June - 2018
 S&P +28.50
 USB -1.12
 S&P +12.50
 USB -0.24
 S&P +6.00
 USB +0.06
 S&P +20.75
 USB -1.02
 S&P -0.50
 USB +1.04
 S&P +6.25
 USB -0.07
 S&P +4.30
 USB -0.12
 S&P +1.25
 USB +0.01
 S&P -9.20
 USB -0.08
 S&P +8.00
 USB +0.29
 S&P -4.00
 USB +0.12
 S&P -4.75
 USB +0.03
 S&P -13.50
 USB +0.17
 S&P +5.75
 USB -0.14
 S&P -19.50
 USB +0.14



The Pax Americana is changing – substantially

I want to bring this model to the attention of the readers of this site-– because it helps (me) understand many of the recent geopolitical events and the markets by extension.The model is as follows:

America is the most benevolent empire the world has ever seen–but an empire it is.

What changes now, is that this empire wants less from the world–than the world wants from the US and less than the US wanted from the world in the past.

The main reasons for this are good US demographics, US energy independence (shale), superior geography, the winning of the cold war and a dominant navy–by far.

If you are a country leader today and you want something from the emperor–you better bring gifts.

This is a substantial change. Previously the US gave the gifts (economical gifts and gifts as security guaranties ).

The Chinese in Xi Jinping and Japan do understand this – both currently compete for the love of Trump (and the love of America) and both bring gifts. China just pressured NK's Kim into submission and has probably stopped to oppose a Korean unification. Japan brought lot's of FDI.

(A brief excursion: This is a result of Trump's policy of maximum pressure It also shows Trump is well informed, active and not a fool regarding Korea. "Maximum pressure" most likely also includes some juicy stuff - like allowing NK to steal attack plans, exaggerating Warmbier, using MOABs nearby and high level defections )

Russia in Putin understands this. Putin is a player. He plays a weak hand excellently– as Russia always has.

Israel understands this. Besides many other things–this is why they are schmoozing up to Russia and KSA.

UK understands this. They bring two super carrier.

I thought France in Macron understands this–but after the G7 I am not sure.

Germany in anyone does not understand this change. (Lots to say here, but I am currently enjoying meine Schadenfreude about this.)

Canada in Trudeau does not understand this–though the eyebrow might know and left . Canada and Mexico are special cases, because they are hard-wired into America' s economy.

One can go around the globe and watch how players act against this new reality of America's shift.

What is great about Trump is: a) He is a tweeting Tom–his tweets make geopolitics nicely transparent b) He acts according to the model (consciously and unconsciously).

(The above is heavily influenced by a series of texts by Peter Zeihan - I Think They Get It Now, Part I).

Stefan Jovanovich comments: 

The U.S. is no more benevolent than any other empire run by popular election. Like the Athenians and the English and the Republican Romans, we have always let majority self-interest define the morality of our decisions. The dominance of our Navy is as fragile as the superiority of the British was after World War 1. Our aircraft carriers are now as technologically and financially obsolete as Jackie Fisher's battle cruisers were ib 1919. But for the German decision to commit their limited shipyard capacities to the building of turret armed battleships and cruisers instead of submarines and carriers, "the Allies" would have lost the Battle of the Atlantic. The Chinese seem to be making the same mistake by putting their efforts into carrier battle groups instead of stealthy drone/sea to sea missile platforms. The British should know better; for the cost of these 2 Mary Rose show projects, they and the Germans could have developed silent running submarines that would dominate the sea lanes from the Gulf of Arabia to the Baltic and Arctic Circle.

None of this has any relation to Trump's cleverness about shifting tax burdens from U.S. wage earners to American corporate importers of goods and foreign workers. That is, as P R notes, truly brilliant political economic thinking as apt for the U.S at this time as Lord Salisbury's were for Britain after the disasters of the previous perverse reformer (Gladstone then, Obama now).

The Admiral (actually a retired Navy Captain who shares David's cursed condition of being a lifelong Orioles fan) tells me I am half wet about the Germans in WW 2. Submarines–yes, aircraft carriers– never. Land-based 4 engine bombers were a far better choice.



 Summer car theft is rife in Slab City when occupants leave their camps to vacation in cooler climes. Expecting to find their vehicles on return in the fall, they are surprised but should not be. This is the number one town in the nation per capita for auto theft.

The five cities with the highest car theft rate, according to the Federal Bureau of Investigation, lay along the Pacific where the fine weather keeps them looking fresh: Albuquerque (7000 thefts per 100,000 people), Modesto, San Francisco, Bakersfield, and Stockton. But none has the frequency nor the style of Slab City with the highest criminal genius population in America.

Anyone who lives here has signed in blood an unwritten contract that anything he owns may be taken unless he protects it. The old cartoonist Dogpatch, who lives near the Pet Cemetery, should have known better when he left by public transportation two weeks ago to sell art in Los Angeles. There are a dearth of cars among the summer residents that made his cherry red Corvette a target.

With so few running vehicles an enterprising young man stole a truck in order to steal the car. He spotted the blue pickup stuck in the sand up to its hubs on the southern fringe and tried to unearth it. The miss driver lost patience in the heat and walked away for help. He got the vehicle out and hotwired it.

Driving to the lady’s camp to return her truck, and collect an anticipated reward, he hooked onto the red Corvette in broad daylight and towed it to her camp. It so happened she owned a dented yellow Corvette with balding tires of the same make and model sitting in the back yard.

It’s as common as roadrunners in this town to maintain duplicate vehicles: a beat-up one that one pays minimal insurance on, and a purloined lookalike that is then painted the same color to make them twins. The driver’s door is then switched to install the old VIN to the newer car, which passes inspection in the sheriff’s eyes, at the old insurance rate, and the old car is parted out as needed for the new.

The double carjack would collect two fees.

The day after the double theft on my mobile library route, I zipped from camp to camp to gather pieces of the puzzle for the big picture. With an overview and the pieces, any mystery may be solved. Books are icebreakers and bribes for clues. I talked to a witness who watched the thief hotwire the pickup, to another who saw him hook it up to the Corvette, and drove to the stuck lady’s camp on the east side. On her doorstep I asked her to turn in the Slab shoplifter, but she wheeled and, a few seconds later might return with a pistol, when I was gone.

I needed counsel, and swung into Camp Eden in south Slabs run by a Mama, as is often the case with huge craniums and foliage on the chin, overseeing a neighborhood of some dozen like-minded citizens collected from all parts of the country in the name of freedom and anarchy. Their shanties hem in a circus tent patchwork of tarps, blankets and shower curtains, inflated by a green cloud of marijuana smoke. A group of eight Slabbers perched on cross-section log seats around a spool table chewing the cud and passing the pipe.

They are criminally intelligent, notwithstanding soiled and ragged costumes from hard lives on the slabs, with unblinking eyes and white heads, not with the frosts of age but from the effects of exposure and the sun. One has a pet mouse named Jonah swimming in his dreadlocks, looking out as I spoke.

After describing the double theft, a Chinese hippy stood on his log and proclaimed, ‘May a smile crease the face of any outlaw here would stoop to it!’

Everyone smiled broadly except one sullen young man with a bushy beard that seemed to have no mouth.

‘He should go to jail!’ I emphasized.

‘Throw away the key!’ shouted Mama.

‘How long do the sheriffs look for such skunks,’ demanded the Chinaman looking down at the young man.

‘Three days, I replied, ‘and then they give up.’

A smile like a wave on a sand dune swept his face. Our glorious unwritten constitution with expanded rights had protected us, and he would never steal again.

They were laughing until they wept, as I left to continue the book trade smelling like a joint.



A documentary about Slab City is available on youtube.

"Slab City: The Last Free Place in America"



 "Mergers Would Make AT&T, Comcast World's Most Indebted Companies"

In the last week in February, 1901 J. P. Morgan, Elbert H. Gary, the founder of Federal Steel in Chicago, Charles Schwab, President of Carnegie Steel, and William Henry Moore, owner of National Steel, incorporated United States Steel. On March 2, 1901 they entered into an amalgamation agreement. U.S. Steel's capitalization, most of which was debt, was $1.4B. This was the first combination in history to be a "billion dollar company".



 There are five constants in Slab City found nowhere else in the world:

•    Freedom

•    Lawlessness

•    Drug use

•    Poverty

•    Reading at sunset

One hour before each summer sunset 20% of the population is seen under a shade tree in a scavenged easy chair reading a paperback with his feet propped up on an ice chest. The citizens read until sunset, and then pull out a headlamp to read a few hours more. Some fall asleep on the spot, and their books are stolen by those who have finished theirs. This was the stimulus for the Mobile Library on my Honda motorcycle.



 "Could Dirt Save the Earth?": This article is very interesting, and covers many topics.

