become the old Alba again. Raring to go at the nunnery, one after another turned her away, until she threw up her hands to one sister in the archway, and said, 'The hell with you!' She bought a battered blue Ford van and plied the back roads of southern California until she found remote Sand Valley in about 1995, at the age of about 60 - eight miles down the road from my Rancho Scorpion.

Alba was a good neighbor in that we visited bi-annually when we happened to bump into each other on supply runs to town. She fretted over me, often dowsing me with holy water from the Lourdes. She kept her toenails and teeth as they fell out in an accountant file, and a daily record of the temperature for years and years, as the 1' outdoor thermometer in her front yard spun an extra revolution in the summer to register 180F. She chased rattlesnakes with a broomstick, and used no solar, propane or firewood. Her cooking was setting a Cup-of-Soup or the like in the sun to warm. She had no bad habits, except an underground crypt filled with her deceased pets - hundreds of dogs and cats over the years - that were desiccated to remain as if petrified. It was like Twilight Zone going down there and petting them. Alba had a Dog Street of a dozen mongrels, and a 40' trailer full of cats. I would walk down the Street and practically get licked to death, but entering the Cat House was like going into the jungle. Feral cats perched on the cupboards, shelves, bookcases, and under the table and bed.

Once a month, Alba tied garlic around her ankles and walked eight miles through rattlesnake country to a county road to hitch to Blythe, CA for supplies. The snakes do not like garlic. One day Alba did not return, the dogs were set free, the cats escaped, I sealed up the crypt, emptied her toenails and teeth into my pocket, and as the wind now blows through her ramshackle camper I can still see her dancing and singing in the dirt track when the US Marines drove tanks past to practice war games, 'Thank you, Marines. Thank you for saving Managua!' 



 I asked Brett one more time to quantify some of his multiple classifications and descriptions of cycles and advance declines et al and he responded: "Very nice quanatification of cycles with admirable transparancy of track record fromm @stockspotter. Brett is a Dr of great respect and is adverse to mumbo in all forms. But someone should look at stockspotter to see if it passes the usual scientific standards.

Phil McDonnell writes:

I first came across John Ehlers in the early 1990s. He and I traded his MESA program for my Option Trader software. MESA stands for Maximum Entropy Spectral Analysis. I had earlier written a Fast Fourier Transform (FFT) program which is similar to MESA. FFT constructs a set of multiple cycles over 32, 64 or 128 days to 'fit' the recent history of the market. The problem is that cycles evolve with time. MESA attempts to fix that by taking a shorter term average cycle than FFT.

My experience then was that the software seemed to have some promise but it was not perfect. It offered a look-ahead graph of where the market would go and that was how you picked potential winners.

A quick look at the stockspotter.com site showed a track record of 'closed trades" for the last quarter of 2016. I glanced at the first 10 pages of trades. Out of this sub-sample of 140 trades very few were losers. On the face of it this seems to be a very successful system.

But there is a catch. The trade record shows only a few days (3-6) on the first page. But later pages show a clear trend of more days in a trade (~5-9) as it goes on. This may be evidence of some sort of 'first profitable close' exit strategy. Thus there may be a larger number of deferred losers hidden in the undisclosed current trades which were not revealed.

As it stands the data cannot really be analyzed scientifically. However that does not mean that there is not something interesting here.



 I note K-Mart closing stores. A lady I know recently lost her Manager job at Belks. Belks was bought out recently.

I have some empty rental units. I asked each person why they were moving. The common answer was they could not afford unit.

Also Peoples Bank in my area in March is closing 4 drive through free standing motor banks. Most at the 4 locations losing their jobs.



 Getting The Make on someone means to identify him, his job, or role in life. My expertise comes from ten straight years standing an hour a night in bars across the country, without drinking. In seeing tens of thousands of people, I tried to figure them out. The other place was as a veterinarian at examination tables and kennel gates of small and large animals, because animals don't tell you who they are.

My three best makes and how over the years are:

1. A few years ago in Costa Rica, I was on a tour bus with a tall gentleman who spoke a sentence to his wife seated next to him, and I asked, 'Are you a dentist from Los Angeles?' The give-away was a slight hunch, delicate, smooth hands of exacting movements, other physical factors, and his wife had answered with a 'Valleyspeak' twang. He had good teeth himself, and I had a toothache, which is why I had asked.

2. Ten years ago in Times Square, I got particularly efficient service at a dinner. I said, 'You must be an electrical engineer from Delhi.' His skin flushed red, and his quick tracking pupils dilated, as he confirmed. He was obviously Indian, and nearly all who make it to America are newspapermen or electrical engineer, for which India is famous.

3. Yesterday at Slab City, I bumped into a grizzled newcomer and looked down, remarking, 'You got your shoes at Big 5 Sporting Goods and were in Special Forces.' That fueled an hour of stories of Vietnam, the CIA, and later how he became a mercenary and came to Slab City to wind down. I had bought the same pair of sneakers a month ago, and the feet of a Special Forces can go all directions at once, as opposed to a Marine who is gung ho ahead, and retired Navy who push off the sides of their feet as if aboard a ship.

Learning to get a make on people opens doors, closes ones that should be, and is good for business and sport.



VIX opens Monday at new lows; but chart seems VERY BULLISH. What say you?

Ralph Vince responds: 

I'm looking at the yield curve in constant maturity treasuries, the 10 year duration on out, which tells the tale of the market's health — it's currently very bullish shape. When the 20 yr yield > 30 yr yield or a big concave point at about the 20 year duration, I'll get worried.

Volume hasn't given us a short term sell here yet….

Three week plurality of NYSE Most actives has still not gotten oversold………..since way before the election.

Quality spreads in the credit markets starting to give it up, very bullish for equities, and the shape the big indexes on the charts is verrrrrrrrrrry.

Vix may see little spikes here and there, but I think this [stock market]  is a runaway train, and I think it's going to blow everyone apart who gets in it's way for a while. This is the perfect backdrop, everyone trying to call a top, everyone THINKING sentiment is too bullish, people's thinking all occluded from politics and the dyspepsia therefrom.

This is a runaway train.



 Since the epic crash of 2008, many key relationships have changed and some have gone outright haywire.

Traditional meaning of money for students of demand and supply has been that value of assets and value of money do not move together and rather move in opposite directions. The USD and the S&P500 have been moving up together through a sustained eight years now. In satisfying the mind, which is nothing but a self organising pattern seeking system as per Edward de Bono, one places in the model of the new world the Euro as the new money of this new world.

If this is a perceptive transformation that is acceptable for logical minds, one places on the table a few questions that might deserve indulgence of the specs:

a. What do quants see in the relationship of Eur with other key assets, the extent of the idea that Euro is behaving as the money of the new world?

b. Given impermanence is the only permanence, to prepare better than the rest, in what good ways should one be studying the configuration and the factors working into the significance and role of the Euro in today's world such as when this meme / regime will be about to be ending, the list may be one of the earliest lighthouses to note the changing tide?

c. Will JPY be the next to take over the role of the , howsoever ephemerally in the infinitude of ever changing cycles, to mimic appearing to be the money of the world? There is another question hidden within this simple looking one, that is, will the super bull of equities continue for years further even if the eight year persistence of EurUSD gives in with similar behaviour of a sustained decline coming in the value of the JPY?



 Just in case we've forgotten what they look like, here is a terrific sculpture at Tsawwassen Mills in BC

(pix by Gemy Bom).





This is a masterful article about the importance of quiet study and good businesslike habits.

"The Godfather of handicappers: Pittsburg Phil changed the game forever"



 Le Carré is a wonderful author and I have repeatedly enjoyed his George Smiley books, especially the Karla Trilogy which begins with Tinker Tailor Soldier Spy, a fictional account of the operation to root out the Cambridge Five, including the Russian mole whose character is based on the traitor Kim Philby.

The second book, the Honourable Schoolboy, in which Smiley attempts to rebuild a devastated British Intelligence Service by gleaning information from those operations that the mole had actively suppressed, takes place in southeast Asia and gives a very realistic glimpse into the utter insanity of the conflicts raging there. (the wiki page on the Honourable Schoolboy has an interesting glossary of intelligence service jargon which le Carré employs profusely throughout the novels.)

The final and triumphant Smiley's People finds our hero called out of retirement, once again, to tidy up the murder of one of his former agents. His investigation puts him on the trail of his Soviet nemesis, Karla.

All three books are spellbinding page turners. But, but, but, my absolute favorite adaptation of them (with the exception of the Honourable Shcoolboy whose subject matter was extremely unpopular at the time), is a pair of BBC mini series (here, and here) starring Alec Guinness as Smiley. Guinness is riveting and the stories unfold like a blossoming flower. Simply fantastic, I can't recommend them enough. (they can also be found on youtube, here and here).



Hope spring eternal that the market will go down because the cattleist is not in power to increase service rates and other third term policies. But the article provides a good read on the kind of thinking that pervades the street that provides a cushion for the drift, especially with the rates back below 3% and 2.5 %.

"U.S. PREVIEW: Is Trump Rally Real? Jobs Report May Contain Clues"

By Carl Riccadonna and Yelena Shulyatyeva (Bloomberg Intelligence) 

There are three main focal points in the December jobs report: the potential for a post- election hiring acceleration, the durability of the recent drop in unemployment and clarity regarding wage pressures. Analysts will watch to see if the post-election surge in business confidence is translating into a more aggressive approach from hiring managers. If so, this could be a signal that improving sentiment is contributing to a virtuous economic feedback loop.

The drop in the unemployment rate, following an extended period of stability, is also garnering attention, including among Fed officials, as it could be a sign that labor shortages are intensifying. If this is true, then average hourly earnings should show a more pronounced bias to move higher as well. With the pace of economic output firming moderately in the second half of the year, there is little reason to expect a significant deviation from the recent hiring trend.

What to Expect:

• The consensus among economists polled by Bloomberg anticipates an increase in December nonfarm payrolls of 175k (170k private), modestly below the six- (205k) and 12-month (188k) moving averages. The payroll trend has decelerated over the past two years, but BI Economics expects the trend to at least stabilize, as economic conditions firm over the next few quarters. Improving economic sentiment could significantly impact hiring intentions, if elevated optimism endures. BI Economics projects a mildly above-consensus outcome, closer to 195k.

• Historically, December payrolls have shown little bias relative to the consensus forecast, thereby implying a modest upside risk relative to the result of the December ADP survey (153k).

• The seasonal adjustment of the payroll data turns negative in December, as recurring winter layoffs commence in a range of sectors. In recent years, the seasonal adjustment factor for December payrolls has averaged near -315k.

•Within the sub-industry details, analysts should be alert for an outlier result in the transportation/warehousing sector, or more specifically the even narrower category of couriers/messengers, which has benefited from seasonal shopping increasingly shifting online. The BLS has attempted to correct for this, but the structural trend is ongoing, so the series may yet be insufficiently adjusted. Retail and construction hiring are also prone to December irregularities.

• The median forecast for the unemployment rate projects a minor retracement in December (to 4.7% from 4.6% prior). The impressive descent from 10% to 5% unemployment from late 2009 through the end of 2015 gave way to an extended period of stability in the vicinity of 5%. The four-tenths decline over the past two months is less remarkable given that it coincided with a two-tenths drop in labor force participation. BI Economics also anticipates a one-tenth increase.

• Consensus projects no change in the length of the workweek, at 34.4 hours. An increase could help break the recent pattern of sluggish income growth by lifting aggregate hours worked, but this appears unlikely given that it has maintained the same level in nine of the last 10 reports.

• Average hourly earnings growth will provide important insight into whether the labor market is witnessing mounting wage pressures as the economy operates near full employment. The prior two months were whipsawed (-0.1% vs. 0.4% prior) by utility workers (-1.8% vs. 1.7%) being in high demand following Hurricane Matthew. As such, the December results may provide the first non-distorted reading for the quarter. Consensus anticipates a 0.3% increase in the month, which should enable the year-on-year growth rate to return to the post-recession high of 2.8%, logged in October. BI Economics estimates a more moderate 0.2% gain. Earnings averaged 2.1% in 2014 and 2.3% in 2015, so the recent acceleration poses a compelling signal that labor-cost pressures are finally intensifying.

• Annual revisions to household survey data: As per usual at the start of the year, the December jobs report will incorporate annual revisions into the household survey data. Seasonally adjusted data for the most recent 5 years are subject to revision.

Employment Scorecard

Wage Pressure Becomes Fed's Focal Point

The minutes of the December FOMC meeting indicated that policy makers were increasingly confident that labor market conditions had reached or were close to reaching the committee's maximum employment objective. "Most" participants shared this view, while "many" saw an increasing risk that an unemployment rate significantly undershooting the level consistent with full employment could compel the Fed to raise rates more quickly than currently anticipated. Furthermore, "several" noted that faster interest rate normalization could also impact the timeline for unwinding asset purchases conducted through QE.

Policy makers appear increasingly concerned that a potential overheating of the labor market could complicate their desire to normalize policy with gradual deliberation. As a result, the evolution of labor market conditions over the next few months will significantly influence officials' comfort-level regarding the current rate-hike schedule. The level of the unemployment rate and the wage pressure trend will be subject to particular scrutiny.