The methods of farming described, which include having animals on the land, are probably well worth considering, especially when taking into account the problems with weeds and insects and fungi becoming more resistant to poisons each year. One major challenge with this type of farming is scale. Someone I knew showed me a fruit tree he had just planted. He told me the spot was formerly occupied by a peach tree, thus all the fungi and insects and etc. that liked to eat peaches and peach trees knew where to look for a peach tree, and had moved in. After the peach tree died he replaced it with a different species of tree, which he said would start to bear fruit in 20 to 30 years (he was 93 years old at the time). He pointed some distance away, to the spot where he planned to plant a peach tree. All this and the chickens fertilizing the trees and etc. was working well for him, and provided him and his friends with an abundance of food. But, he had a generous pension from having been a teacher in California. Actually being able to supply thousands of one type of fruit to enough buyers to make a living requires large numbers of trees of the same species, which violates all the principles that he successfully used to minimize pests without the use of poisons. Despite the challenges, I think in the future more farming will be done by methods somewhat closer to what the article describes than what is common now.

As for the idea of storing carbon, there are two main ideas in the article: storing carbon in the form of plants growing above ground with roots in the soil, and storing carbon within the soil itself.

The supposed benefit of storing carbon is to get it out of the atmosphere to stop or reduce global warming. Carbon Dioxide is reportedly differentially opaque to various wavelengths of infrared light - it is more transparent to infrared light at the wavelengths emitted by the sun, and less transparent (more opaque) to infrared light at the wavelengths emitted by the earth. Therefore, the higher the concentration of Carbon Dioxide in the atmosphere, the greater the amount of infrared radiation that is bounced back from the earth to the earth, causing the earth to warm up. This is what is commonly called "The Greenhouse Effect," which has little to nothing to do with how a greenhouse works. I have no doubt the 2-atom molecules that compose most of the atmosphere (Oxygen in the form of O2 and Nitrogen in the form of N2)are rather transparent to infrared light, while larger molecules (3 or more atoms, including Carbon Dioxide) are not nearly as transparent to infrared light. Having owned infrared cameras from the days when they cost $15,000 gives me confidence that this is true. Beyond that, knowing just how increased Carbon Dioxide levels in the atmosphere influence temperature levels, I do not know - all I can do is listen to various scientists enjoying varying levels of government support.

But, suppose one wonders how to get Carbon out of the atmosphere - for any reason.

Planting a tree is reported as being good for the planet, and also good for removing Carbon Dioxide from the atmosphere. The story goes that trees capture Carbon Dioxide from the atmosphere. This is true as far as it goes. The hydrocarbons that trees and fruits and vegetables are made of are produced by destroying water and combining the resulting Hydrogens with Carbon from Carbon Dioxide in the air. The Oxygen leftover from destroying water and Carbon Dioxide is released from the plants. Yes, the first step in photosynthesis is photolysis - using the energy in sunlight to separate water into its components - Hydrogen and Oxygen. Animals do the opposite: when digesting food (hydrocarbons) we produce new water that didn't exist - we combine hydrogen from our hydrocarbon food with Oxygen from the air to produce water, and we combine Carbon from our hydrocarbon food with Oxygen we breathe to produce Carbon Dioxide which we exhale. The cycle goes around and around - animals producing water and adding Carbon Dioxide to the air, while plants destroy Carbon Dioxide and destroy water and emit Oxygen and produce Hydrocarbons. Around and around the cycles go. But burning oil and gas and coal are a different story - burning them produces new Carbon Dioxide and new water. The new water produced should never ever be mentioned in any discussion of sea levels, as it is a widely agreed scientific fact that the amount of water on the planet is fixed and cannot change. The only result of burning fossil fuel that should ever ben mentioned is the Carbon Dioxide produced, despite the fact that burning fossil fuel produces vast amounts of water that never existed before.

As the story goes, Carbon Dioxide can be removed from the atmosphere by plants. Yes, it can and is. But, what is rarely mentioned is that when plants die, the Hydrocarbons they are made of are soon broken down into Water and Carbon Dioxide - either by animals that eat the plants, or by bacteria that eat the plants, or by fire (fire and digestion are the same basic chemical reaction - the speed of reaction is the difference). So, the harsh reality is that anyone wishing to remove Carbon Dioxide from the atmosphere by causing it to be absorbed in plants is only doing so for the short term - the life of the plant. Any thought that Carbon Dioxide can be removed from the atmosphere long term by use of plants is simply folly with no use other than generating research grants and etc.

I own a few pieces of property with trees and lawns and some areas that are not exactly lawns, and not exactly overgrown. Those trees reproduce whenever I don't stop them. Elsewhere, anyplace nobody stops them, trees grow where conditions allow. When I see that a company says they planted trees to offset their carbon footprint, I laugh, or I feel sad they are wasting time and money. If they plant trees where conditions do not encourage tree growth (the middle of a desert), the trees will not grow, and they are wasting time and money. If they plant trees among other trees in a recently cut forest, they are also wasting time and money, because trees will grow there anyhow. Any soil-erosion-reduction benefits could have been achieved by cutting fewer trees - leave some saplings behind. Wherever conditions allow the trees will grow, as they have for thousands of years, and don't need people's help. most such efforts are simply folly.

As for the other idea mentioned in the article, absorbing Carbon into the soil, I expect the amount that can be absorbed is trivial compared to the amount released when burning the vast amount of fossil fuel burned these days. I think the main impact of this new idea is a new way to generate research funding and to perhaps sign people on to campaigning for new regulations or advertising food grown in a way that allegedly benefits the earth by encouraging storage of Carbon in the soil.

Note to all those who will respond by saying that they disagree with what I said about any connection between increased atmospheric Carbon Dioxide levels and atmospheric temperatures: I never said there is any connection. I said what the common story is, and then wrote about the folly of attempting to remove Carbon from the atmosphere by planting plants. I do not know if the earth is warming up, and if so, what might be causing it.

Disclaimer: I am a supporter, not a dependent. I do not and have never made a living off your taxes, nor do I get laws passed requiring people to purchase any goods or services from me, and do not plan to. I financially support all those supported by research grants, and pledge to do so for the rest of my life.



Here's a very short documentary about the origins of the CBOT. One takeaway, 6 out of the first 20 Chicago mayors were CBOT members.



From my blog today:

Historically, next week has been horrendous for DJIA, S&P 500 and to a slightly lesser degree NASDAQ. DJIA has dropped 24 times in 28 years during the week after June option expiration. DJIA's average loss is 1.06%. S&P 500 is somewhat better with 20 losses and an average loss of 0.73%. NASDAQ has the best record since 1990 and yet still has 15 loses since 1990 and its average performance is -0.21%.



  During WW1, in 1917, the price of wheat went to a record $3.25 a bushel. Using an online CPI calculator(courtesy of the Bureau of Labor Statistics), that price in today's dollars would be $60.24. A far cry from the $5 and change wheat is trading today. Grains in general have had a long term decrease in price over the past couple hundred years. We owe this price decrease to improvements in technology. After all, in 1917 a farmer was lucky to get 14 bushels of wheat an acre while today a farmer can anticipate a yield of over 55 bushels per acre….and the cost of production in both time and labor has decreased substantially. One wonders what the yields will be like in another 100 years.

Brendan Turner writes: 

Gro Intelligence put out some interesting data points on fertilizer and pesticide use in the US.

From them:

"Sixty five years ago, harvested area of corn sat around 77 million acres, and average US corn yield was just 54 bushels per acre. Presently, corn acreage is at 82.7 million acres, and yield now sits at a median of over 170 bushels per acre. In the 1940s, soybean harvested area was at just 10.7 million acres. Today, there are around 89.5 million acres harvested, representing an increase of 736 percent. Soybean yield was less than 20 bushels per acre in the 1940s, but now averages 49 bushels per acre."

From me:

While the growth in US grain and oilseed production is no doubt impressive, the rise of other agricultural players in South America and the Black Sea have had the largest influence on keeping a lid on prices thanks to their explosive production.

Back home in Saskatchewan, every year, our family farms about 15,000 acres of pulse crops like lentils, peas, and chickpeas. The varieties for these crops were mainly developed by university and CDN government partnerships and the large majority of the harvest of these pulses have been shipped to India or the Middle East. However, for the last decade or so, these varieties have been exported to places like Kazakhstan and Russia and now, the Black Sea is replacing Canada as the staple exporter of pulses to these markets.

Simple equation: Lower costs of production by new players –> lower selling price points –> downtrend shift in margin for major producers –> potentially fewer acres planted by major producers (assuming demand isn't increasing proportionately to supply)

Of course, this thesis gets thrown out the window when there is a drought in a major producing country (or any commodity). However, In a drought situation, for markets like pulses where there is no futures market, speculation is a bit more suppressed. By this, I mean less volatility and thus, decreased opportunities to capture value within volatile markets like you might w/ corn or soybeans or wheat.

Stefan Jovanovich writes: 

$3.25 in 1917 is equal to today using the gold currency unit of account As the Watsurf notes, the BLS with its CPI calculation estimates today's nominal dollar price as 18.53 times the record 1917 price for wheat. If you use the 1917 dollar price as the gold currency unit of account (gold adjusted for the change in official price in 1933 and the changes in the open market price of the metal and the relative prices of the dollar against other major currencies since 1973), the change is even more dramatic. $3.25 becomes $133.90 - a multiple increase of 41.12. As always, the BLS CPI calculations fall far short of the actual price collapses of currencies against physical commodities.