BI Economics is optimistic that firming growth prospects in 2017 will at least stabilize the pace of hiring near the average (188k per month) over the past year, which is well in excess of the natural growth rate of the labor force (roughly 100k per month). As a result, the unemployment rate is likely to remain subject to downward pressure, which will in turn magnify upward pressure on wages. BI Economics anticipates an acceleration in wage pressures in 2017, but given the lagged nature of inflation (including wage inflation), the pressure may take a bit longer to emerge.

The accompanying figure shows the recent pattern in average hourly earnings growth. Overall, average hourly earnings are up 2.5% over the past year, and the pace is poised to return to its cyclical high of 2.8% if the consensus forecast is correct. However, further acceleration may prove elusive in the near term, as the 3-month and 6-month annualized rates of change are running at similar paces (both at 2.4%). This suggests that there has been little acceleration-bias in recent months (despite the choppiness in October and November.)

The above figure further breaks out trends in the service- providing and goods-producing sectors, and the results show a similarly stable trend in the former and a marked deceleration for the latter. In fact, among the main underlying categories, of which there are 14, only seven are exhibiting an acceleration bias. These include non-durable goods manufacturing, retail, transportation, information services, professional/business services, education/healthcare and other services. The relevant conclusion is that while a select group of industries are witnessing accelerating labor costs, pressures are not yet widespread.

The diffusion of labor-cost pressures will be a critical trend to watch in the near term, particularly now that policy makers are increasingly confident that full employment has been achieved. Reading the trend has been complicated of late, in part due to temporary pay increases for utility workers following Hurricane Matthew. Unfortunately, the lack of clarity is likely to extend into early 2017, as minimum wage increases in 20 states take effect in January, likely resulting in further volatility in the average hourly earnings data.

To be sure, an increasing minimum wage does reflect rising labor costs — this will undoubtedly have a ripple effect into workers earning near the minimum wage — but the impact on the average hourly earnings data in the jobs report could temporarily exaggerate the trend. The risk is that this could lead casual observers to panic unnecessarily at the prospect of labor costs boiling over–just ahead of a subsequent moderation. Analysts and policy makers would be wise to remain patient during this short-term flare-up in 1Q.



MFM Osborne was a pioneer of modern finance, the first to have the idea of modeling stock prices with what we call today GBM. or Brownian motion in the log of stock prices, making possible all that followed in terms of Black-Scholes-Merton option theory and modern empirical work on stock prices. I have provided a brief summary of his life and work elsewhere in this web site.

His daughter Melita Osborne has prepared a biographical document that is available here [MS word .docx file, approx 300 Kb].



We examined the effect of the movement in Bond futures during January on
the movement during the rest of the year (Feb through Dec).

The following table shows the price moves for all years 1996 to 2016


After an up January the rest of the year is slightly more bullish (91.895 vs 64.97) but the difference is quite small and not significant.

A linear regression with the January price change as a predictor shows that this variable explains 1.46% of the variance of Feb-Dec returns.



We examined the effect of the movement in Bond futures during January on the movement during the rest of the year (Feb through Dec).

The following table shows the price moves for all years 1996 to 2016

If the size of the Jan move is used as the predictor in a linear regression the following results are obtained:

the predictive value is low.



These hand signals for brokerage firms really existed back in the day. One suspects that an HR department would be apoplectic if these were still in use.



 It's not particularly well understood that there were a lot of Jewish settlements in the West Bank prior to partition that were eliminated by the Jordanians.

It's not discussed much—the same way no one pays any attention to the Jews who were summarily kicked out of Arab countries post-partition (and all the way to 1967, when the Egyptian Jewish community was given 24 hours to leave the country before becoming enemies of the state.

As for the, "it's ours now," the Israelis tried that and it didn't get them very far. That was the Begin narrative. Guess what. The world didn't care. The Arabs had the oil, the Arabs had the money, and both were used to "convince" the rest of the world that Zionism was a form of racism and so on.

It's only been during the past 25 years, post-Oslo, that the Said story has taken hold, that Israel is a colony of Europe and that Europeans are responsible for all Israeli activities/actions and should be punished accordingly, absent some form of punishment of Israel.

The one thing that has been constant during the past two thousand years in Jewish history is that anti-semitism has been present, often government or religiously sponsored, and governing the circumstances in which Jewish communities lived. So I respectfully doubt that time will change much from the present—it hasn't up to now and there's no reason to believe (other than the tooth fairy concept) that it will change in the foreseeable future.

Israelis have a Masada complex because that's the situation Israel has been in almost since its founding.

And for those insisting that the US provides an umbrella of security for Israel, I cite the past 8 years, the 4 years of Bush 1, the 8 years of Nixon-Ford, the 8 years of Kennedy-Johnson, and the 8 years of Eisenhower. US policy was at best indifferent absent some overwhelming externality—like the cold war and Soviet intervention. In fact, twice before the US has insisted that Israel return captured territory—in 1956 and in 1973. In both instances, the US used pressures that the Israelis could not resist.

Unfortunately, time isn't on Israel's side. It hasn't been in the past, and there's little basis for thinking it will in the future.



 One cannot underestimate the contribution that drones can and will make to agriculture. Since last August when the regulations on the commercial use of drones were relaxed, agricultural drones have been in a bull market. From checking crop conditions, moisture levels, invasive species, estimating yields, to finding lost cattle and mapping cropland, drones allow the farmer to save valuable time and energy. Some estimate that agricultural drones will be a billion dollar market by 2024. Down the road, farmers and industry players are looking forward to the rules and regulations being relaxed even more, allowing for spraying crops by drone, which could increase the market by 40% according to the whispers on the street. Some of the key players in the industry at this time include Agribotix, DJI, 3D Robiotics, and Precision Drones.



 There are thousands of drones out there, and the newest technology makes them incredibly easy to fly. Most large drones now have the ability to remain a preset distance from the transmitter, so they won't collide with the operator. Most have a gps based one touch RTB (Return to Base) button that will bring the damned thing back if you lose sight of it. The little ones are an absolute kick in the pants to fly, and hexacopters even more so because they can spin with amazing rotation rates (quite a spectacle when they are lit up).

My son's latest has a radar altimeter and he can program a ceiling into it, so it won't go higher than the tallest doorway and get stuck to the ceiling. It does flips with a single touch to the controller (which is any smart phone - just an app) and attaches to a hydrofoil for fun in the pool.

The little ones are great indoors, but pet hair is anathema to them. Outdoors they will suffer in any sort of wind, and remember, if you go above the treetops, wind speed increases dramatically.

You can start small, really small for under $20: (we have four of these).

I highly recommend extra rotor blades and a cage, bundled here with spare motors for $5.

EDF (Electric Ducted Fan) quads are nice because the rotor blades can't hit anything. This is a fantastic beginners machine, if you want to buy ONE machine, this is probably it .

This one is slightly next level, requires some skill, ~$60

Serious fun is FPV racing (first person view), there are thousands or amazing videos, here's a quick one.

If you want to shoot semi pro or pro video, start with a DJI Phantom 3 or 4.

And for fun here is an absurd video of a human flying drone.



 An interesting point of hoboing is the ratio of hobos and their use of mobile devices such as Smartphones. When I rode quarterly from 1985-95 the mobile devices weren't around. However, many of the executives I took to the rails became hobo tech heads, bringing cell phones, GPS, scanners with preprogrammed RR yard frequencies, and night vision goggles. I was content with my working knowledge and the Rand McNally Handy RR Atlas, although at times the high tech proved valuable.

There were reportedly 4 million hobos during the Great Depression of the 1930s, and supposedly after that the hobo subculture became an intellectual property. It was revived in the Great Recession of 2008 that threw hundreds of thousands into homelessness. The worst of them became stew bums occupying your park benches, the more capable boxcar tourists and rubber tramps (in autos), and the most able became hobos riding the rails. I estimate these days that in good weather about one in every five trains you see west of the Mississippi River is carrying a hobo, and far fewer to the east.

Yesterday while hiking in the desert along a Union Pacific track between LA and Tucson, I watched one freight whiz past every 30 minutes for six hours, usually double stack container trains. I was too far from them to see hobos waving, but on returning to Slab city I noted about 200 new young arrivals with backpacks in the past month who will winter here, before moving on. Many talk of riding the rails. They are in their twenties, in dreadlocks, like drugs and the breeze in their hair, and often have female hoboettes in tow who are pretty as well as hard-bitten. They spend their free hours reading, playing guitars, and keying mobile devices.

One of them is named Hopper. He lost his right leg last year trying to catch a moving freight ladder outside of New Orleans. He is traveling with a parson who claims he has 'healed this cripple' by enabling his good leg to regenerate. They travel the nation three-legged, working the crowds, collecting food stamps, and panhandling in Walmart parking lots.

Of course, they have the latest Smartphones in this new hobo addition to the hobo subculture.



 I made the comparison of BitCoin and South Sea Company stock recently. I did so because both are pseudo-monies that began with the serious purpose of evading monopoly restrictions on the movement of official currencies. From the very beginning the usefulness of BitCoin as an alternate currency was unquestionable if you lived in China. It was and, so I am told, still is the easiest way to defeat the PBOC’s restrictions on swapping China’s currency for other national monies. (Again, from what I am told, people in China do not simply trade yuan for BitCoins and hold the BitCoins; they make a second trade and sell BitCoins for Euros et. al. and deposit those in online accounts with foreign securities brokers.)

I thought BitCoin would be a “failed currency swap” because there would come a time when a current Chinese Ministry would no longer allow even relatively small transactions in a pseudo-money to appear to undermine the PBOC’ s control of the conversion price of its IOUs - i.e the official price of foreign exchange. I am not saying that BitCoin would actually have much of an effect; I am saying that “cracking down” on BitCoin would be an easy rattle of the sabers for the people who govern China.

There is also, I am told, the appearance of a technical parallel between the behaviors of BitCoin’s dollar price and the history of the South Sea Company’s share price when it bubbled.

This link is to a chart of Isaac Newton’s speculations in the stock of the South Sea Company. I leave it to the traders to find out if there is any proper comparison; about matters of trading, technical and otherwise, I remain a perfect dunce.



 The December Jobs data is neither encouraging nor exciting. Admittedly there is considerable hope and some announcements of future hiring, but of course no change is yet visible. I will post a chart based on payroll taxes this week before Friday.

One particular concern for future jobs should be the minimum wage hikes. It is rational to expect that higher minimum wage rates in some locales will stifle employment increases in those locations while neighboring areas experience growth. The good side of these rules is that each changed location will in effect become an economic Petri dish, so we finally get to see unequivocal evidence on the matter. Local experiments that underperform are better than a failed national experiment.

It is also possible that reductions in regulations (among other changes) will create such a successful business climate that demand for workers will render minimum wage laws moot.



Today I attended a lunch presentation with pension funds as the target audience. They defined risk as volatility and wanted reduce risk while maintaining much of the return. It was said that buying puts reduced return too much for most fund managers. The strategy presented was to reduce equity exposure from 100% to 50% and invest 50% in a low risk asset (short term bonds), at the same time sell both OTM calls and puts. They presented a back test of 10 years where the strategy outperformed index slightly while having a lower volatility (they outperformed during the 2008 crash and vol looked to be lower all along). I'd think they expose themselves tail risk by selling OTM puts, so was surprised they outperformed during the GFC and that they came out ahead. I still think they make it 'look' good during 'normal' markets but will get killed performance wise during sufficiently high upside and downside volatility–so I really think it is somewhat of an intellectual fraud to call this a 'low risk equity exposure' for pension funds.

Alex Castaldo responds: 

I did not attend the presentation mentioned, but I am familiar with this kind of option selling strategy. One of the simplest is the PUTW (or PUTSM) strategy whose results are updated daily on the CBOE web site.

In the attached chart I compare it's total return since 1/2007 to the SPY total return (the S&P 500). Starting both strategies at an arbitrary level of 923, we see that PUTW falls to 690 in early 2009 (a 25% drop), while SPY falls much further to 503 (a 45% drop). What I find particularly interesting is how well PUTW holds up in the first half of 2008: while the stock market is going down PUTW manages to be steady or slightly up because it is selling puts at a high implied vol; only when the stock market begins to sell off very sharply after 9/30/2008 does PUTW also drop.

But even more interesting is what happens in March 2009 and after: the SPY begins to climb faster than the PUTW, slightly faster at first but markedly so after September 2012 and soon thereafter SPY passes PUTW. At the end of December 2016 SPY is at 1798 while PUTW is at 1668.

My conclusions are:

(1) The PUTW strategy has a lower volatility than SPY, both in terms of a lower drawdown in 2008 and a generally smoother path throughout the period (std dev of 11.5% per year versus 15.2% for SPY). The claims made during the presentation are believable. There is no intellectual fraud here.

(2) Everything has drawbacks as well as benefits. The drawback of PUTW is not that it will lose heavily in the future during periods of enormous volatility, but the opposite: that it will underperform during prolonged bullish periods for the market and probably over any sufficiently long period (long enough for the implied vol to adjust to whatever the situation might be and for the law of large numbers to take effect). So there is nothing magical here, as Dr. Zussman would say just the familiar tradeoff between volatility and return.