For an average acre of land suitable for wheat growing the total yield in 1917 was $45.50 in gold currency units of account (gcus). At that time Kansas wheat acreage sold for roughly $200 (gcus). Today the same acreage produced produces a total yield of $6.67 (gcus) and sells for $50.87 gcus ($2100 in current nominal dollars).

So, based on P/Es measured in gcus, the prices for Kansas wheat acreage were a seeming bargain in 1917 (less than 5 times gross yield).

The difficulty is that P/Es do not seem to be very useful as predictors of what comes next. Kansas wheat land prices peaked at slightly less than $300 in gcus in the 1921; nearly a century later they are selling for less than 20% of that price using the same unit of account.

I defer to our expert and others for any speculations about what may happen to Kansas wheat land prices over the next century. The current P/E is - once again - a relative bargain: 7.6 times gross yield. 



Last night at dinner a former floor trader and very successful hedge fund guy told me, "The only news you want to trade on is the news you make up yourself".

Jeff Watson writes: 

My mentor taught me to look at the big news, and then look at the market reaction. And if the reaction is different than what one would expect from the news, then this in itself is a very important "tell" about the market. Even the reaction to every day little news is worth watching. In my case I watch things like country movement, exports, and yields. The market reaction in many cases is more important for trading than the actual "news" (at least in my time frame).

Doug Martin writes: 

That's the whole, "Bad News Good Action" concept. News and reaction, is most of the time too complex for me to analyze. I'm never correct in my analysis on that front and typically will look at the news only after observing/trading the move.

The only "tell" I can derive from news, is how FAST the effected market moves. Much of what I do revolves around observing/measuring the speed in which a market moves to tell me how significant traders interpret the event or non event.

For instance, yesterday the speed in which Euro and Aud moved was significant in the time frames I trade.



 As usual and as predicted, no sooner was a deal with Korea made then every media rushed in to say that it was totally worthless and meaningless… what is the appropriate Aesop's proverb that captures this situation? Tom Wiswell always said something appropriate when a kibitzer told him how he could have won the game in a much easier fashion then he did.

anonymous writes: 

Hillary's first missed Nobel.



Like Stefan, I too dropped out of economics 101.

My marketing professor gave numerous examples of how he, as an advertising guy had increased prices of quite a few items and that cause an increase in sales. His point was it was about perception.

Somewhere during the first week of my economics class I was shown a curve that proved my advertising professor was wrong… As price goes down demand goes up. I argued with the professor that curve wasn't reality. He showed me reality… The door

Years later Jack Kemp summed it up best one day when we were talking, during his campaign in the middle of Iowa, about economics and he said just substitute the word incentive for the word economics and you'll understand it a whole lot better.

I have learned the more people talk about economics the more confusing it becomes, yet, it is easier to understand than understanding women is for me.

anonymous writes: 

One of the simplifying assumptions often made in basic economics is perfect information. That of course differs from reality. The basic curve assumes such perfect knowledge and that the product is the same regardless of the price. But with some items, like cosmetics, the price itself becomes a proxy for the assumed quality of the product. So a price increase leads enough consumers to believe they are buying a higher quality product, increasing sales. In essence in those cases the assumed product across different price ranges is no longer the same product in the eyes of the consumer.



 1. Bicycles.

There are a LOT of shared bicycles on sidewalks in many cities. It's now very easy to use them. Pre-registration or deposit are no longer needed. With either Alipay or WeChat apps on a smartphone, one needs only to scan the two-dimensional QR code printed on a bike to unlock it. One can basically leave it anywhere when finished. Locking it concludes the rental. For basic bicycles, the rent is 1 yuan per half hour. Considering the cost of a bike is about 500 yuan or less, the rate can make the business very profitable if usage is high. It looks now that there are just so many bikes available. In addition to basic bicycles, there are also electric bikes, for which the rents are higher.

2. Cars.

Car rentals are nearly pervasive in cities. The easy way to rent one is by an app like Ctrip where electronic payment is conducted. One surprise to me is the rental rates. The rate can be as low as 25 yuan per day for an economy car with unlimited mileage. Cars are not brand new though, usually with 50k kms on them. A rate of 60 yuan is fairly common. The cars are of all major brands, not only chinese. What's odd with the low rates is the high cost of mandatory insurance. About 40 yuan per day for the basic coverage with about 1500 yuan deductable is required (one's own personal car insurance policy doesn't cover rental cars). This is way too expensive given a similar but better covering mandatory policy for a private car costs only 1000 yuan per year. One should note that car rental companies are all private and the insurance companies are all state-owned. So the low rental rates vs. the high insurance rates illustrate quite well about the business environment in the country, where state-owned companies command higher prices.

3. Ride.

With the exit of Uber a couple years ago, there is basically just one car hailing company: Didi. The cost of calling a car is up: now more expensive than calling a taxi. And oftentimes, either the system or the driver play some tricks jacking up from the estimated amount, citing things like congestions. Although the cars are in better condition than taxis, the experience is far poorer than when the competition was here.

4. Housing.

Airbnb is still here. There are also a couple domestic companies. Short-term rentals are quite abundant. A 3-bedroom apartment that easily sells for over 1 million yuan can be rented for about 300 yuan per day with nice furnishings included. Many places as required by the government only accept Chinese nationals, though.

5. Trains/flights.

Most trains are now bullet trains with top speed around 300km/h. Prices are set by the government, and are roughly 150 yuan for about 300km for second-class seats, which is about 3 times higher than the old train. First-class seats are about 250 yuan and business class seats (higher than first-class) are 500 yuan for the same distance. Old trains are mostly out of service. Trains are mostly full. Despite being owned and operated by the government, the trains are not without competitions. Flights, controlled by a different department of the government, set in to compete, albeit slightly. For a 1000km trip, a flight taking less than 2 hours was discounted to be a bit less than the train taking over 5 hours.

6. Places of interests.

Every place a bit interesting, from city park, temple, mosque, to natural site and certainly historical site (original or man-made), charges an entrance fee plus other fees like internal transportation, guides and performances. There is almost no interesting place in the country that is not encircled up for money collection. Entrance fees range from 30 yuan to as high as 400 yuan. Around 100 yuan is fairly common. Take the famous terracotta warriors museum in Xi'an for instance. Entrance fee is 150 yuan. Guide is 90 yuan for a group up to 6 people. Earphone to listen to the guide is 8 yuan per person. Bus for 1km is 10 yuan. Self-photo in front of a nice scene is 20 yuan. Self-photo without waiting in-line is 100 yuan. There is a large shop in a big exhibition hall which sells a lot of over-priced items. After visit, one has to walk through a 1.5km shopping street to get to the exit.

7. Cashless payments

Again, with AliPay or WeChat, one now can pay almost anything electronically, from from small snacks on the streets, to buses and taxis, to groceries, to any tickets (either on the spot or online).



 Why are we at war with Canada? According to the Trump Administration, there's a net trade surplus between US and Canada (goods and services):

"The U.S. goods trade deficit with Canada was $17.5 billion in 2017, a 59.7% increase ($6.5 billion) over 2016."

"The United States has a services trade surplus of an estimated $26 billion with Canada in 2017, up 8.0% from 2016."

Stefan Jovanovich writes: 

1. Cars and Auto Parts.

Canada manufactures 4 million cars. It buys 3 million and exports 1 million to the United States. It is also the largest auto parts exporter to the United States.

2. Marketing Boards

Canada uses the agricultural marketing board mechanism for controlling production and prices of domestic dairy and other "grocery" farm products. To support this mechanism the marketing boards restrict all imports by tariff and by quota while allowing Canadian "surplus" production to be exported at foreign market prices.

Question: Who would profit most from the shift of car and auto parts production to the United States? Whose domestic production of "grocery" farm products would be boosted by the exclusion of "surplus" Canadian production?

Answer: Agricultural and car and auto parts producers in the Great Lakes States of the Mid-West

Ain't the study of actual political economic events much more interesting than further refinement of marginal utility theory?

Geoge Zachar writes: 

The reports I've seen indicate Canadian dairy protectionism is driven by Quebec…something the the anglophone provinces deeply resent, as they're forced to pay up for dairy products.

So, in addition to being seen supporting important US constituencies, Trump is deepening political divisions north of the border.

Stefan Jovanovich writes: 

The Canadian Parliament decided to "stand with Canadian workers" when President Trump announced the steel and aluminum tariffs.

I doubt very much that they have examined their own history with regard to trade "wars". If they had, they might have been tempted to take President Trump at his word about the need for "reciprocity".

In the Elgin-Marcy Treaty, signed in 1854, the U.S. and London entered into a free trade agreement. As the Wikipedia article notes, the Canadian business interests threatened to ask the U.S. for annexation if Britain did not work to open the U.S. markets to Canadian exports. Under the Treaty timber and wheat and coal were admitted to the U.S. without duties or quotas; the existing 21% tariff was eliminated by the U.S. The reward for the Americans was open navigation on the Great Lakes and St. Lawrence and access to the Grand banks fisheries. The arrangement was broadly popular and hailed as the Canadian-American Reciprocity Treaty.

Within 4 years the Canadians decided that they needed to protect their manufacturers. The Cayley tariff of 1858 and the Galt tariff of 1859 raised the duties on imported manufactured goods 20 per cent. For the new Republican Party, this was an absolute Godsend. In 1860, as now, the United States had the lowest tariffs and least restrictive trade rules of any country. Why, Congressman Morrill asked, should American producers have to accept foreign competition but be shut out of foreign markets? Morrill shifted the discussion on tariffs from being a question about protecting Northeastern manufacturers to one for the nation as a whole. He introduced his bill by announcing this change: "In adjusting the details of a tariff, I would treat agriculture, manufactures, mining, and commerce, as I would our whole people—as members of one family, all entitled to equal favor, and no one to be made the beast of burden to carry the packs of others." The "free trade" Democrats did not have an answer.

By 1861 the U.S. had increased overall tariffs from 17% to 26%; by the end of the Civil War the average rate had increased to 38%. It was to stay there until the Underwood tariff (the Revenue Act of 1913).



Here in the bleachers we are entertaining ourselves during the half inning and pitching changes by discussing FX. This has more than a purely academic examination since our handicapping spreadsheet for the U.S. stock market keeps offering ADRs among its "can't lose" picks. The magic formula has us owning positions in companies in Taiwan (TSM), China (NTES, SHI,YY) and Argentina (TGS); companies whose stocks trade in non-U.S. dollar markets are now 20% of the List.

So, for 1 out of every 5 stocks, the "Buy" recommendation involves a double speculation– a long on the companiese individual fortunes and a short on the U.S. dollar.

Keynes hoped that the very question of foreign exchange would disappear, that money would cease to be part of economics by becoming universally invisible. His dream was for all FX clearings to be handled through the Bank for International Settlements - the intermediary first established to receive the German reparations payments that were to be financed by U.S. loans of gold. The reparations were not, in fact, paid, even though Keynes never revised his opinion that the Treaties by which Germany promised to pay them were somehow the main cause of the Great Depression. Those of you fortunate enough to have studied economics in and after college know that this is still the Number 1 explanation for the collapse in domestic and international credit that occurred between 1927 and 1934. In any case, Keynes' dream of the Bancor never came true; on the contrary, clearings between countries remain stubbornly ties to particular national currencies and the money of the European currency bloc aka the Euro.

So, the question remains: which money offers the best chances for relative gain. The smart(er) guys out here in the bleachers think that FX is THE QUESTION. Frontrunner, the most obnoxious of us all (this year he is wearing an Astros cap) - points out that, if you use the world's private currency (gold) as a unit of account, for a Japanese investor the Nikkei is currently selling for the same price being offered in 1978.



 I have read the book Scale by Geoffrey West and I find many of the charts tautological and suffer from the part whole fallacy. I wonder how many of the scaling relations are predictive and not related to the physical dimensions of weight and height of the many species he approximates with algorithmic charts that are consistent with random numbers.

Leandro Toriano writes: 

West's stuff is poorly regarded among technical people–it pops, but power laws can be made to look like they fit too many things. (There are a few critiques on arXiv, iirc.)

Recently I came across Indra's Pearls by David Mumford, Caroline Series, and David Wright. They do hat-tip Mandelbrot's Hausdorff (fractal) dimension, but don't fall into trendy theory. Easily makes my top 100 of all time, and probably top 3 mathematics books for non-mathematicians. In it you'll find more reasonable discussions of this stuff than elsewhere.

Koebe 1/4 on youtube has a good video of Curt MacMullen speaking on Renormalisation.



 "Dust rising - Salton Sea's toxic dust to get worse and worse"

Bo Keely writes: 

Bill, u forget how intelligent u are. u hit it on the head a year ago in Slabs saying the alkaline air makes the climate here almost intolerable. it isn't the heat, nor the Salton Sea, but the alkaline soil that is absorbed into the air creating a 'coal-miner lung' effect. i can feel the sapping effect of alkaline dust on my skin and lung lining walking any day over 100F. at that temp the air is also rarefied to provide less pressure making it more difficult to breath like being at altitude. i can walk anywhere else in the world at that temp w/out a problem, but not here at 120' below sea level where the air is alkaline.

last weekend it was only 105F but i walked too long following century-old brass survey markers and the remains of the surveyor's camps into the Chocolate Mt. gunnery range and ran out of water and got discombobulated. i sat on my hat during a rest stop to keep off the hot ground and forgot it. that left me walking hatless six more waterless hours into the sun and i suffered for it. finally, i could walk no more, not a step to save my life, and collapsed in the scanty shade of a Palo Verde for two hours til after sunset to recover. the problem was that after the sun went down i couldn't see where i had parked the motorcycle, which meant more hiking but by then my tongue had shrunk from it's previous dry swelling that nearly blocked the oral passage. you'll be able to hear of similar exploits in Texas Ranger 'Big Foot Wallace'.



 What can we learn about the market from the recent playoffs?

1. A team that is behind near the end takes desperate shots and loses by an even greater score, i.e when the market is down near the close any rallies are ephemeral.

2. Ephemeral shots like those of Curry are very erratic compared to LeBron and Durant and can't be relied on… short term spikes are not sustainable.

3. A team with many scorers is much better than a team with a concentrated few and this will tell at the end of a game. The beard and the boaster from Cleveland both fell by the wayside in crucial moments at the end. A sustained move requires confirmation from related markets and will not stay if it is just its own.

4. Erratic players who have problems with the intake of substances will lose at crucial times, i.e. don't drink or take drugs while you are trading.

5. The difference between the winning team and losing team is like the battle between up and down. When a winning team is ahead near the close it is usually not overtaken. Indeed the lead tends to increase as the other team tries desperation shots.  

6. The stats on basketball are much more valuable than what we use for markets, i.e. the % of shots scored off the dribble versus catch and shoot and the % of hits from each sector of the court.

7. What else?



 The alpha female outlaw of Slab City once advised me, 'Beat your opponent psychologically and all things flow from there.'

Then she robbed me.

Her brain is wider than the sky above the Slabs, and her scares are the scars in nearly every mind in town. She terrorizes them before she plucks their properties clean of valuables. These are her chief techniques to look for:

•    Finger paints feces on windows

•    Shreds clothes on a line with a razor

•    Drops meth needles on properties

•    Poisons guard pets

•    Slashes water containers

•    Plants stolen articles at camps

•    Trojan gifts with spyware

•    Sleeps with significant others

•    Deniability - screams at night, 'You're robbing me!' to elude the chase

These PSYOPS make the Belle a bullseye for our top outlaws, male and female. They call her Sun Tzu with a vagina. She allows them to seduce her, and then each has gone to jail or disappeared.

Belle's tactics, as in sport, politics and business, set a backdrop in the subconscious. It softens them to become thankful when she doesn't steal, grateful when she eventually does, less likely to intervene, and kills any courage to retaliate.

However, two men are stepping up to rally other Slabbers. One threw a potluck to raise money to hire two large girls to 'beat her within an inch of her life', and another raised an empty jug and toasted, 'As soon as this fills with whiskey I'll push her down a mine shaft.'

The mind has no farewell. There's a war out here, and it's not about who's got the longest knife or most bullets. It's about who controls what the other side thinks. To date, the Belle is on top.



From hamsters to dogs to elephants to whales, the number of heartbeats per lifetime is nearly the same, namely about 1.5 billion

— Geoffrey West, Los Alamos National Laboratory, and the Santa Fe Institute

Zubin Al Genubi writes: 

This sound a bit too deterministic. While genetic disposition is a large factor, conditioning, good diet, exercise, lifestyle must play a substantial part. Moderation must help. 

Russ Sears writes: 

While I cannot give the source because it been 35 years since I read it. This heart beat speculation was part of why doctors up until recently did not recommend running for health benefits. If g-d had designed us that way, why should we even test it with statistics.

It's only been since 80s women ran a marathon in the Olympic because of these types of simple reasoning.

The statistics speak volumes about the benefits of cardio exercise especially running. However that benefit declines the more you train and it's not surprising that one could design a study which shows overtraining can lower life expectancy. As I've aged the difference between training and over training has become much harder to draw a line… hence I suspect many of the negative life expectancies are from older endurance athletes over training.

And I suspect these shocking to unsuspecting readers are in much more demand too produce due to click-baiting of journalists than real science.

Also many of theses studies one can use a simple test if they are legitimately looking at the issues. If the study is look at average age at death or actually deaths to expected. Average age of death is heavily influenced by the start of running boom and early outlier deaths. It will take many more year before averaging age is valid In other words most serious endurance athletes are still living so their positive effects not seen in average age at death. Opposite of survival effect in stock market historical studies.