(3) The correlation between SPY and PUTW monthly returns is 0.85 (beta is 0.65) so PUTW is not all that different from SPY in terms of sources of risk (it is not a very good diversifier for stock market risk).

(4) The performance of PUTW is not theoretical or proprietary or reserved only for pension funds; it is explained on the CBOE web site (roughly speaking: sell 1 month ATM puts fully collateralized with cash) and since February 2016 there has been an ETF (also called PUTW) that implements it. So far it is small (30 million in assets). It has a 0.38% expense ratio, and so far has been tracking the CBOE version with accuracy that is quite respectable, and in line with expectations.

(5) Yes, you can reduce risk by selling Vega. Or increase risk by selling Vega, it is all in the proportions and how you do it.



With stocks and the US dollar rising, and US Treasury bonds falling (at least before the Fed actually raised), I had the idea for some time that the markets were doing the Fed's work for it.

I found 22 months in the past 18 years in which the S&P 500 was up while Treasury bonds, gold,and the euro were all down. In the following month, S&P 500 net changes were consistent with randomness.

To minimize problems with multiple comparisons, I did not test the other 15 possible combinations of monthly changes in stocks, bonds, gold, and the euro.

                     S&P 500 futures

Date                 Net change in next month
            3/31/1999                   3.3%
            6/30/1999                  -3.6%
           11/30/1999                   5.3%
           12/31/1999                  -5.6%
            1/31/2001                  -9.5%
           11/30/2001                   0.7%
            6/30/2003                   1.6%
           10/31/2003                   0.8%
           12/29/2006                   1.0%
            5/31/2007                  -2.1%
            4/30/2008                   1.1%
            4/30/2009                   5.5%
           12/31/2009                  -3.6%
            3/31/2010                   1.6%
            3/30/2012                  -0.7%
            5/31/2013                  -1.5%
           11/29/2013                   2.4%
            3/31/2014                   0.7%
            2/27/2015                  -1.6%
           11/30/2015                  -1.7%
            8/31/2016                  -0.1%
           11/30/2016                   1.9%

Average                                -0.2%

Standard deviation                      3.4%

N                                         22

t                                      -0.68

Average of all months                   0.3%



 As time is counted, the earth has once again made another lap around the sun. The stock market has for another year continued on in its optimist triumphant. I would like to praise those that value time, honor it, and consistently strive with discipline and faith in self and others to pursue exponential growth.

It is my belief that an intuitive understanding of the exponential function, its power, persistence (perhaps even an eternal legacy) is the basis of a person's success and happiness however one defines it. If its power is denied, it ensures one's failure.

It is said that the polite do not talk of illicit sex, dogmatic fanaticism (often found in the most political or the pious religious) and gambling. I would suggest that these forbidden desires are rooted in our natural instinct for exponential growth, either to fool ourselves into believing we are pursuing exponential growth or by short cutting time.

However, if you talk about saving and investing in business acumen, marriage and family and building a solid reputation, even the most conformist among us will approve. These are much slower but more respected historically proven methods to build one's fortune, establish one's family dynasty or build a legacy, and if one endures the short term trials and pain, successful ways to pursue exponential growth.

It would appear that people have a natural respect for the slow persistence of having an edge but taking a short term risk. Nature has in it a reward system that respects those that honor time but can endure short term risk. But the exponential growth model tests our faith in time, humankind and even those closest to us. It is in these times of vulnerability however, that if one accepts this vulnerability and commits more, one is most likely to receive the most from this faith.

Yet this model of growth can be easy to fake. Love, financial advisors, and moralists are the trifecta for con-men. Further it can be difficult to distinguish a linear growth model from an exponential growth model. Scatter plots of an exponential growth often are highly correlated to linear growth model making it hard to distinguish. Further, after growth, time alone often make it clear if the growth is because of a trustworthy foundation, or if the growth was artificial creating by borrowing from the future, creating an exponential decay of debt. Further, as Yogi said, "It's difficult to make predictions especially about the future."

With exponential growth, comes reoccurring compounding. But the hallmark of the "chaos model" also has a similar compounding. A small seemingly insignificant compromise can cause a collapse of such a growth model if resources become strained and great power or wealth are too concentrated, like the flap of the wings of a butterfly can change the course of a hurricane. The best of plans can be derailed by a slight change in the environment sending the growth plan into dogmatism, centralized power and concentration of wealth by systematization rather than market forces.

But exponential growth gets its power not just from patience and time, but from each other. Most powerful is small groups of people banded together by mutual trust to work together for the long term good of each other. When an engineer and a machinist get together with a scientist and a business man the combination can be much bigger than four added together. Their entwined strengths can combine and their weaknesses can be covered.

Families are perhaps the most rewarding and enduring growth model, but they also can be the most difficult to try to predict. This of course can be difficult to see day to day when the follicles of those closest to you are so apparent , or when a T-Rex of centralized power is hunting for you.

An insistence that second order and higher effects are fully understood and controlled beyond reason, if everything is always roses, consistency of only positive returns and the advertisement thereof are all signs that a marriage, business and reputation are about to implode. It takes faith in one's self, in those that love you and that you trust in, to those you agreed to do business with and the markets in general to ask for accountability, as vulnerabilities are exposed, to ask, to test and prove to yourself that all are still pursuing exponential growth…rather than faking it. But one must be willing to ask, to test and confront those challenges sure to arise from building a long term plan. One must be willing to admit that the higher order effects of pursuing exponential growth creates uncertainties that will be met. Rather than pretend that you have already tamed exponential growth and it must be submissive to you.

May your faith in the power of humankind to solve problems, be fruitful, and those closest to you to share one another's vulnerability intertwined together bringing all super but all to human strength, another year.



 If one were to look back at the first two years (or even 1 year, if you prefer) of W's reign, which investments had the greatest returns within equities? Does anyone have that info readily available?

For the value investors, were there any particular investments during those two years that were particularly notable wrt return?

To what degree can we pare back expected returns because of the impact of productivity enhancements (read: automation)? Again, some may have already looked at this issue abstractly. I wonder if there are any concrete estimates one might use.

Stephanie Harvey writes: 

I did some quick searches (no data mining) and two things to note:

2000 - was the optical fiber bubble

2001 - the fourth quarter skewed things with 9/11

A few fun links for the value investor question 

2000s 10 best and worst performing stocks

Comparing Sector Performance During the Last Two Bear Markets

Ralph Vince comments:

By the second quarter of 2001, things were slowing. By the third, everyone could tell we were entering a recession. The aftermath of 9/11 brought everything to an entire seizure for the quarter, which lingered well through 02.

But the economic decline was noticeable (at least in the manufacturing sector) by the second quarter of 01.

Now, however, by the third quarter of I saw an acceleration in job demand (per me) and corporate profits again rising. 

Scott Brooks writes: 

The markets were trying to recover after the dotcom bubble burst, but 911 knocked it on its butt. The markets were fairly resilient pretty quickly after 911 and trying to recover, then came the Enron/ArthurAnderson debacle (Worldcom, Global Crossing, etc. etc.).

Of the three years in the downturn (2000,2001, and 2002), 2002 was, by far, the worst.

I think people were surprised by the dotcom bubble burst, but not shocked. Any thinking person with an IQ north of 90 inherently knew that the bubble would burst someday.

I think people were shocked by 911, but it also steeled a lot of resolve in the US.

But the Enron, Arthur Anderson, Global Crossing, etc. was a devastating blow to the US psyche as people started to learn that Wall Street was not being honest with them.



 President Washington was a very busy man under constant demand. To make the most of his limited time, he arranged for non-governmental meetings to occur on one specified day for just several hours in his New York residence. He would remain standing while dignitaries were brought into a receiving salon where he would circulate around the room, listening, engaging in conversation, then moving on to the next group. The only exception to this routine would be occasions when notable females might come to call. In this case, he would greet them at their carriages in the street and escort them personally. Washington rarely missed a good opportunity.



 The key to survivals is mental rehearsal before the occasions occur. About twenty years ago, I listed the top twenty survival situations that I might encounter. Then I mentally (and often physically) rehearsed them, and these are the ones that have panned to save my limb or life:

1. Bear Attack

2. Rip Tide

3. Stuck Elevator

4. Dog Attack

5. Car crashes

6. Lost

7. Medical conditions


9. Fights

10. Quicksand

And so on.

The most interesting scenario I've been rehearsing lately is dog attacks, specifically by trained attack dogs. If you study the training films, the dogs are trained to go for the right arm, especially if it is raised to the side holding an object. The attack dogs, usually German Shepherds, run and launch off the ground and bite the wrist. In that full second after the animal leaves the ground it is in grave danger. I have been holding my right hand raised to shoulder level in a fist, the dog in my mind, (unaware that I'm ambidextrous) rockets at it, and in midair I pivot and stab it through the ribcage with a screwdriver, fork, or tire iron. If you have ever seen wild or even domestic cats fight, they first go for the jugular, and second to puncture the rib cage with a fang. The victim loses the powerful vacuum in the thoracic cavity to make the lungs expand out and instantly flounders. The only help in a survival situation is bubblegum or duct tape to seal the hole, which I've also rehearsed.



 Some may remember when Zerhouni, prior to his time served at Sanofi, directed the NIH. There are some rumors that he may yet be recruited back to that same job (if Peter Thiel's efforts are thwarted—taking the path Thiel has proposed would be akin to taking Ron Johnson and putting him in charge of a bank; I think the results of that approach can be seen in the near death spiral that Johnson put JCPenney's into).

In any case, Zerhouni has an observation that some of us have been noting for many years. Not all acquisitions should be integrated into a parent pharmaceutical company, and not all promising pharma start-up have value as acquisitions.

Dylan Distasio writes:

Tangentially, Thiel's pick of Jim O'Neill would be one of the best things ever to happen at the FDA. I, for one, am hoping Thiel's efforts are NOT thwarted!

If O'Neill was able to successfully roll back the Kefauver Harris Amendment to the Food, Drug, and Cosmetics Act of 1938, my assertion is that we could get back to a cheaper, quicker NDA process that would benefit everyone outside of power hungry government bean counters. IMO, efficacy should have never been added as a requirement to the drug testing and approval process. Getting rid of it could potentially usher in a golden age of treatment options and save many lives in the process.

David Lillienfeld responds: 

1. It is impossible to assess safety information in the absence of efficacy data.

2. In the absence of randomized trials, implemented principally to meet K-H Amend requirements, many adverse events due to the underlying disease would likely have been attributed to the drug with the result being a lack of use by the medical community and a withdrawal from the market.

The best example of the need for K-H Amend is laetrile. Wonderful drug. No efficacy. Lots of toxicity. Lots of criticism of FDA (for more than two decades that I'm aware of) for not allowing the drug on the US market and consigning hundreds (if not thousands) of patients to certain death. The laetrile hastened the deaths of many, and there is no data to suggest any benefit. (I'll leave aside the oral contraceptive story—1st and 2nd generations. Or clozapine.)—I've got other examples for off-list discussion.

I have all sorts of problems with the spontaneous reporting system institutionalized by KH Amend. But the need to show efficacy I don't quarrel with. You would be absolutely shocked to see what would have been unloaded into the marketplace in the absence of a need to demonstrate efficacy. I might not like the cost of the new HepC drugs, but they are cost-effective—they do cure HepC. Compare that with Panalba.

 The notion that you would have an outpouring of new drugs in the absence of the FDA is a myth. One of the biggest problems that we have in the US is that de facto cutbacks at the NIH and CDC have not only reduced the R&D workforce available to the US pharmaceutical industry (limiting its ability to produce the drugs need to address today's unmet medical needs) but also the lack of understanding of the pathophysiology of diseases. That's the single biggest problem, for instance, with Alzheimer's, Parkinson's (which is no longer just a movement disorder), and sepsis. There have been lots of drugs for sepsis put forward. Only one was allowed onto the market, with lots of concerns registered within FDA and by the medical community. While efficacy wasn't great, FDA argued that there was nothing else available that held any potential benefit approaching this drug's. The drug was a commercial flop and Lilly subsequently withdrew it from the market. Or aerosolized insulin—but that's a pretty involved story.

Alternative stories in which drugs that might otherwise never have made it to market in the absence of the FDA are Tracleer and thalidomide. (Yes, FDA facilitated re-introducing it back in 2000.)

I suggest looking into the history of the Biologicals Control Act (see my paper: The first pharmacoepidemiologic investigations: national drug safety policy in the United States, 1901-1902. Perspectives Biology Medicine 2008; 51:188-98) for an example where the industry begged for the FDA (actually its predecessor—see the paper) to implement regulations to assure the public of the safety of its nostrums.

If you prefer, you might think of it in terms of surgeries. Was every CABG in the 1970s and 1980s (and 1990s, for that matter) efficacious? No; there's pretty good data that single and double were not beneficial and probably resulted in lots of deaths, and not a small number of strokes (~5%). There are lots of other surgical examples, whether they be radical mastectomies (vs simple mastectomies), internal-external carotid bypasses, and some forms of bariatric surgery just as starters. Just because some surgeon figured out a way to cut doesn't mean it was beneficial to the patient, and it's not as though the surgery is without its own risk.Substitute therapeutics for surgical procedures, and one gets the same result. I've been offered surgical procedures many times that I have declined in the absence of data indicating that it was efficacious.

My father (chair of epidemiology at Johns Hopkins) declined to have a triple CABG until the data indicated that there was a benefit at least commensurate with the stroke risk (did you know that when the Cleveland Clinic first started CABGs, the post-op ICU was nicknamed "the stroke ward"?), never mind death.

There are lots of issues present at FDA, especially on the food side. But the notion that FDA is the reason why more life-changing drugs haven't ben introduced in the US is more a case of political philosophy trumping scientific data in the presence of asymmetry of information (Ackerlof's lemons come to mind). The biggest challenge in getting more drugs to market in the US has been the slowness in the development of our understanding of how disease happens. The NIH funded the work that indicated there may be a role for statins—the work on the HMG receptor. The industry took the risks in discovering and developing statins, not the NIH. But in having the NIH budget as a political football, the creation of new drugs has been retarded.

Little understood in all of this is that the pharmaceutical industry is one of the net exporters (big time) from the US, that the effects of the drugs that it does develop are usually cost-effective (despite the assumed to be outrageous prices for them (generics don't merit some of the pricing that they are allowed, though)—and save the economy lots of money, that 2% of the US GDP is now the pharmaceutical industry (not a small number of jobs or wealth production) or that the rate of return on investments in NIH/CDC research is pretty significant.

Bottom line: I don't think KH Amend are the problem they are often held up to be. The data simply aren't there to support the argument. Of course, if you want to oppose them on philosophical grounds, that's a different story.

There's lots of stuff that one can criticize the government for in regard to the health care system. The health care provided by the military and the VA is a great example—they've been underfunded for years and the result is some horrific health care being delivered (though it's better than it was 5-10 years ago). I could go on and on, even insofar as the effect that the way we fund medical education in revving up the use of procedures, like endoscopies or surgical procedures, of questionable need. But that's a different discussion.

But if one assumes homo economicus and no information asymmetries, then maybe the KH Amend might be superfluous. But that world exists only in the minds of economists—even the one-armed ones.



The players ask for rules, but in a game a lot of random things happen, you can't script every play that's going to happen in a practice or shootaround, so a lot of times you do have to just figure it out"

-Jeff Hornachek about the Knicks woeful defense and also why no systems can beat judgment.



 There are two outstanding breeds of dogs in Slab City: Chihuahuas and Pit Bulls.

The former number in the hundreds, nearly as many as the people, because the breed is a 'small world' dog. They thrive in barking clusters in the tiny prison-like shanties, tents and trailers. Their purpose is companionship and as burglar alarms. Owners know that to put a small world dog out into the 'big world' leads to disaster because their small brains on such little bodies would get them lost or under car tires.

Pit Bulls, on the other paw, with jaws as big as Tyrannosaurus Rexes, are the second most popular dog for protection. They are chained outdoors, often in protective circles, around peoples' camps. They are one of the few dogs that without training or warning bite before they bark. One put my knee in its mouth and dragged me to the owner, who ordered, 'Precious, drop!' and it released me.

Dogs are like people. The single idea leading humankind down the primrose path to destruction is the fallacy that each person is like everyone else. We are individuals within races that also differ in mental, physical, and social capacities. It's disastrous to think that all men have evolved to be alike, however it's free to establish an egalitarianism where the barriers are removed to anyone to strive to become equal or better than anyone else.

I believe that individuality is our only hope for the future.



 The real Brighton Beach will never be back. The bungalows have been bulldozed and replaced by big buildings. The 2cnd generation Americans growing up among the European WW II survivors have been replaced by generations of Russian emigres and most tragic of all the Brighton Beach Baths with its 40 handball courts crowned by Garber Stadium, the greatest exhibition court ever built on which the greatest 1-wall handball players of all time played for appearance fees of $5 while competing for the $10 grand prize, and its 3 pools and basketball and hand tennis/paddle tennis courts, ping pong tables, punching bags, steam room, 6,000 men's and like number of women's lockers and solariums, with its bandstand that hosted a young Jackie Mason and Frank Sinatra Jr., and its Sports Club that introduced us to competitive play with its handball, hand tennis and ping pong tournaments, and taught hundreds of us how to swim and dive and water ballet for the girls, and the huge circular cafeteria where we all fled to when it rained and also served as a synagogue on the high holy days, and the checkerboard tables where little boys played checkers and chess against each other as well against the men, and card tables where our mothers played gin rummy to try to supplement the meager family incomes are all gone. The folk dancing has ceased and the bands have stopped playing forever. I cry for a lost paradise and the demise of a wonderful era.





















 One has been searching for the proper framework to analyze the abstention vote on Israel that would have never been made before the election because it might have cost cattleist votes. The references to Lame Duck seemed apt. The lame duck is wild when it can't swim and is very dangerous. It has nothing to lose as it knows it's a goner. That's why lame duck congresses and retiring office holders are very dangerous. They can't be held accountable by the electorate if they do something bad, and there are no checks or balances from losses that might accrue to their party if they do something wrong. But somehow that didn't quite capture the enormity of the incensed behavior that must have led to all the planning for the abstention.

It then occurred to me that I had written about it. Somewhere in Education of a Speculator, I wrote about gamblers in Malaysia who when they lose everything, which happens often, cut off their hair or wear it in a pony tail. And it's permissible to shoot them on site because they obviously have nothing to lose, and have lost their mind.

There's a picture of my colleagues with their hair in a pony tail recalling the situation to make fun of me. However, I can't find the passage in ed spec. And the market might do something big while I'm looking so I can't spend too much time looking for it.



The paper that apparently tries to debunk the relation between IQ and income seems to be out of the agrarian back burner. I know enough about this subject to know that there are numerous studies showing a 50% correlation between IQ and income. They must have teased and bifurcated the data and added many non-sense correlated variables to no end to eviscerate the direct relation.

"If You're So Smart, Why Aren't You Rich?" by Faye Flam



We must watch out for the humorous chair to follow in the footsteps of her boss now that there is nothing to lose, and the cattleist no longer in the picture. Once my opponent tried to kill me with a 150 mph shot at the back of my head when he was down 14-5 in the final game. It put the UN move in context.



 Perhaps three months ago, I met with a Florida insurance company CEO. Like usual, he told me all the advantages of his firm, etc. However, mid way through (in response to my questions–after I thought I spotted an interesting thread to pull) he told me about the aggravating, "opportunistic" element to the Florida Property insurance market. This CEO's firm, like most "real" companies, is "in it for the long haul" to last through the various insurance pricing cycles.

The annoying element he described–after a hurricane or weather event, when premiums are extra nice and his firm (and other conventional Florida insurers) should be set to profit mightily if they were alive, an "opportunistic" element enters the market. A bunch of "rich old guys" set up companies overnight and begin selling the elevated premium. These "opportunists" would then stop writing policies as soon as premiums fell below a generous threshold, and indeed wind down the company(s). The CEO's attitude was, "these lousy operators…. Sure, they make 500% on their capital in 4-5 years, but they never even build out a real IT department!" Then they do it again the next time the pricing is right.

I wanted to ask if he had any particular references on how to meet these shrewd operators. I would much rather invest with those clever folks than the "usuals" who make money only to get caught selling cheap premium at the wrong time in an effort to make the next quarter's earnings expectation.



 I became a sport legend in 1971 by standing with a small stick up to a giant they called 'Goliath'. Then the press clipping my mother saved labeled me 'The David Who Slew Three Goliaths' and it snowballed from there, including becoming a legend in racquetball and a five-page feature in Sports Illustrated ('He Found His Racquet', Nov. 19, 1979). But few have heard the story of how the little stick started the snowball.

In the quarterfinals my opponent was Paul 'Goliath' Lawrence, the tall National Champion who was my only nemesis. In the second game the face of my paddle broke and flew across the court smashing into the front wall, and I was left holding the handle that was the size of a six-inch ruler. My rival looked dazed, and I yelled at him, 'Continue playing!' So he made the return, and I hit the ball back with the stick. And once more. The game turned at that point, and I believe Lawrence threw it because I had the courage to stand and face him with a little stick. Plus his next opponent would have been National Champion Charles Brumfield.

I beat Brumfield with a replacement paddle, and in the finals another national champ Craig Finger, that led to racquetball, a date with Miss World, and the Sports Illustrated article.



 "On the twenty fourth of May came the black Friday panic, which has burned into the souls of thousands of sufferers in every part of the continent. The storm of voices–yells and shrieks lost human semblance. The labor of years was disappearing and reappearing in the wave line of advancing and receding prices. Fortunes melted away in a second, and white terror stricken faces told the sad story of broken hopes and hearts. In Wall Street masses of men gathered and riots were anticipated. Failures followed failures. The stock exchange was suspected of weakness and throngs crowded its corridors and overhung the stairways for a glimpse of the commotion but could only hear the roar of the biddings. The threats of violence against those who were suspected of treachery and wild outbreaks of despair from such as had been ruined will never be obliterated from the memory of those who witnessed the scenes"

Wall Street in History, Martha J Lamb, 1883



Here's a story I like almost as much as Stubby Pringle.



 This is one of my favorite stories. I hope you enjoy it, and I wish you a Merry Christmas. — Victor Niederhoffer

High on the mountainside by the little line cabin in the crisp clean dusk of evening Stubby Pringle swings into saddle. He has shape of bear in the dimness, bundled thick against cold. Double stocks crowd scarred boots. Leather chaps with hair out cover patched corduroy pants. Fleece-lined jacket with wear of winters on it bulges body and heavy gloves blunt fingers. Two gay red bandannas folded together fatten throat under chin. Battered hat is pulled down to sit on ears and in side pocket of jacket are rabbit-skin earmuffs he can put to use if he needs them.

Stubby Pringle swings up into saddle. He looks out and down over worlds of snow and ice and tree and rock. He spreads arms wide and they embrace whole ranges of hills. He stretches tall and hat brushes stars in sky. He is Stubby Pringle, cowhand of the Triple X, and this is his night to howl. He is Stubby Pringle, son of the wild jackass, and he is heading for the Christmas dance at the schoolhouse in the valley.

[For the entire text of the story, please follow this link ].



 I thought this was a good article:

"Ray Dalio says read Ayn Rand to understand Trump's economics. Here's what that means"

Jeff Watson writes: 

Ayn Rand's "Virtue of Selfishness," contains many nuggets of wisdom IMO. It has roughly influenced the blueprint and road map of my life. A big lesson it taught me, among many other things, was that it is good to put myself first. Here's a copy of it.

Ralph Vince writes: 

I find her books (and I have not read "Virtue of Selfishness") hollow. It speaks of the effects and actions, I find, without the driving force, the motivation (save, except for vague notions of "profit," or "doing something worthwhile," or good, or improving things). It could be that I've missed those things in what of hers I have read. I think, however, it may be because it is an interpretation done by a woman, Rand herself.

By this I mean the following. It is vital that a man find his over-arching purpose in life, and find it before he is thirty, the single, solitary purpose that is the reason he lives his life, his telos.

Yes, taking care of family and other "obligations," and "responsibilities," one must live up to in life must be addressed, but aside from that he must find what he is here to do. His number one priority as a man is to find his purpose in life, his destiny, and pursue it with all he has outside of his responsibilities and obligations. (And it is on this point that modern education fails males, and it is on this point that inner city youths are left, abandoned to life).

Until a man has found this out, he should not commit to something, a job, a marriage, a city, etc. A man's purpose must be something he is crazy passionate about. Yes, a man can know success and/or monetary gain without ever figuring this out, yet it is the discovery of his telos that is where he draws his energy, and his joie de vivre, absent which, he is merely existing, merely a slave. It provides something he can do for the rest of his life, and make a living at. It provides something he would do if he were "retired." This is the ultimate form of success – getting paid to do what he loves to do and never having it feel like work. (This is why people so envy pro athletes, because they have found this at a young age). A man needs this to be happy.

Finding what he is meant to do with his life makes him powerful.

It is my belief women follow an entirely different existential path than this. I do not claim to know what that is, I am merely an outside observer, but it is a fallacy perpetuated by an ideology devoid of terrestrial and important motivations to assume genders are the same or even mirror images of each other - there is an inexplicable mystery involved that an outsider can never know. Rand was such an outsider, and as deeply as her writings resonate on the topics she wrote of, I say they are hollow as they seem to perceive what I have pointed to here as an outsider, which, to the world of males she necessarily was (and, in fairness, her works could never have been written by a man, else they would have, and that provides a unique perspective and beauty to hers).



 In Utopia everything is perfect. The word was first used in the a book Utopia in 1516 by Sir Thomas More, and now on a cactus pocked square mile of desert in southern California 200 residents say they have the last word on the ultimate utopia, 121' below sea level teetered on the southern end of the San Andreas fault.