On employment day:

up at 820, up 820 to close: 17

up at 820, down 820 to close: 16

down at 820, up 820 to close: 30

down at 820, down 820 to close: 24

(Note: the announcement occurs at 830)

Peter Pinkhasov writes:

With the following, I am very much at risk of misunderstanding the Chair or to expose my ignorance. Yet I think Vic's numbers and my brief research suggest no leakage.

- The pre-release movements do not seem to anticipate the quality of the NFP headline number.

- A case for leaks can be made, if the quality of the NFP headline number is ignored, but then what was leaked? -> The Bond momentum starts during the globex session

- Maybe the leaker uses a sub-component of the report ?

- Potentially no NFP-day drift in equities similar to Fed-days

- (But: N is small)

- (But: I took the numbers by hand - potentially with some errors).

My table:

Victor Niederhoffer explains: 

My numbers suggest that there are leaks but that those who aren't privy to the leaks can't profit from them. The real problem is that so many people get the numbers in advance and that this creates a movement in the correct direction. This is an endemic and terrible problem.



 There is an interesting ratio of plants: bacteria: fungi: animals in units of GT C (1015 g of carbon) of 450:70:12:2.

With a total biomass estimated at 550 GT C or 550 quadrillion (American system) g.

Roughly 605 billion tons with a natural world emphasis on organisms good at photosynthesis and recycling.

From "the Biomass Distribution of Earth":

"The composition of the biosphere is a fundamental question in biology, yet a global quantitative account of the biomass of each taxon is still lacking. We assemble a census of the biomass of all kingdoms of life. This analysis provides a holistic view of the composition of the biosphere and allows us to observe broad patterns over taxonomic categories, geographic locations, and trophic modes."



 "A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines." -Ralph Waldo Emerson

From his "Essay on Self Reliance" (At 10,000 words, this essay is worth a read. (It measures at a 7.4-grade level on the Flesch-Kincaid method in Word. I struggle to get below 12 in my writing.)

"The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function." -F. Scott Fitzgerald

Whenever I turn to an analysis of China, I ultimately realize that I also need to consider India. This duality causes me difficulty and the two quotes above indicate that I require a mental prosthetic.

Therefore, I created a new word by inserting "di" into China. The result - ChIndia.

Would other mental prosthetics for dichotomies be useful in investing? For example, buy and hold vs. buy low, sell high.



This is disappointing. It does not suggest a bad economy, but one in which the growth in jobs is proving quite stubborn.



 Did Kurzweil upload his brain and forget the password??!

I recently drilled down on a lot of his work and speeches.

He basically only ever says four or five things, for the entire past 1-2 decades.

Here are the top ten things Kurzzzweil needs to never say ever again, in his entire life.

1. "I am so smart, I made all these brilliant predictions."

2. "I may not have invented the Web. But I predicted it. And I did it back when no one else did or could. Only I was so smart. (See below.)"

3. "Everything increases exponentially in tech and only I was able to perceive this. My critics could not which is why they were so wrong and I was so right, so often. (See # 1.)"

4. "I invented a device that reads books to the blind. (Did I mention how smart I am and how much smarter I am then everyone else? Mainly because I understand the power of exponential growth in anything tech, and nobody else did, especially my critics who were horribly wrong while I was so brilliantly right.)"

5."Nanobots will eventually circulate inside our bodies, correcting all our ills."

6. "One day brain implants will allow us to extend our frontal cortex into the cloud allowing us to upload our brains, and we will be so much smarter. Especially me. I will still be smarter than everyone else."

7. "Did I mention I went to M.I.T., a few dozen times in this speech alone?"

8. "Nanobots."

9. "Exponential growth is awesome."

10. "…and it's usually why I am so right and my critics were always so wrong, and why I am so much smarter than them."

What an insufferable bore.

He is mostly and mainly a self marketing machine masquerading as an intellect. But the sad thing is, people fall for it. It works. Google fell for it.

I think some people here have, too.




  It was the fall of 2011. He was the kid with long blonde hair who came home one weekend and called a family meeting. His girlfriend at the time was upstairs in his room. Pam and I weren't certain what was about to come down but we sat at the kitchen table and he told us.

He was going to join the United States Air Force.

On the surface we were happy. We knew he doesn't do things on the spur-of-the-moment and had thought this through. He was going to attempt to do a 4 year ROTC program in 3 years and graduate on time with a mechanical engineering degree.

It wasn't long and Pam and I had one of the greatest experiences of life in pinning his Officer bars on his shoulders at the commissioning ceremony after graduation from Georgia Tech.

A couple days later found us on the road to Vandenburg AFB in Lompoc, CA for his ICBM training. It was the longest trip of my life. All those miles of thinking where the years went, all of the mistakes I made and wishing that parenthood had do-overs. As he slept I kept the truck and trailer on the road with misty eyes.

There were goodbye tears that sunny cloudless California morning in Lompoc. Tears from both of us, nary a word was spoken. A new chapter was about to begin.

Months later I was in Lompoc for his graduation. As is typical of him, he never told us he was graduating from Georgia Tech with highest honors or that he was graduating #1 in his training class at Vandenburg! It was a special time and I could feel my own Dad's presence with us.

At 25 years of age he has had a great start to his career. His security clearance is top-secret; his awards as winner of the 2015 and 2017 Global Strike Command Challenge competitions have opened up some interesting opportunities. Today his role is instructing young officers in preparation for launching missiles capable of delivering ICBM warheads anywhere on earth in 30 minutes.

As one of very few Air Force Officers who have qualified as Expert Marksman on the firing range I like to think I had a small part in his career!

Today, Memorial Day, 2018, the Parisian family commemorates the service that my dad, Douglas Parisian gave our nation as a bomber pilot.

And today, Pam and I are proud to announce that our son, Hunter Parisian, is a now a CAPTAIN in the United States Air Force.

Congratulations Hunter!



 Here are some interesting facts about Darwin.

1. He liked to smoke a cigarette to calm down from the politics of sustaining his views.

2. His greatest talent he said was in timing the swings of the long term gilts.

3. He liked to read novels about pretty girls.

4. He went to a watering spa often for relaxation.

5. After sleeping in the grass he heard the birds singing and saw the worms crawling and the insects buzzing about and he had never been so happy. His passage about "interesting to see the tangled bank of birds flitting about"…. must have come from this…

6. He liked to study worms and ants and trollopes. Nanny felt very sorry for him that he had nothing better to do.

These come from excellent book by Janet Browne Darwin: The Power of Place.



Apologies if I have asked this one before. Mr Jovanovich's post reminded me of B.S., about whom I've a longstanding puzzle.

Why don't Case-Shiller indices see more volume?

There is exactly one market-maker for all of the Case-Shiller indices. He lives at 123 Maple St in Greenwich and has decades of bank experience. To me there are natural shorts (everybody with a mortgage in Indianapolis should short Indianapolis) and natural longs (everybody without a mortgage in Indianapolis should long 1/20th Indianapolis). For hot coastal markets there are even more natural longs.

And yet they see such low volume. B.S. is quite famous, and so are his indices. (Major US newspapers cite them.) What gives?



 I was reading this: “Our main finding is that economic data do not appear informative enough to uniquely identify the relevant predictors when a large pool of variables is available to the researcher. Put differently, predictive model uncertainty seems too pervasive to be treated as statistically negligible. The right approach to scientific reporting is thus to assess and fully convey this uncertainty, rather than understating it through the use of dogmatic (prior) assumptions favoring sparse models.”

And Karl Popper’s “Science as Falsification” came to mind. 

Peter Grieve writes: 

I’m sorry to say that there is a movement in physics to abandon Popper’s ideas about falsifiability. This seems to be motivated by the fact that string theory and the multiverse theory are at best extremely difficult to test.

Those still supporting Popper are called Popperazzi. Some of them call string theory “mathematical theology”.

Kim Zussman adds: 

Is an untestable theory that fits observations necessary to discard?

Stefan Jovanovich replies:

A theory that “fits” - i.e. usefully works with - observations cannot be discarded until those observations challenge the theory’s ability to predict events. The theory may simply be lucky enough to fit what people and their instruments can “see” and be better than chance at estimating what will happen in the future; but that “luck” will still be sufficient know-how until repeated observation reduces its foresight to no better odds than chance.

Observation is the test. Until Eddington’s observations of the eclipse in 1919, there had been no observations of the spacial interaction of matter and light that contradicted Newton’s theory. Eddington’s observations did not “prove” Einstein’s theory was “settled science” as the warmists like to say; they proved that Newton’s theory was not as useful an approximation of reality as general relativity.

The point that Eugene Fama keeps making is that economics, as a general theory of behavior, has yet to be even lucky over any extended period of time. Its interpretations of information theory seem to work fairly well in the limited domain of financial transactions but only to prove that risk’s rewards are only verifiable after the fact.

Meanwhile, we enjoy the game and keep blowing on the dice when it is our turn to roll.