The features of utopias throughout the ages include:

Right to do whatever a person wants
Lack of religion
Equality among people
The people are the government
Information, independent thought, and freedom
Abundant supply of necessities
No forced work and available time to achieve anything
No fear of the outside world

Some argue that a utopian society has no social evils. This is where Slab City totters between utopia and dystopia. The eleven characteristics that distinguish Slab City from its predecessors are:

Salvation Mountain
No Rules
State ownership of land
 Highest per capita arson in USA
Best metal scrapping on the Chocolate Mt. Bombing Range
Highest per capita methamphetamine use in the nation
Largest illegal alien smuggling rings
Hottest temperatures at 125F in the shade
Coachella Canal which runs uphill
Probably the highest number of warrants per capita
Most per capita bogus SSI claimants.

 A walk through Slab City demonstrates these features. My day begins by rising with the sun and hiking three hours through the open desert in a no-man's land between Slab City and the Chocolate Mt. Bombing Range. The air is incredibly clear, fresh and cool. After the hot summer, you breathe it like drinking cool water. Creosote bushes pepper the desert floor reaching two stories and the highest I've seen in the world. In the early 1960s, a chemical company in Oakland hired 20 men to harvest creosote leaves near Niland, CA. Some workers moved closer to work by living in small trailers at the abandoned military Camp Dunlap. This was the start of what was called Niland Flats, then the Slabs, and now Slab City. I've planted sunflowers gardens at two secret springs that are beginning to bloom. There are also Broadcast flowers at a penny a seed that you cast near moisture and are rewarded a month later with many colorful faces.

A person coming out of wild country into town develops a righteousness of things. First I swim across the icy Coachella Canal. Entering Slab City is like hitting a brick wall. Suddenly you're in a green cloud of marijuana fumes. In H.G. Wells' In the Days of the Comet the collision of earth with a comet releases a mysterious green gas that transforms and purifies human nature and utopia follows. These are the highlights of today's walk:

 First a stroll through the green cloud on the 18-hole golf course of total sand traps with ATV's in place of golf carts and hula-hoop holes. Then to the Anarchist Library to check for new Louis L'amour titles, and across the dirt track for an hour at the Internet Cafe. By this hour the adjacent Sunrise Coffee House is vacated of snowbirds, but the Skateboard Park is rolling. The park is General Patton's abandoned 50-meter swimming pool with slides of concrete culverts and jumps off burned cars. On to the hot springs to glance at the naked girls next to Salvation Mountain. Up on the hill, the cosmopolitan Slab City Hostel, Ponderosa Acoustic Guitar Circle, and a shantytown Air B&B are listed in tourist guides, alongside the Blue Church and East Jesus Sculpture Garden. Everything is run off the grid on solar, propane, a handful of generators, and firewood. This walk is through a shadow media that provides the truth about what's going on America.

I identify with many of the residents because in the last ten years I haven't known stability, moving one place to the next, slept outside, haven't worked nine to five from Monday to Friday, and have not counted on anything except surprise and unpredictability. There are scores of stories everywhere, and the faster and farther you walk the more you hear.

A rabbit hutch has just jumped off the back of a pickup and crashed on the road. Three got away, two are roasted to eat, and a youngster has picked up an injured one drawing itself forward with use of only the front legs. I advise him to give it to the Animal Rescue to attach a skateboard to replace the rear legs. 
A man in a trench coat is coatless today and beseeches, ‘I lost my trench coat that was given to me by Sonny Barger. Please ask around!’  Within an hour, it’s located.   
 The town crier begs me to spread the word of a girl’s boyfriend, who left her three days ago, was just found dead in his car in Texas, and the girl must notify the next of kin.
I talk guy out of burning his neighbor's trailer for poisoning his barking dog.

A man shouts through his beard at me in shorts, 'I've got on five dresses and am shivering!' Aren’t you cold?’

A young Arkansas traveler went to a party last night, and was beaten up and thrown out the door for refusing to drink and smoke.

Wave goodbye to the beautiful peg leg librarian who has empathized with the pipeline protestor who lost her arm to a grenade, and is pulling out to join the clash in chilly North Dakota.

A new resident wants to ferry his second vehicle from LA, but the librarian with the only driver’s license and no warrants just left town. 

I soothe a domestic quarrel between a guy who says that his girlfriend beat her head on the side of the trailer to build a 'portfolio' against him, while she claims he hit her.

A lady in a hurry to get her home box up hires me for three hours to erect a Slab style pre-fab home on her slab that used to quarter WWII soldiers. The materials costing $150 in a pile on her cement are: 12 4×8’ OSB sheets, twenty 2×4”s cut to 8’ length at Home Depot, four strap hinges, and a hundred screws. The completed shanty is an 8’ cube.

Orchestrate pulling a Georgia Dodge van out of a sand pit.

A new mother pushing a baby carriage asks to trade Oxytocin for diapers.

Stumble on a newly abandoned camp where someone left four bicycles, and ride them one-at-a-time to grateful recipients. 

 Diagnose and treat a Parvovirus dog.
Stroll through the local Walmart, ten acres of trash as organized as the real store with abandoned clothes, appliances, etc. that display one man’s trash is another’s treasures. I find a red bin with my backward writing label, empty, stolen from my property in Sand Valley two years ago, that caused me to migrate to this town. 

My belongings – clothes, laptops, kitchenware, etc. – arrived before I did and keep turning up around town to contribute to the odd barter economy. The gold standard that was abandoned in the 1930s has been replaced in Slab City by marijuana. You may trade goods, secure a cash loan from 'Frank the Bank', or secure a meal on credit from the cafe, if you are known to have a marijuana stash. With virtually no cash, barter runs the market. Scrap metal from the nearby bombing range contributes, and illicit drugs and prescription pills, and sex. I've never seen barter succeed in a drug culture or den of thieves, and Slab City is both. Welfare supports most of the population with trumped disability claims - dyslexic, Parkinson's, asthma, etc. Many claimants cultivate their injuries for months like the beggars of India who maim themselves to have an income for life. The town is saturated with ex-cons on early parole who are snitches. If you don't imbibe or aren't on welfare, you are suspected of being a snitch. I must be a slave to good habits to keep from being swallowed by the dyspeptic community: walking, reading, good food, no alcohol or drugs, and doing good deeds.

Newcomers to the Slabs oasis claim they are escaping from the tyranny of outlying America. They could not afford the luxury of moving out of country, and so they hitched, drove a jalopy, van-pooled, or hoboed here on Union Pacific. Many arrive penniless, and are helped onto welfare by other residents. A younger group arrives in economy sedans with tents to learn how to live off the grid. Some seniors come in fancy rigs to stretch their retirement income. Plus there are runaways, seekers, hippies, mystics, and stopovers like the protagonist of the Sean Penn film Into the Wild who adventured across North America culminating in his death in the Alaskan wilderness. The barrier to most for staying to become full time Slabbers is the terrifying summer heat. One long-term resident explains that to become a true Slabber, you have to live here two years: the first you may succeed by being stoic or a genetic fluke, but in order to survive the second summer you have to be crazy.

 The Slab City motto is 'No Rules' on the premise that every person is entitled to be as radically different from everyone else as he pleases. Most Slabbers are damaged, which has given rise to a blanket empathy. Everyone assumes everyone else has something to be private about, and are comfortable about it. My chief pleasure is to arbitrate. Once you have visited a camp you know the mind and habits of that person. In a little community that disallows laws and abhors police, there can be no living together without understanding, and understanding means compromise. Yet there will be disagreements and sometimes I'm called for. The method is to approach the disagreeing parties independently, and offer to be either the mediator or arbitrator. The latter involves responsibility and possible retribution which I try to avoid. As the mediator, I give each party about one minute to summarize his side of the argument, and then bring them together and in another minute paint the big picture and offer a compromise. It usually involves an assuaging phrase like 'Be bigger than the situation.'

Despite a few harsh consequences, the cement slabs offer individuals loosely glued by elbow room and their allowances for each other's freedom a fresh start on life. It's the only place I know of where there's no law against doing fun things. I canvass for the reasons they come to Slab City, and the universal appeal is for freedom and drugs. Each arrival seemed to have reached a turning point in his life – change or stagnate – and he has made a firm decision to live free or perish. And then at Slabs he learns to say, 'I will not run anyone's life – nor let anyone run mine.'

The females are strong, scruffy, pretty, sensuous and, for the most part, available. There is zero desire to hunker down and look up to man. It's normal to see them standing on a slab fist-to-fist in fights with lovers or detractors. Femininity means instant gratification of sex and being able to quickly hop into the next sleeping bag without grievance or permission. Slab City girls never call themselves ladies, and are comfortable with nudity, except among children, at the summer canal or winter hot spring.

Slab City displays many traits of a socialism Utopia. All of the land is owned by the State, except for a sliver I have a container on. The cash money is almost totally in the hands of a handful of individuals who run Salvation Mountain, the town gateway. Though the State owns the land care of General Patton via the California Teachers' Association who could not build a resort for employees due to unexploded ordnance, it may not seize it, and can hardly police it. There are no taxes and no building codes. There is no incentive to improve one's life; no one wants to improve his life, thinking this is as good as it gets. Anyone may arrive with a home on wheels, or paint 'occupied' on a plethora of used tires and plant them on a slab or perimeter as a 'quick deed'. Where else can you go and be free, with no restraints, and live cheaply? The town draws the most from December to February when the population swells from the hard-core year-round 200 to over 1000.

The alleged goals of Utopia have been the abolition of poverty, achievement of general prosperity, with the elimination of money, society is largely individualistic, communal living, citizens only do work which they enjoy leaving them ample time for hobbies and habits, peace, harmony, and a hippies' brotherhood. The historic results have been terrifying except in Slab City where the beat goes on.

One man's utopia is another's dystopia.

My place in Slab City seems to be a Henry Kissinger solving little disputes and moonlighting with veterinary, legal, and medical advice as I walk from tent to shanty. The winding walk through town ends again at the Coachella canal, the green cloud clears as I swim to the other side, and climb the 30-degree bank to the open desert.

Behind me, Slab City resembles an old Hooverville fallen on hard times. There's nothing you could offer me that I'd swap for one afternoon stroll through Slab City. Once a person has walked this town the newspapers, radio, TV and movies become meaningless. The goal was to learn, to see, to know, and to understand. Behind me in the city seconds count, and when I look up at the desert, I see the centuries pass like seasons.



 I found a couple of fascinating articles about the inhospitable Lut Desert –a nascent "hot" spot for Iranian tourism. It is the hottest location on the planet. It is a place where the ecosystem survives on migrating birds dropping dead from the sky and on a layer of hypersaline groundwater.

"The incredible ecosystem of Earth’s hottest spot":

In March 1937, Gabriel finally conquered the central Lut—and barely made it out alive. He described his experiences a year later in a spellbinding talk to the Royal Geographical Society in London. Late one afternoon, Gabriel recounted, "the landscape darkened under red clouds … and a noise like the roaring of the sea began." The dust storm raged into the night. "For several anxious hours we lay, motionless and helpless, outstretched on the ground." Later, the voyagers were disoriented by mirages that were most vivid when the air was coolest, just before sunrise. Near the end of the 3-week journey, even their parched camels had had enough: "Their legs trembled; they panted, knelt down, and sometimes crept along on their knees."

"Into the furnace in Iran":

Summer is when the mercury peaks but this is also the time of the Wind of 120 Days. This north-easterly can blow for days on end, reaches hurricane force, and whips up great billowing clouds of hot sand and dust. Further east, this gritty gale strips trees of their leaves and causes structural damage to buildings due to sandblasting. The Wind of 120 Days is also responsible for the Lut's dramatic terrain. Millions of years of sandblasting have produced thousands of streamlined ridges known locally as kaluts, wind-carved grooves in the landscape on a huge scale. Some of these ridges are tens of metres high and several kilometres long. They occupy an area of nearly 8,000 square kilometres.



 For nearly fifty years, a shiny spot in the Chocolate Mountains of the Sonora desert has puzzled witnesses. I have been hearing about it for twenty years from metal scrappers of the nearby Gunnery Range who have theorized that it's a 'crashed 747', UFO, or the portal to a secret helicopter launch inside a mountain, like NORAD. The spot appears only in spring and fall between 1-3pm from the southwest, and vanishes when anyone approaches within a mile.

I've heard so many reports that I decided to try to solve the mystery. Standing alone in the desert, I waited until 1pm for the light to go on, walked ahead, and at about one mile distance the reflective object disappeared! The ensuing blind approach to the foothills took four hours, followed by another two hours of climbing. Unable to approach without a visual spot, I walked the front of the Chocolate Mountains looking for a clue.

Suddenly it reappeared, up in the dark heights, brighter than a sun. I ducked for cover, watched, and continued upward. Then I was above it and had to descend. Looking down, it became clear why the object had been seen only at certain times, and disappeared from sight for five decades. The object lay nestled on the side of a canyon offering a scope of view of 15-degrees spreading to the southwest, and it lay behind a rock outcrop so it disappeared whenever a traveler neared.

I walked down and touched it. The object was a bright obelisk lying on its side split in half vertically. It measured 20' long and the base was 6' that tapered at the far end to a point. The material was reflective aluminum, also called 'lightning sheet', as reflective as polished mirror. The aluminum skin harbored a 2"-thick cardboard honeycomb for support, with a one-foot thick cast aluminum male part bolted to the obelisk base that would fit into a female part had it been there. A stamp in the cast read 'PANCOA –Denver'.

I descended with no more than scrapes for my effort, and no explanation, until I went to the Internet. PANCOA (Panel Corporation of America) of Denver in 1974 manufacturer aerial tow targets for the Air Force that are pulled on cables up to thousands of feet long behind target tug aircraft. A target tug is a modified airplane or jet with a winch to play out on the tow target after takeoff and pull it in before landing. Towing targets was a hazardous job before the advent of drones, as live fire is typically employed and the people doing the shooting are skilled in training. They were made of reflective aluminum to be lightweight and visible for up to ten miles, and usually shaped like missiles. I had found one of four fins and judging from its size the missile was about 100' long. The missile body had been shot off, or dragged into the mountainside.

The shining spot in the desert was solved.



 You really have to ask why Democrats want a new and different foreign affair that will do what Mort Sahl so wonderfully said about the last Cold War: "Every time the Russians would put an American in prison, we would get tough and retaliate. We would put an American in prison."

Politics is not that hard to understand once you see it as a contest of interests. The interests do not have to be rational; usually they are not. But they are comprehensible.

For the last 37 years (ever since the Shia clerics took control of Iran) the world's greatest single source of energy–the Middle East–has squandered more money that the entire U.S. Federal debt on a religious war. (Of course, with our usual American blindness to other people's quarrels, the United States spent its own trillions.) But, just as it is really very difficult for Bushes I and II to explain what exactly was the American interest in joining with the Sunnis (who were the terrorists on 9/11), it becomes harder and harder for the party of the CIA and other national security bureaucracies to explain what the U.S. gets out of confronting the Russians.

I really wish the New York Times could explain it. I also wish the "conservatives" would stop being their covert allies and spouting the usual garbage about Americans dying in foreign wars to "protect our freedoms". The greatest single actual threat to individual Americans' freedoms has always been the self-righteousness of the internal bureaucracies and their self-interest in maintaining law and order. The enforcers of the drug laws and the thuggery of their enforcement remain a far greater threat to "freedom" than all the digital aggressions of the Russians, Chinese and everyone else.

In between bouts of inebriation this morning (after all, Grant is my hero), I was reading about Kitchener, Lloyd George, and Winston Churchill and their parts in helping to make
The Great War almost inevitable. They really were neoCons; even as they shuttled between party loyalties, they remained fixed in their determination to have a long war. Because the war party in the State Department (those believers in mainstream Sunni Islam) did a nasty in the Ukraine, some are determined to see the President-elect as just another puppet. Perhaps they are right. But their assessment does seem to quarrel with the fact that we have Trump and Putin on one side and the national security bureaucracy and the Democrats on the other.



 An accomplished nature photographer from the financial world, David Yarrow, has an exhibit at Palm Beach gallery. He used to manage hedge funds. Two quotes I liked:

"Now I try to have a competitive edge on access. There's a relentlessness in both."


"As soon as you've got too many people doing one thing, it is very difficult to get an edge. If you've got 100 photographers around the court, how can you really get a picture that no one else has got? I work in places where there's no other photographer. I go and I search out some of the toughest places to photograph in the world and I'll be the only person there."



 As predicted now that the president is to be Trump, all the hawks from the Fed have been let out of their cages, and talk about the virtues of a hot economy, the meme that the humorous chair pulled out to help the cattleist onto victory has been put back in dungeon.

Fed Hawk Lacker Says May Need More Than Three Hikes in 2017 

By Steve Matthews (Bloomberg) –

Jeffrey Lacker, one of the Federal Reserve's most hawkish policy makers, warned that the U.S. central bank may have to raise rates more than three times next year and said he doesn't know if policy makers are already behind the curve on inflation.

"If we were to see a burst of demand growth, that would suggest a steeper path of rates to maintain price stability," the president of the Federal Reserve Bank of Richmond told reporters Friday after taking part in a panel discussion in Charlotte, North Carolina.

"There is a range of paces of interest rate hikes that would qualify as gradual, including paces more rapid than one or two or three a year," he said. "We can get where we need to be with a pace of increases that qualifies as gradual." His next scheduled turn as a Federal Open Market Committee voter is in 2018.

Investors have sold bonds this week in anticipation the U.S. central bank will accelerate policy tightening next year, pushing yields on the 10-year Treasury note to 2.60 percent from2.47 percent on Monday.



 Census Bureau: 4 Richest Counties in U.S. Are Suburbs of D.C.

And 9 of the top 20:

county  /  median HH inc

Loudoun County, VA     $125,900
Falls Church city, VA  $122,092
Fairfax County, VA     $112,844
Howard County, MD      $110,224
Douglas County, CO     $109,926
Los Alamos County, NM  $107,126
Williamson County, TN  $104,367
Arlington County, VA   $104,354
Hunterdon County, NJ   $102,797
Santa Clara County, CA $102,191
Morris County, NJ      $101,754
Nassau County, NY      $101,568
San Mateo County, CA   $101,133
Marin County, CA        $99,868
Fairfax County, VA        $99,671
Prince Wm County, VA    $99,206
Somerset County, NJ     $99,059
Calvert County, MD      $98,937
Montgomery County, MD   $98,314
Forsyth County, GA      $97,886

Here is the list from 1993, with 6 of the top 20 suburban to DC:

county  /  median HH inc

Los Alamos County, NM   $66,033
Hunterdon County, NJ   $63,795
Douglas County, CO   $63,560
Fairfax County, VA   $62,607
Howard County, MD   $60,610
Loudoun County, VA   $59,602
Somerset County, NJ   $59,013
Morris County, NJ   $58,570
Fayette County, GA   $57,680
Juneau Borough, AK   $55,695
Collin County, TX   $55,643
Montgomery County, MD   $55,604
Falls Church city, VA   $55,126
Prince William County, VA   $54,827
Putnam County, NY   $54,719
Hamilton County, IN   $53,940
North Slope Borough, AK   $53,857
Sussex County, NJ     $53,606
Nassau County, NY   $53,547
Washington County, MN   $53,354




It is apparent that everything the Fed does in the near term will be out of the book of public choice, i.e. for(a) their self interest, (b) their party, (c) to to maintain their power and perks, and finally (d) if anything left to do what is right for the citizenry. But what can they do for a, b, and c above?

Certainly a strong statement above the necessity of independence from political interference. But what else? How to humiliate the President Elect, maintain the humorous chair in power?

Roger Arnold writes: 

Your elucidation of the Fed's priorities, although accurate, are leading in your query. I wonder why. The questions you follow with stumble out of your assumptions but without explanation like someone falling down a flight of stairs. I've noticed this with many of your posts here since I came back, and it troubles me.



An anecdotal observation:

Recently there has been a STDV > 1 rise in the level of the Open Interest of Index Put Options. Historically this seems to be coincident with declining equity prices rather than rising equity prices.

If you know any students looking for a possible project, pass it on.



"Progressive" tax rates have the same fatal flaw as bimetallism; people will put enormous time and energy into gaming the rate boundaries. Characterizing the types of income has the same corruption; if all dollars are not treated equally, people will spend time and money doing magic tricks to convert, for example, ordinary income into capital gains.

Tariffs that are taxes had and still have one great virtue: the rate does not change based on how much commerce is being taxed. It has always puzzled me that the advocates for a "flat" income tax never once mention this.

Under tariffs Congress still had the ability to mess with things by assigning different rates to different objects; but there was, under that regime, at least the equilibrium produced by the competing interests of the users and the domestic producers. The lobbyists who wanted the wool tariff rate increased had to argue against the representatives of the clothing industry.

When the country went over to the income tax, that contest of interests was abolished. The people wanting special favors had no one directly pushing back against them. When you added the abolition of the Constitutional protection of money as Coin, there was nothing left to limit the desires of Congress to spend. There still isn't, no matter how many times we "reform" the income tax by reducing the number of brackets.



When the economy takes a turn for the worse, employment declines, right? Well, not all employment. Specifically, part-time employment tends to rise aggressively during economic downturns, somewhat concurrently with full-time employment declining. Because of that, one can play off the two types of employment and get decent broad brush investment timing decisions. The purpose here is to provide a general guideline to the "average Joe investor" (admittedly, a conundrum) to tell him when to be in and out of equities.

Quite simply, when the growth rate (annual rate-of-change) in part-time employment exceeds that of full-time employment, exit equities and only return when those numbers reverse. Doing so will enable an investor to avoid gut-wrenching declines. And of course the most valuable key to increasing wealth is to avoid getting behind.

The following chart illustrates what one's investment posture would have been. Employment differences should model the economy, something the stock market rarely agrees with. However in this case the employment differences seem to do a good job with the market. Again, this is not a trading plan, merely an illustration of what is possible.

Full time employed

Part time employed



 An awful lot of investing is simply gambling. A lot of people love to gamble, and investing is the one form of gambling that is legal in all 50 states. When people buy the stock of a company because they know it is going to go up, they may know nothing at all about the company; or they may know nearly everything. Either way, they are betting on a future number; and to call it investing becomes at most a half-truth. Almost all the time, The company itself gets none of the money being spent in the Wall Street casino by the gamblers/investors.

This is where the problem of money and credit comes in. In financial markets, sooner or later, the investors/gamblers can find themselves in danger of default because they do not have the cash on hand to meet their promises to pay. For whatever reason, they face a mismatch between their financial assets and liabilities. Most of the time, they can simply take the loss or get the extra credit they need; but sometimes there are so many people caught short at the same time that new credit can be hard to come by. Even the people in the credit business find themselves wanting to lend less, not more; and those who are willing to lend want what is so impossibly high a price that being saved seems almost as bad as enduring default. for lending it. When this happens, a lot of investors/gamblers, especially if they went to good schools and studied economics, expect the government "to step in". What that means is that they want the U.S. Treasury and the Federal Reserve to give them credit on easy terms. Almost always, the government has obliged.

The irony is that when the government does not step in, when it tells the gamblers/investors to work it out among themselves, the seemingly impossible situation gets resolved. It did in 1873 and again in 1920. It is only When the government does "step in", that the cost becomes considerably greater. Either The country either borrows an enormous amount of money which it never pays off except by borrowing new money or the people see their own savings destroyed through bank failures, outright confiscation or suppression of interest rates. When the government hands out the free money to the investors/gamblers, the Panic turns into a Great Depression/Recession which leads, in turn, to another foreign war.

These dismal facts of history do not answer a serious question: what would happen if the government gave the credit to people and left the investors/gamblers to themselves? Why not give people more money whenever they need it? Ever since the country began as a collection of Dutch, Spanish and British colonies on the western coast of the North Atlantic ocean, "ordinary" (sic) people have been asking what really is a sensible question. If, in 2009, Warren Buffett and the other richest men in the country can get free money "to save the financial system", why can't the rest of us get some?

The rich, who are always the largest part of the government and often all of it (they certainly were in 2009), have a simple answer: the rest of us won't ever pay back the free money. They are right, of course; we need the money to spend it now, not to invest it to earn more money in the future. What the rich don't admit is that they don't pay it back either. Since the U.S. Government first claimed the right to own the country's men of military age (it's called the draft) in 1942, it has never once paid off any of the money it has printed "to save the financial system" and/or "have another foreign war".

Occasionally, the American government ends up in the hands of someone who actually thinks the people need sound money more than the rich do. When that happens, he (and in the future, she) does something truly bizarre. He/she insists that the U.S. government do what the Constitution says and use only Coin for its money. George Washington did it; Andrew Jackson did it; so did Ulysses Grant. They even manage to have the government pay off its debts. Since money is not "free" under such a system, They cannot directly give people more money. What they do instead is create a world where the money people have and can earn goes farther and farther. The wonderfully odd thing about following the Constitution, about allowing only Coin to be money, is that prices fall even faster than wages; every-anyone who earns and saves money finds themselves getting richer and richer without investing/gambling at all.

No wonder so many "educated" people hate the Constitutional money standard; it works far better for "ordinary" people than it does for them. The poor can, with work and thrift, stop being poor; they can do what generations of Americans' ancestors did. But, for the Progressives and the rich owners of the government, a Constitutional money standard takes away their ability to make certain that the government will spend and borrow money for their benefit. Even worse, the CMS takes away the promise that the rich and their friends will always be the winners of the free money lottery. As we all should have learned from the last financial panic, the really successful investors/gamblers are the ones who can have even their losing bets covered by the government's free money.

Money - currencies - are what each country or group of countries uses as its financial unit of account. In the U.S. the unit of account is the dollar. Almost everything borrowed, bought, lent or sold in the U.S. is priced in dollars, including the investing/gambling in the financial markets. Almost all the trading involves promises to pay money. Some of the promises are clear; with bonds you, the investor, get a specified interest rate and your money back on a certain date. Some of the promises are only implied; with stocks you own a piece of a corporation and are entitled to whatever the Board of Directors decides to do for the shareholders.

What is interesting about financial markets is that, as the total amount of financial stuff get larger and larger, the promises to pay actual money come close to disappearing. In really sophisticated investment markets - the ones where some of the gamblers don't even understand their own bets, the trades are swaps where financial stuff is traded directly for other financial stuff. With currency swaps between central banks - the largest trades of all - payment is not even considered. When the U.S. Federal Reserve and the Bank of England agree to swap dollars for pounds, neither of them is going to actually use the money to buy something.