We use the 72 hour rule: family, friends and fish should never be together for more than 72 hours at a time.



 The mouse with one hole is quickly taken. This proverb maybe generalized to all sorts of market conditions.

It's why one should never take a half hour trade in markets no matter what the expectations… and it also applies to those big shots that can go against you 1 in 20 times like February 4th and other things.



"As of March 31, 2018, total household indebtedness was $13.2 trillion, $536 billion higher than the previous peak in the third quarter of 2008."

The total household debt was "18.5 percent above the trough in the second quarter of 2013."

(full article here)

George Devaux writes: 

Ratios are important here.

Number of households/individuals- resulting debt

Same for income level (capacity to repay debt)

Same for assets - resulting debt to asset ratios

I apologize for suggesting math to a person whose wordsmithing I relish–in the sense of consuming as a gourmand.



 An observation: Whether it be chess, table tennis, markets or whatever, people love to be on the attack and score quick victories that draw attention. I think it's an ego driven thing, the spectacular win helps people with their self image. Markets tend to go down faster than the go up, which makes the short the weapon of choice in this field. Chess players are forever wanting to emulate Mikhail Tal or Garry Kasparov and score quick victories, and table tennis players will play for winners regardless of the percentage they get in.

This would represent a systematic bias from humans in all fields plus a way of gaining an edge just about everywhere and anywhere. Find an egomaniac and do what they hate; defend instead of attack and play for the long game instead of a quick and spectacular win. Perhaps this equates to the chair's depiction of 'the house', but maybe it goes further?


Jeff Watson writes: 

The ego thing is real, and I suspect but cannot prove that the quick victory would pay short money. Back in the pit days, the frenzied scalpers would be in the market a few seconds and a good scalp might be 3-4 ticks on a 10 lot. Meanwhile, the spreader would be watching their position, adding to and subtracting from, and in a few weeks might make 100 ticks on a 1500 lot. Nobody watched the spreader because the scalper was making all the noise and grabbing the attention. Sometimes in life and the markets, the tortoise beats the hare. Fading a big ego is a tried and true strategy as long as one picks their entry and exit points.

Brett Steenbarger writes: 

What a great point!

The desire for the short (and quick market move) also comes from inability to delay gratification (lack of patience and the need to be gratified right away).

It also comes from a compensatory mechanism, where people who missed a large up move now look for vindication with a large down move. It never fails that, after a large market rally (such as we've had the last couple of years), traders trot out "the 1987 analogue" and the specter of a grand correction. I've yet to see a 1987 analogue proponent who made large money in the preceding rally. I've also yet to see a true replay of 1987.

Finally, it is surprising how many money managers let their political predilections shape their investment views. Many viscerally dislike the current U.S. President and have been steadfastly bearish through his tenure. The worst outcome for them would not be an economic or geopolitical cataclysm, but events that truly would bring growth and prosperity. Ayn Rand has written insightfully about "sense of life", and you have long noted the destructive sense of life of the permabear.



A great story I did not know. Some of the Wrens were only seventeen.

Wargaming the Atlantic War: Captain Gilbert Roberts and the Wrens of the Western Approaches Tactical Unit:

The Western Approaches Tactical Unit (WATU) was a Royal Navy analysis team founded in early 1942. Their remit was to study the conduct of convoy operations, to understand how the U-boats operated and to formulate tactics to counter this evolving threat. The unit was made up of experienced naval officers and a number of talented young women from the WRNS. Using conceptual/analytical wargames, WATU developed a range of tactics during the war and disseminated these to over 5,000 Allied officers through a series of lectures and tactical games. Many of these appeared in the Atlantic Convoy Instructions and were used with considerable success by Allied naval forces during the decisive engagements of the Atlantic War. The essay outlines the origins and purpose of the organisation, how the team functioned, the individuals that conducted the wargames, and the series of evolving challenges that it was intended to overcome – focusing on the series of Anti-Submarine Warfare training and analysis wargames conducted by the unit between 1942 and 1943. The article concludes with an overview of some of the numerous lessons that modern defence analysts could draw from the work of the unit and highlights its utility as an exemplar of the use of wargaming as a tool for modern defence analysis.



I'm sure you have read articles like this, but I found it hard to believe at first. Buy the close and sell the open since 1993 returns just under 600%. The reverse flat.

anonymous writes:

Along comes an article BUY THE CLOSE SELL THE OPEN. Since 1993 with 5280 observations the average move at the open is 0.2 that's 20 points on 1000 base, i.e, 0.02 % it's unchanged from open to close. 

Alston Mabry writes: 

SPY, for the last 250 trading days:

mean Close-Open:  +0.17
sd Close-Open:   0.9839755

mean Open-Close:  -0.06
sd Open-Close:   1.88

anonymous writes: 

transaction costs….



Betting odds on the 2pm decision by the pres?

Kim Zussman writes: 

My bet is something other than complete abandonment. Trump has an upcoming heroic / legacy accomplishment possible with Kim, and won't want to give an example of US abrogating prior treaties.

Zubin Al Genubi writes:

Even if you knew ahead of time what the news will be, there is a theory that says it wouldn't help you trade what the market does.

Larry Williams writes: 

Fully agree based on 565 years of looking at news and the markets.

Other than, if news is supposed to be bullish and prices sell off there is trouble ahead and vice versa.



Shocking low range in bonds today (May 7th) of only 18 points versus usual average of 40 points… Much greater vol will occur soon so public can do the wrong thing. Believe that this is lowest range on a non-holiday in many months.



Commodities have been sucking wind for years, but recently look like they are
finally turning around. Some of the ETF might be feeling the effects of
heavy weights on oil, which has come back after its big drop years ago.

Rocky bragged about this repeatedly. He seems to be right.



When Will AI Exceed Human Performance? Evidence from AI Experts


Advances in artificial intelligence (AI) will transform modern life by reshaping transportation, health, science, finance, and the military. To adapt public policy, we need to better anticipate these advances. Here we report the results from a large survey of machine learning researchers on their beliefs about progress in AI. Researchers predict AI will outperform humans in many activities in the next ten years, such as translating languages (by 2024), writing high-school essays (by 2026), driving a truck (by 2027), working in retail (by 2031), writing a bestselling book (by 2049), and working as a surgeon (by 2053). Researchers believe there is a 50% chance of AI outperforming humans in all tasks in 45 years and of automating all human jobs in 120 years, with Asian respondents expecting these dates much sooner than North Americans. These results will inform discussion amongst researchers and policymakers about anticipating and managing trends in AI.



 The book Something Wonderful by Todd Purdum is endlessly instructive as to the inner workings of the show business team of Rodgers and Hammerstein. Amazingly they didn't like each other after working together for 2 years. The book describes all the warts of rogers' personality but is very admiring of how he maintained boyish qualities in his melodies. Sondheim was taken in as a second son by Hammerstein and repaid him by saying Hammerstein was a mediocre talent with great soul and Rogers was a gifted talent with no soul. The stories of Rogers and Sondheim collaborate where Rogers couldn't countenance working with 3 people of a non masculine persuasion are interesting. Also, the many people that it takes to make a show including the set designer, the orchestrator, the rehearsal pianist, and the costume designer. The book contains the history and results and the formation of each show that Rand H did together and is particularly strong on the business aspects of how they financed it, and how they transformed their enterprise into a billion dollar machine but is somewhat weak on the musical and poetical aspects of the collaboration.



 Here's an essay describing the rural areas of Kansas and how the technology has farming, from increasing yields to needing less labor. The improvements are at the expense of the workers and small towns and counties that are losing population.. Towns are disappearing, but so are industrial workers in the rest of the country, all of this because of increases in productivity and improved technology and farming methods. There is population growth in only a few counties, the rest of the counties are losing population at a steady place. There is a thread of nostalgia in the piece, a longing for times before market forces displaced jobs and people. The author found an interesting correlation….that towns with grocery stories selling fresh food did better than those who didn't. The article mentions various "cures" for Kansas' economic malaise, things like organic farming, raising taxes, and various state sponsored schemes to make everything better. State money is being made available for people to sustain "fresh food" sellers in small towns to keep them going. There is mention of the horrible effects of tax cuts of a few years ago which hastened this decline. Sadly, there is no mention of the benefits to the consumer of the cheaper grain etc.There is also no argument for allowing the small towns to collapse and the utilizing the population in a more economical fashion elsewhere. That's OK, the beautiful pictures of rural Kansas in the article make the rest of the article worthwhile.

anonymous writes: 

American Marxists always think the losers of the recent past have a special purity because they were never guilty of being competitive and selfish. It is the Big Lie that never dies. In fact, these dying towns are themselves the survivors of an earlier competition. For every town that still has the lights turned on, there were once a dozen villages, hamlets and whistle-stops on spur lines whose tracks and ties are long gone.




Or, Despite What You Might Think The socialists Aren't Done.

"The Real Risk Is Believing That Volatility Is Risk"

Investors are much more concerned about a surge in the VIX than they are by the prospect of nuclear war—that's a mistake.

By James Mackintosh

Updated April 30, 2018 1:25 p.m. ET 23 COMMENTS Which risk should you be more scared by: American cities being vaporized by North Korean nuclear missiles, or the VIX spiking above 20? Judging by recent market reactions, investors are much more worried about volatility than they are by the prospect of nuclear armageddon.

In one way this is a grossly unfair comparison, but it also goes to the heart of one of the most important questions in investment: What is risk?

Investors almost entirely ignored what many thought was a rising prospect of nuclear war on the Korean Peninsula last year, and they have also pretty much ignored the welcome prospect in the past week of peace breaking out. Investors realize they have no idea what the chance of war is, and aren't even any good at assessing whether it has gone up or down.

By contrast, February's "volmageddon" had a direct impact on stock prices. The Cboe Volatility Index and its equivalents in other markets are treated by many investors, academics and policy makers as a proxy for risk generally.

This is a mistake.



 I heard about a kid recently who broke his table tennis bat in anger after a loss. When his parents wouldn't get him a new one he stopped playing competitively.

My take on this met with some surprise–just get him another bat and send him back in there. If money is a problem take it from other privileges, for example trips to a particular eatery.

My reasoning is that competition, whilst having huge potential benefits, is tough and it needs time to learn to manage yourself within this kind of environment. Parents and coaches don't help if and when they stoke up the pressure with any kind of blame.




There is an article circulating on Twitter. I'm sure it's selling ink for Forbes. It plays into the politics of providing additional government supports for higher-priced coal and nuclear. But it's based on faulty analysis.

There is no debate among industry participants. Wind and solar have had a significant impact on power markets (energy markets). Market-clearing prices in Europe, United Kingdom, the United States have declined. As more wind and solar resources are added, prices decline further. This phenomenon explains why independent power producers struggle for margin. It also explains why coal and nuclear plants are seeking additional government supports to stay in business. They will tell anyone willing to listen, coal and nuclear are not competitive without new subsidies (their initial capital costs were fully subsidized).

Here's the author's trickery. He completely ignores power market dynamics. He jumps to the end of the utility value chain, focuses on the final retail price of electricity, and falsely concludes the villains are wind and solar.

What the author doesn't tell readers is that electricity prices (not energy prices) are heavily regulated all over the world, including Europe and the United States. When deciding on the price of electricity, regulators include the market price of energy and add much more (state and local taxes, fees, reliability costs, infrastructure costs, bad debt, line maintenance, operations, management costs, union costs, pension costs, guaranteed utility margins, and so on). While energy prices have been declining, regulated costs have been increasing.

It turns out the villain is not the market; it's the regulators. The other villain is the publication of faulty analysis.



 It's been a while since Greek banks have been in the news, and Greece remains in a depression. Some may remember the economic mess Greece was earlier in the decade, and its banks reflected that mess. Let's just say those banks were not the best of investment choices for the time since.

Cut to 2018. Is it time to think of Greek banks as investable? I posed this question to a few friends and received some interesting answers, including that I might want to consider investing in Sears instead, that Spanish banks might be of greater interest (not until the Catalan situation clarifies—I doubt that it will be successful in seceding, but it will be at least a distraction), Italian banks might other better risk-reward, and the question of why banks.

So I put the question to the list: What think you of Greek banks as current investments? The blood's run in the streets and is slowly being cleaned up. Is this the time, or is it a matter of waiting a few years more?



Watching the basketball playoffs I see quite a correspondence between the basketball scores and the market moves. Hopefully the market will get to the point where they have the bevy of statistics starting with the plus and minus for each man on the team that the basketball routinely has. They also have stats on the number of shots made from each position classified by number of dribbles which lends itself well to market action.

Steve Ellison writes: 

Plus-minus is a favorite statistic of more knowledgeable hockey fans. William Karlsson of the Vegas Golden Knights not only scored 43 goals and 35 assists this year, but he had the best plus-minus in the National Hockey League at plus 49 (meaning his team outscored opponents by 49 goals during the time he was on the ice).

There are counterexamples, too: players high in the scoring standings whose plus-minus is negative. Rather than name names, maybe it is best to leave their identities as an exercise for the reader.



 I'm reading Ed Renehan's biography of Jay Gould: Dark Genius of Wall Street. It's an informative and entertaining read and gets 4.6 stars in my book.

Some takeaways. Gould got in a railroad war with Commodore Vanderbilt, and the Commodore lowered shipping rates by 99% to put Gould's Erie under. Gould went into the cattle business in the Midwest and shipped his cattle by Vanderbilt's railroad. The commodore was apoplectic when he found out what Gould was doing.

Gould would get control of a company short the stock, then water down the stock, and buy back the watered down stock with a great profit.

Gould and his buddy James Fisk tried to corner the gold market, and Renehan cites other players like Henry Clews on the mechanics of the deal and what really went down.

There are a couple hundred other little anecdotes, stories, and plots in this book. Too many to recount.

This book provides a very sympathetic look at Gould. None of the hate I've seen in other bios of Gould.



Here are monthly rankings in S&P 500 points 2006 to 2017. Two summer months in bottom quartile, but one summer month near the top. The best month to avoid last 12 years is Jan.



 Alfred Thayer Mahan is an estimable fellow who wrote 25 books and was considered the dean of naval strategists. His contemporaries railed against him for rehashing the English strategies in the age of sail while they were in the age of steam. But he was adamant the way we are about reading 100 year old books. He said "nothing could be more practical then formulation of the principles and methods by which war may be carried out to the best advantage through the study of history". He managed despite much opposition to the rehashing of Nelson's tactics in the battle of the Nile and Trafalagar to stay president of the war college for 7 years. His main principle was to prevent the enemy from engaging in commerce. His major strategic principle was "throw by strategic movements the mass of an army successively upon the decisive points of a theater of war and also upon the communications of the enemy without compromising your own". I believe this strategy for a money manager is very good and I aim to follow it in the main in the future.

anonymous writes:

If you believe in the Special Relationship's value for Americans' self-interest over time, then Mahan is your guy. If you think, as I do, that Britain's insistence on choosing the Ottomans over the Russians was the folly that produced the shames and greater follies of imperialism and led the Adams idiot brigade to reject Washington's Farewell wisdom, then Mayan is just another puffed-up fool who taught America's better minds to worship the warlordism known as strategic thinking.



The current broadway show Carousel was Rodgers' and Hammerstein's favorite show. The scene where Billy tells his wife that's he's a no good according to Sondheim was the turning point in modern theater…. The music was very good and the dancing was good also. However, the principal is a man of color and he sung and spoke the lines as if he was engaging in a rap contest or had recently been trained in that other nightmare Hamilton. Aubrey and I took in Carousel and My Fair Lady on successive days and we can recommend My Fair Lady as being timeless and having great songs and music including the second act where it was the custom of American composers to compose it during the tryouts in New Haven.



Dear Muskaan,

Soon, in a couple of months, you would step out of your teen years. Your daddy is very happy to find you have worked at configuring a fine personage. One has written to you a few years ago, a great mind works well in a healthy body & the two are held together well by a fine personality. While you are pursuing varied extra-curricular activities that range from numeracy skills to verbal to spatial I take note of the fact that you are moving forward in the Rubik’s cube championship in moving to the National round. Heartiest congratulations! The cube puzzle is a test of pattern memorisation, mind-body co-ordination and highest levels of focus! All three are a matter of practise. If possible, for preparing for the national round try to pick up a cube that resembles closest the one provided to you at the contest and buy several pieces of the same and set them up for different levels of smoothness and practise across all of them. This will provide you the familiarity with any cube piece you may get to work with at the National Round!


One draws immense satisfaction that you have worked at developing a vocabulary that is talked about much amongst your peers. Today amongst a few things daddy would like to first share with you how a powerful vocabulary can be delivered with unprecedented impact. Daddy has learnt from his Gurus those who are champions are economical in their movements & speech, on one hand. On the other it’s a well- known and widely known truth that body language is what brings impact to frugal speech. A rich vocabulary empowers you to express the closest hue of the most relevant emotion for the moment. The impact is brought in by emoting your words. I suspect, body language drives communications deeper for two reasons:

1. Mind processes things at the subconscious level much faster

2. Body language actions travel at the speed of light & reach faster than your speech that can travel only at the speed of sound.

In any Acting 101 class it is taught early to students of acting that if body language of physical actions accompanying speech are signalled out before the words are let out the acting becomes way more real. Likely the two facts enumerated above make this happen.

While there are a few good books always on the market on explaining body language, a fine personage that is always a student will continue to learn by constantly being observant. There are three perspectives from which any observation can be made as far as body language is concerned. To observe which physical expressions or signals of yours worked well in achieving your communication goals and which did not is one. To observe how others’ body language triggers positive & negative feelings in you is as good. To observe how one another impacts with her body language yet another even better. The best way is however none of these three. If you can train yourself to observe yourself as a third person in your interactions with any other person you will begin to minimize the self or ego and maximise the objective mind in you.