None of this is "bad" except in the sense that gambling itself is "bad". And, if you really think gambling is "bad", then you don't want anyone to take the risk of spending their money on starting a new business or developing a better, faster, cheaper way to do things. The problem is not in people using credit and taking risks with it; it is in having the rest of us bail them out when they fail.

The argument made against having only Coin as money is that it will bring the country to a halt. If people can demand that their Federal ReserveNotes be exchanged for gold coin, the argument goes, then there will be no more credit. People won't be able to buy Starbucks lattes with their phones. Why not? Carrying phones and credit and debit cards will still be much more convenient than carrying money. Using paper money will still be easier than carrying a sack of coins. All that will change is the ability of the rich and the educated to have their government spend money they have printed for themselves for free. They will still be able to borrow money; they will just have to do what "ordinary" people have always done - figure out how they will earn enough to pay it back.



There is considerable mumbo about how the consumer price index should not be adjusted for temporary things like oil and food. The research seems very wrong and misleading.



What are the factors that make so many useful idiots and alluring shibboleths so prevalent and harmful in our field. The desire for publicity and renown must be one of them. So many personages who don't or can't trade achieve prominence and self esteem by becoming pundits or propagandits on the media. Many of them are second handers who can't make a profit on their own, but can only prospect by forming a fan club that carries their positions along once they front run the positions on both the long and the short side. Others achieve prominence by coming up with a very unpopular call that will turn out to be right once in 10 occasions and gives them long lasting fame. Others have recently been fired from their jobs, and join the media as a way of achieving psychic or economic remuneration.

The question arises as to whether a useful idiot has always been a useful idiot or becomes one after he rises to prominence. The same with shibboleths. Have they always been wrongful and harmful or do they become such only after they are bruited to the public. In considering this subject it might be helpful to start with an enumeration of current useful idiots and shibboleths. Certainly those who are consistently bearish on stocks and risk assets like the man of multiple court cases and yoga, or the recently passed Barrons' columnist, or the world stater who always calls for more agrarianism and is always bearish on enterprise must be near the top of the list. But what are the general factors that determine our following a useful idiot or harmful shibboleth? How can this phenomenon be usefully unraveled?

Kim Zussman writes: 

Why would successful traders/ money managers dissipate their advantage by publicizing their methods or thinking? Most or all would want to keep their insights secret. If trying to market to investors, returns sell better than talk.

Depleting the persistently successful from the pool of talkers means more talk from the less skilled, and few meaningful revelations.

anonymous responds: 

There are some strategies that benefit immensely from increasing participation.

Russ Sears writes: 

Of course idiots are useful to those that know they are idiots and take the other side. It's the old dot com hucksters and short sellers secret that promoting a position you already have, once you're holding full position, you want someone to unload it, you need someone left holding the bag. How else could the markets cause maximum losses for the most people.

Might I add that it is easy to find fault and sound profound, but it is difficult to pin-point why someone or some company will succeed and even more difficult to find an audience for ones wisdom. Further, most can't comprehend that volatility is not linear but clearly see the risk tomorrow. Few comprehend the risk premium outweighs the volatility over time, and few are willing to wait, but many want to do something. The law of showbiz meets the internet age: If there is an audience, someone will play for it.

Ed Stewart writes: 

The useful idiots or shibboleths that rise to celebrity circulate and gain steam because they serve an unmentioned interest–they have an unseen fan club. Some times it is increasing the brokerage commission, sometimes it is simply giving the public the "red meat" it needs to get clicks/eyeballs for add revenue, sometimes it is literally as servant to "the idea". At times it seems all three at once. Hat trick. The only known defense is the cane.. to hobble down and buy at puke points, but also to raise over head and smash the media channel that pipes the idiots to restore a more sound state of mind.  I did it 7 years ago. So far, so good.  



 If one visualizes the equity markets as a passenger train and oneself as one of the passengers, many interesting insights can be gleaned.

Imagine a trader, always on the lookout for the next big pattern breakout. Such a trader is akin to a fellow running along a train that has already started to move out of the station. While raising his own velocity in running along the train, such a trader must touch the pole at the door ONLY if his relative velocity to the train is zero. He wont be able to touch the train if he is still running even a .01 mi/hr slower. He can very well touch the pole AFTER his own velocity has gone up by a .01 or a .001 mi/hr in excess of the train. Disaster happens if such a touch is made. The net relative momentum or force is calculated as the Difference in mass of the train and the person X the net relative velocity. The net relative velocity is actually -.01 mi/hr but because the mass of the train is almost infinitely larger than that of the over-smart runner the total force is a gigantic crushing pull that tears the runner under the wheels of the train!

Being early for a trader is being wrong? No, for a trader it can be suicide!

Since no trader will be trading a single lot only or plunge in his entire bid or ask at a go, diversification works not only across assets, but definitely across the time, even if in split seconds.   



 We must ascribe to President Trump that which is his contribution and that which is not. Employment has been accelerating the past two months, the yield curve has steepened, and warnings (on the s&p500) are up 1.6% since late Aug.

Is that Trump or Obama who deserves credit. Nevertheless, 50 bln is 30 bps bump in God, before accounting for the fact that is is 100 bln effect (it is akin to an export towards GDP, while 50 bln in goods need not be shipped), 50,000 jobs, and the multiplier effect on the above. So let's call it a solid 30 bps to GDP, not a bad day's work for any President.

I measure employment from eight different, what I believe to be non-redundant sources, so as to flesh out a fuller, clearer picture than if I relied on only the monthly number, or weekly jobless, though I do incorporate those 2 as part of the 8. 

I DO show employment not only picking up, but accelerating to the upside now, since late August (along with earnings, steepening 90day-30yr Fed curve) and the other "perfect storm," conditions I saw in pace for the beginning of the bull run of the century, which I have every reason to believe, barring human craziness, we are now in the very early throes of (and as I said on another list, a simple amex floor p&f chart gives a dow minimum count on the current run to 20,500). But I think this is the beginning of a multi-decade bull run that will go far beyond what anyone imagines - in equities in gdp, in employment, and in lower rates (yes, rates continuing the relentless, long-term decline amid skyrocketing asset prices).

None of this can be attributed to Trump, the conditions existed before Trump, regardless of who was elected (and I don't really care who is elected, I care about making money). However, if we dissect the numbers of what is happening, as I pointed out, something like the Softbank announcement yesterday is worth 30-60 bps bump in GDP — that would be attributable to Trump. A 15% corp tax rate, and the 300-600 billion that would bring in (read about 1.75-3.5 % bump in GDP) not to mention the multiplier effect, jobs created, etc.

I think political ideology can cloud our thinking and obfuscate opportunity oftentimes. I didn't care for Reagan (1986 amnesty, creating the atrocity we now contend with today, doing away with privacy in banking, bearer bonds, etc, war on drugs, violating checks and balances with Nicaragua, and worst of all, in my book, not putting the total kibosh on the Chrysler bailout, which I said then was a very bad precedent, proven in 08-09) and there are things about Trump I don't like, but all politics aside, this is 1982 on steroids now.



 The cabbie with the car made of gold visited me right at midnight 40 minutes ago. I am not sure if I was sleeping.

He was weeping. Indians are going to be hounded by the Times Man of the Year, winner of readers' review, their own Prime Minister, very soon, by the end of this month, in getting to open their gold lockers. Married women can own 500 grams, unmarried can own 250 grams and men can have 100 grams. Any excesses will be taxed along with penalties for possessing unaccounted and untaxed wealth. Indians have been the biggest hoarders of gold. This will suck away the demand and might even create supply.

He was weeping what will happen to his car made of gold?

I told him to go away and to not be disturbed. But his weep was so sorrowful, I could not help but get out of the cozy mildly wintry wrap of the blankets and fix a cup of dark coffee. Sipping I pulled up my charts.

I smiled. The cabby need not be right every time.

The biggest hoarders if participating in the biggest panic is the bleakest point of demand. When their panic will settle and when they will come back with a vengeance, the flexions are not going to keep driving gold further 300 dollars down so that they can be charitable to them. The crowd will sell away into the bottom.

Do markets bottom out when there are no more fools left to sell? Or do they gallop up when the fools are forced to sell? In any case in a sterilized surgically sealed boundary physical sales of gold will be absorbed by another waiting within that membrane to absorb the physical. Inability by the hoi polloi of the gold pit to buy any longer is a reason for my dear cabbie to cry? Well if he knew how flexionomics works and how the wisdom of the crowd also is an inconsistent function of the same, he wouldnt be a cabby.

So I take out my cane at this hour? And rather than just throw the few coppers in the pocket onto the gold roulette, I insist on pawning my humble cane.



 It is crazy what is happening in India.

"How India's currency ban is hurting the poor"

The Prime Minister had given a cryptic warning during the month long Voluntary Income Disclosure scheme through October to disclose tax evaded stashes now "or else soon what I am going to do you will not be able to tolerate."

At 8 Pm on 8 Nov 16 when he announced on national TV the demonetisation unofficial gold bars prices traded at up to a 105% premium by midnight. Since then there been a very active market in this and premika have ranges between 20-25 percent.

Endless number of small and big accounting firms have been arranging "entries" at similar premia and these loan entries are to be reversed I'm next year financial.

Real estate lobby which was the biggest borrower and user of "cash" has been hit most. They have gone belly up in the 100 billion USD odd equivalent credit market in unaccounted cash directing the lenders to come back two years later. Bids in realty and rentals dropped 20 percent next morning with hardly any turnover since then.

Physical USD bills (God knows how many trillions of them in fakes are circulating all over the earth) are getting traded in a similar price trend.

The real targets have been 3 fold:

1. Massive supplies of fake currency were anticipated from Pakistan for funding terrorism. That rogue state is the primary supplier of most fake currency bills in Asia.

2. Entire left wing and center wing political spectrum that had fed on 60 years of deep corruption had been caught holding pants down. They deployed the very large number of poor people on India to throng banks to deposit the limited amount of old currency allowed per person.

3. This hoi polloi has found new joy in the manhood of Narendra Modi and this 70 percent voter population at the bottom of the pyramid that was always with the socialist political spectrum has suddenly found a new Messiah in the Right Wing political ruling party! The business community that always backed this right wing party in power today has become sour. The biggest coup of this Re-monetisatiom had been 180 degree reversal in the magnetic poles of the political spectrum. Modi is unlikely to abandon his traditional voter base and is too intelligent a person to lose it. Given the annual budget of the government this year has been preponed by 1 month leaving 2 months time to the end of financial year (budget was always 28 feb and this year will be on 1st feb and financial year ending remains at 31st March) I have an extremely strong hunch that this government will water down income tax rates in a Humongous way and not bug cut. A positive shock is very likely planned.

So to my mind Modi government has diluted the enemy of the nation across the border , enemy of the government (the entire political opposition spectrum) and snatched the voter base. 3 birds killed in one stone.

I am somehow having a deep lurking fear of a super bull market perhaps even a bubble to develop out of India into the next year, a further 10-12 percent equities drop in between notwithstanding.



 I've been studying and surviving for going on 60 years now, and the requirements for success have changed. These have been mainly in technology and as a result, often without realizing it, the people involved have changed.

For years as I was growing up, the people starting a trip, business, sports event, or even a romance used their brains. That has altered with the evolution of technology, as surely as machines have replaced working hobos. We were taught in those glorious know-how days to acquire a talent, usually through training in school or apprenticeship, and to follow it down the road to goals. This is changing, however, especially in my specialty of survival.

Where technology ends knowledge begins. Take last night in Slab City. Armies of tourists and foreigners had arrived to gawk at the misfits, listen to music, and drive home. Just before midnight, as I headed out to the desert, a set of red-and-blue lights flashed on the opposite side of a track, and a California Highway Patrolman waved me over.

'They're stuck!' he gestured over to a green sedan with Canadian plates mired in the sand. I stopped, got out, and asked the four young Canadians, 'Front or back wheel drive?' One responded, 'Front.' I replied, 'Have you out in a jiffy,' and we started digging out the tires, and in five minutes pushed the car out. The considerate cop had saved the visitors a $300 towing bill.

'Follow me,' said the officer. We continued south along the canal road for two mines and I stopped when he did. He shined his swivel light on two Chinese people shivering in a 20mph northerner that whipped up the girl's skirt a foot like the standing waves on the canal.

'We stuck,' said the young male. They were visiting economics professors from Guangzhou who had followed the Google Map in their SUV down a road that was actually a wash dotted only with the footprints of rabbits, rodents and coyotes. The officer explained that the true road was about .1 mile ahead but their GPS could not distinguish the difference.

We walked along the wash for 10 minutes where their heavy vehicle was sunken in the sand like an Ironwood. I diagnosed rapidly, 'I can get you out with 45 minutes of digging, sprinkle on canal water to firm the sand, deflate the tires to 20 lbs. to double the friction, and use my come-along. 'We hastened back to the CHP, where I recapped to the officer, and then turned to the Chinese.

'You want me to get you out for free, or pay $500 for a 4-wheel tow?'

'Free!' the couple agreed.

'Are you sure you want me to leave?' The CHP asked them, glancing at my bare feet.

'We get tow' the couple changed their minds.

'I'll wait,' I said, not relying on this technology either. I sat in my car and read Jack Reacher, an individualist who washes his hands of technology and hitchhikes around the country righting wrongs, until two hours later the tow truck arrived with a four- wheel winch truck piggybacked on its bed. The smaller truck backed off the bigger, skid down the wash, and got stuck up to its bumpers. Its tires had disappeared.

The tow driver spoke only Spanish, and the Chinese couple's Smart Phone translator was too slow, so I translated. We all hiked back to the CHP, where the tow driver left for two hours, returning with a monstrous Caterpillar tractor. As the moon rose over Slab City, he yanked first the tow truck and then the SUV free. Everyone was happy, and the economics professors paid $500.

New advances in technology, from the machines we ride, to the software we use to program them, have given the individual the ability to be more productive. Technology is taking care of us… almost. It pays to reciprocate by educating ourselves for the times the devices are not accurate or available. It should always be known how to reset a system manually.

In I, Robot Isaac Asimov addresses the morality and ethics of advanced technology. Odd questions are raised. I think it's immoral and dangerous to give up one's life to the devices around us. I, Robot agrees. Who should have the power?

The answer is that both technology and knowledge should be cultivated, in a system of personal checks and balances. Technology will continue to evolve, but let's not forget it is not a replacement for knowledge.



 I am interested in the DAPL story. (It's an unfortunate choice of acronym as "DNAPL" stands for Dense Non-Aqueous Phase Liquid– which often refers to contamination by floating petroleum product).  It's a complex issue in many ways that has been left for the next administration to deal with–hopefully it will be resolved peaceably.

A quote from a recent article:

Pipeline experts said it was extremely rare for an administration to intervene in a permitting process typically handled by career civil servants. The advanced stage of the project’s construction made the Obama administration’s move even more unusual, and experts said they believed it could be easily overturned.

One can understand the support for the American Indians and the impoverished Sioux Tribe in ND.  It's not a good history and many want to make up for past injustices.

The DAPL has become a highly-charged and emotional cause. It's a big topic on Facebook. The legal issues involving tribal lands, reservation lands, and the laws pertaining to the DAPL are not well understood.

One tends to look at the science and engineering side of a $3.8 billion pipeline that is around 90% complete and for which large amounts of money and time have already been spent. Years to do the proper design, to prepare a large environmental (and archaeological) impact report, to hold public discussions during pre-permitting and to go through the rigorous permitting process and to come close to the construction finish line and be denied; well, it just seems that politics, protests and media coverage have now created a very expensive problem.

And what are the underlying reasons/motivations?  Is there something else at work here besides the environmental concerns, broken treaties and cultural heritage? Is environmental rent seeking in play? Are threats to the current use of railcars to transport oil out of the Bakken region even part of the equation?  Are assorted special interest groups trying to piggy-back along on the "black snake" bandwagon by using well-honed shakedown tactics to make cash? Is political legacy involved?  Climate change? Evil oil companies?

Whatever it is, it appears a lot of money has been wasted and the level of bad feelings on both sides of the issue has greatly increased.

The policing of the protest groups, by all accounts , will cost the State of North Dakota millions.  Money that in some measure could have been spent to help the 8000 residents of the Standing Rock reservation.  Goodness knows what the construction delays are costing not to mention what a pipeline relocation effort will cost if conducted.

Ostensibly the main concern with the DAPL is about water and the threat of water contamination.
At any rate, taking the "devil's side" where pesky details abound, it seems I recall reading that the risk of a major pipeline break at some point along the entire DAPL route was roughly estimated to be around 1 in 400 years. Extremely low. With all of the advanced pipeline pigs used to monitor pipeline mechanical integrity perhaps even lower. 

If the DAPL defied the odds and broke 0.5 miles above the Standing Rock Reservation the question then becomes how long would it take for the release to be detected on a newly-built pipeline with new electronic sensors before engineering controls kicked in to cut off flow. The worst case and potential volume loss have doubtlessly been modeled.

For buried pipeline (if not encased to begin with in impermeable cement/grout at environmentally-sensitive locations) the thickness and confining characteristics of the soil around the pipe could be a mitigating factor.

One thing for sure is that a detectable release would unleash a very aggressive spill response.  Pipeline repair and cleanup would likely commence within a matter of hours. Costs are high, the consequences can be serious and good companies know that.  However, for a significant or even detectable amount of petroleum product to get 50 miles down river to where the new water supply intake for the reservation will be located seems highly unlikely.

Assuming the even unlikely smaller, potential releases of petroleum, the river would in time aerate and flush out any remaining product or dilute it to a point that bacteria would use it as a food source.
But it is not easy to eliminate all risk of petroleum releases and associated impacts to surface waters or groundwater this modern world. The "water protectors" might look to remove all existing gas stations located on or in proximity to the Sioux Reservation. Then there may be various locations along the river where the possibility of runoffs of herbicides, pesticides, drugs, phosphates, and many other chemicals and elements could occur. What a hornet's nest. Pristine no longer exists.

To the south another even larger issue, involving the Sioux, the Black Hills and more than $1.3 billion awaits fair negotiation and resolution. An area given proper attention and earnest efforts that could improve the lives of thousands.



 I wonder if I can ask you to weigh in on the robo-advisers that have basically automated asset allocation. Is it worthwhile to learn much more about allocation above and beyond the basic algorithms used in wealthfront or betterment?

Thank you for your suggestions.

Bill Rafter writes:

We tend to think of the robo advisors as the broken clock that is correct twice a day. There will be times when they make the correct decisions. Can you live with their bad decisions, however, especially when you have no idea as to how those decisions have been made? That is, who programmed them and are the inputs and decision processes logical?

Regarding your final question, any decision to allocate time to a project has to be viewed in terms of reward to cost. A basic allocation method may be good enough if the cost and effort of doing better is onerous. To find that out, define your goals and you will see. As an example, let us suppose that someone's goal is to be out of equities in major declines and to outperform the indices by 20 basis points per day when we in. That is, the effort is a daily one, which necessitates active attention to detail. However if someone else's goal was more casual, then the effort can be backed-off considerably. 

Ed X. writes in:

The Robos have zero advantage over just going to the Vanguard website  [ https://personal.vanguard.com/us/funds/tools/recommendation ] and doing their simple, self guided process. Robos are 95% sales funnel plus 5% minor tweaks of little practical significance.



I don't have many views on markets, but one - and the most successful - concerns interest rates. It is that the Fed and government tend to have a bias which makes the bond markets trend either towards a long term bear market or a long term bull market at different times. However, politics is not the foundational cause of this.  Rather, it is society and "social" injustices caused by government involvement that drives the politics to reverse itself from time to time. Rocky deserves praise for his phenomenal calls starting in early 2016 about Trump's election and its impact on the market. I would agree with Rocky that Trump's election is a signal that the tides have turned on the bond markets. However, Trump's election is due to men's reaction at the ballot box after not being allowed to complain, or at least not politically correctly being allowed to complain.
Despite the fact that women now make up 60% of our college graduates, education, which government spends so much money on, has categorically failed men. You go to any public high school, look at the list of valedictorians and salutatorians in the last 10-15 years and almost all schools will show a statistically significant bias for the girls. Do this for the poorest communities and you will not even need to do the statistical calculations, it will be so glaringly obvious. Single moms have doubled since the last long term bear bond market. Children being raised by both biological parents are now the minority.  This has caused boys to have fewer nurturing father figures and less time with them.  This has destroyed a generation of youth. While a rising tide raises all ships economically, a lowering moral tide makes all ships less sea worthy. The young girls are suffering as well from dumbing down of their potential mates.  

What does this have to do with interest rates: well yes, Trump politics will drive rates higher most likely. But it is only a matter of time before the other side realizes why he got elected and joins the march. They will offer their inflationary version of how government can "solve" this crisis young men are facing, just as both sides offered their version of how to solve the crisis caused by the draft and Vietnam. Then the political cycle will again change and will keep driving interest rates up further..



Like the climax of a classical symphony, there are many spectacular moves today as November month ends with dollar yen, S&P at open, big big high. Gold, bonds at big big lows. Many others.



 On a trip I met a Swiss insurance guy and we had an interesting discussion. He said that the elites are shooting out way ahead of the masses and accumulating excess cash. They are not able to spend it, are are not really able to invest it productively leaving excess unused non productive capital. This seemed like a powerful idea to me. Negative rates, low interest are either causes or results of the glut. Some of the super rich are trying to use their excess wealth to change the world, such as Gates, or the FB guy in medical research. Chair likes to say capital goes to good use, but here is an anomaly resulting from too much cash. It's the idea that it just starts piling up….you just can't spend it fast enough. Like the scene in that movie about the drug dealers having all the cash sitting in basements and rotting away. It's like money in bank accounts, rotting away.

anonymous writes: 

Or finding its way to equities, despite rate-driven, developed pre-08 models. The ocean of money is coming down the canal, and ultimately must capitulate, having nowhere else to go but the certain, inexorable attrition of it.



OPEC, from Duncan Coker

November 30, 2016 | 1 Comment

 I grew up in the 70s and when I hear OPEC it always brings back vague, distant memories of waiting in the gas car line in our Pontiac LeMans, Nixon and the Bee Gees, sometimes all at once. What I did not know then which I know now, is that in some countries when a group of competitors gets together to set production and price levels it is considered an illegal activity, called collusion. Proving again when the crime is big enough it can go unfettered.

Fortunately, the arrangement is along the lines of a Puzo novel where enforcement and compliance are very difficult and the family business might not make it to the next generation. There are larger forces at work including cheaper alternatives, better efficiency, new reserves, and the technology to get at them. I predict in the years and decades ahead that OPEC will be looked back on with a wistful relevance somewhere between ABBA and frozen fish sticks.



 (North American focus)

Among the drivers behind minimally invasive medical device development were quicker surgeries and shorter hospital stays in response to ACA.

It appears that ACA will be eliminated with the new administration. Is there a chance the medical device market will rethink this strategy? What about video physician visits (now offered by my provider) or other cost savings approaches?

What are possible plays for speculators?



 Due to some unfortunate circumstances I have had occasion to spend much of the thanksgiving holiday alone. However I had a chance to read some great books which I can recommend.

John Dos Passos, U.S.A. Beautiful paen to America in its plenitude.

Tom Reiss, The Black Count. Amazingly well researched book about the real count of montecristo and a authors love for his n'er do well father who turned out in later life to be a man of principle. Also hybrid vigor.

Nicholas Higham, Princeton Companion to Applied Mathematics. How modeling, and mathematics are used in our everyday life and should be used in many more of our pursuits. Some chapters quite accessible and suggestive.

Stan Gibbilisco, Calculus Know It All. A very easy to read review of derivatives, integrals, and analytic geometry with a small chapter on differential equations. Simple and nicely formatted. Easy guide to math fall river press, very good for middle schoolers.

H.L Mencken, Prejudices. The best essay on Beethoven and capitalism I've ever read. Stirring. Magnificent.

One thing I've noticed at B and N is that their hard bound textbooks in most fields now sell for average of $275. Also that their spoken words section is down to about 25 titles out of say 100,000 titles in the store. Also, that most of their activity is in gifts and teen age reading.



The recent campaign was hardly reticent about "the Russian threat"; that was, along with Trump's pussy-grabbing audio tape, the Clintons' and the U.S. media's propaganda hole card. What is now scary for everyone invested in international crisis is that the American candidate who takes Foreign Affairs magazine seriously just lost because the U.S. electorate in the Mid-West and South no longer believe in the notion that foreign wars make money. (Only Wall Street does.)

Putin and Trump are likely to reach the same kind of understanding that the Americans finally reached with the British when Grant (there's that man again) and Hamilton Fish settled the Alabama claims. The U.S. would not invade Canada, the British and their sometime European allies would stop scheming to get control of Mexico, and both of them would establish economic control over the Caribbean and the South America and ignore whatever the Spanish had to say in the matter.

The Russians will not to invade the Baltic countries or change their western border, the Americans will promise to stop their adventuring in the Ukraine and other games of stupid chicken, and the U.S. and Russia will establish economic control over the Middle East to the exclusion of whatever the Eurozone has to say about it. The Muslims will be free to fight among themselves, as the South Americans did for the rest of the 19th century. The believers in the religion of peace will continue to buy arms from both the Russians and Americans, as the South Americans did from the British and Americans. But, the two major oil and gas producers outside the Middle East will be the ones who control what happens overall in "the energy market".



 Dr. Price's recent remarks: "the problem I have right now is that we are imprisoned by a system that doesn't provide high-quality care for many individuals in our society, especially at the lower end of the economic spectrum, because of the rules that have been put in place by the federal government. So, if we freed up the patients to select the kind of coverage that they want, we would get a model and a system that actually worked for them and not for government."

Here is his alternative to what became Obamacare.

Excellent piece in Washington Examiner: "Here's How Trump's HHS Pick Wants to Replace Obamacare"


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