Ego is a construct nature built into all beings to give them a sense of identity so as they can practise with greater seriousness self-preservation, self-propagation & self-expression. One cannot thus and should not be ego-less. The problems of most relationships are a far heightened sense of self, i.e. an extra-ordinarily larger than required ego. All of us know what is wrong with most things. Few of us get the opportunity to learn from others or by self-deduction how to overcome the wrongs. One good way to minimize the self, down to only the necessary level is to be observing the self from another’s point of view at all points of time.

A heightened sense of the self or a larger than required amount of ego is also the origin of all passions or passive emotions. The switches that world can trigger within one make one easier to be manipulated into digressive emotions. To suffer pain & fear or to be taken over by lust or anger are all due to this larger than required ego.

When the ego is huge, the sense of entitlements is huge. In this world those living with a sense of entitlements undergo most denials! The switches of an ultra-sensitive person with higher sense of entitlements are dangling out in the open. Anyone can click those switches. Hide & fade away your switches. This can be done only by fading and minimizing “you” to just the required humble level!

So I urge you to think about this know-how that daddy just shared on how to dilute the self by containing the ego through always be observant of the self in third person. Such a personage is also able to generate feedback ahead of what the world will tell you about your “self”. You will be a step ahead then! Humility is one of the big outcomes of ego-reduction & it is the world’s most powerful currency that works even when money fails! It helps you provide a continued supply of put options that the world writes to you at your own follies! The other equally important outcome is annihilating the sense of entitlements. You are the daughter of a capitalist & one knows you have learnt today the communist ideas of entitlements make the whole life and not just economics, a paralysis.

Emotions are not at all bad. They are necessary. But the problem with emotions is only when we get driven by them, due to this ego, instead of driving our own motions / petitions / proposals / pitches to the rest of the world. You must not by any chance understand that daddy is an anti-emotion robot. No way! Emotions drive relationships & all engagement in human society. Yet one must ride the horses of emotions and not be dragged by them into a directionless whirl-wind of a life. However, any energies you draw from your well thought out principles for life & values are emotions rising from within and they will make you compassionate, honest, and sincere & therefore a happy & successful person. Let them prevail. The rest need to be left outside like you would leave your shoes.

Having discussed briefly emotions & how to emote, daddy has stated in passing that you would be a happier person in doing these effectively. Yet, the essence of life is not happiness, it is really how each will overcome suffering. Pain is guaranteed to each in some or the other form in some or the other intensity at all points of life yet suffering is optional. Those who can train them to choose to not suffer and handle pain really only as a signal requiring one to bring change are the ones who are successful at whatever they could choose to pursue in life. Pursuit of happiness is a chimera. The real pursuit of evolving as a human being is to be able to minimize suffering. Those who choose to not suffer are the ones who are happy. Else happiness becomes contingent on outcome of events and quality of objects & behaviour of other people. To have your locus of control right within yourself it’s important you switch your perspective today and now that the pursuit worth undertaking for this life is to minimize suffering. Daddy awaits to realize in the near future his daughter has become one of the strongest people, he has known, who chooses not to suffer!

Change is the only constant in the world we live in. A transitory, impermanent universe of objects, processes, people & ideas is what our world is. We have a finite beginning & a finite end. Our body continuously keeps changing and it can be proven that in approximately seven years every single atom in our bodies is new. So that brings to this concluding note for now, your body is not you. Your body is one of the key devices given to you by nature. You are an infinitely more potent force than can be seen, heard or perceived. So, while you must take care of this very important device your body, you have to be confident as this body changes over time that the real you is an infinitely more sophisticated and capable construct.

Today the world is getting swept by ideas of the internet of all things and the coming wave of artificial intelligence. There is excitement as well as fear that the coming AI Robotic age may destroy us humans. Elon Musk has often been tweeting about the dangers of Artificial Intelligence. You however might agree with me the term Artificial Intelligence itself is ultra-egoistic. No one can prove if we the humans are not already one layer of Artificial Intelligence brought into being by a higher degree intelligence that is often called God?! Perhaps AI should be renamed to Derived Intelligence? Irrespective, of the nomenclature, the fears are uncalled for. Perhaps mankind will learn to emote well enough with the coming AI Driven Robots & turn them emotional when required (wink, wink).

All I would tell you for now, fear again originates from a sense of entitlements and too much attachment to the idea of the self. The way evolution of species has propagated so far the best would survive. If AI is going to produce entities driving emotions and not driven by emotions then daddy has rested a compelling case on your desk now, emote better my daughter than getting emotional! You will then certainly be riding well through the age of AI & Robots also & until then more effectively with mere humans! Wink! Wink!

Proudly yours,




 He told me some time ago, before I woke up and while I was dreaming that Sell in May and go away is known to everyone including every cabbie anywhere in the world, even the ones in Namibia and Ethiopia.

So I asked him, what are you trying to say just tell me clearly. Can't you have some compassion for a man deep in sleep in a comfort zone that one earns after a day's hard work.

He smiled. Said once those who have read the book that is an Almanac of the past year's behaviours and have sold it out, the market mistress will inflict regret and then anguish. There will be many who sold by the book and will be forced to buy it back. That's when you sell at the end of May or even if it becomes early June.

I almost had woken up by then. Asked him now what is this way to startle someone and pose a riddle first and then surmise a conspiratorial idea as if now the flexions have also taken the cabbies within their matrix. He said well everything is possible but the simple idea is some always say "this time its different" and the mistress must keep them in the business as well to keep the infrastructure complete as ever.

So I had two choices. To fix a cup of coffee and abandon sleep and get back to some mumbo jumbo. The other choice was to leave this note on this erudite list and ask as usual another question. Would you care to think of what just this cabbie uttered and then vanished away in ether? Oh I forgot to tell you, he also had said if you can figure out Sushil what is the density of High of the Year in any given week number or month its not a bad thing to burn the midnight oil on.



We have been looking for a summer home in Montana and am amazed at the number of properties for sale; and the number that have not sold, many have dropped prices.



This morning’s headlines include an EU push to save the Iran Nuclear deal. Is the deal that good? Why do they want to save the deal? Are they being paid off? Do they really want Iran to have nuclear weapons? Next door to Europe? What makes this deal good for the west? All I know about the deal is that the USA delivered billions of US dollars to Iran on pallets in order to circumvent their own currency export regulations. Seems like a hinky deal to me but copies of the exact text and terms of the deal seem to be as elusive as the yeti, Loch Ness Monster, or abominable snowman. Please explain to those of us in the nose bleed grandstands.



Quoting Anatoly Veltman:

DB 90% off its record doesn't scare me. I'd buy that before any lottery ticket in the world. But back to EUR/CHF's first touch of 1.2000 since SNB had refused to prop that Maginot line January 2015–this is a market significant event.

about CHF: (I have been wrong before – more often than right.) But I think the SNB wants a weaker franc (e.g =eurchf goes up). So they will love the eurchf up here–the same on all the other CHF-crosses.

The break in 2015 was a failure of their intervention.

On the other hand, there is the chair's round number phenomena. I don't know how to play this.

about DB: The DeutscheBank chart is scary to me, because:

- I think investors can not value the bank.
- by now other EU countries have more successfully managed their failing banks (like Italy)
- I think some sort of strategy of betting for time is going on in Germany
- this strategy seems to fail, because the stock does not participate in the recovery in EuroLand or the world.
- some might bet on a bailout
- there is a strong anti-capitalistic sentiment in Germany and any bailout will trigger one more annoying socialist debate – hence the betting on time (by the government)

The chart attached is the ratio DB(in USD) vs SP500 financials (via XLF).



 The chair wrote about the movie "The Death of Stalin".

I watched it the first time, as a comedy, and did not like it. I found it is not funny. I watched it a second time as a drama/documentary–and now it is an excellent movie to me.

Another book about Russia, that recently impressed me a lot is Former People: The Final Days of the Russian Aristocracy by Douglas Smith.I don't know if this book was introduced to the site before.

The background about Lenin resonated the most with me. An entitled aristocrat started out to better the world and killed millions in the process.I think this happened multiple times in history.

From google-books:

Former People - Epic in scope, precise in detail, and heart-breaking in its human drama, Former People is the first book to recount the history of the aristocracy caught up in the maelstrom of the Bolshevik Revolution and the creation of Stalin's Russia. Filled with chilling tales of looted palaces and burning estates, of desperate flights in the night from marauding peasants and Red Army soldiers, of imprisonment, exile, and execution, it is the story of how a centuries'-old elite, famous for its glittering wealth, its service to the Tsar and Empire, and its promotion of the arts and culture, was dispossessed and destroyed along with the rest of old Russia



I met someone who invests by heavy construction company activity. He claims that heavy construction leads a rise in certain commodities as well as the general market, and that the top companies he monitors establish a rough lead time for investment. It would seem easy to identify the top ten companies online and chart their activity vs. specific commodities and the general market to see if it's true.



 Chart of USPS annual mail volume from the USPS website.

Carder Dimitroff writes: 

I'm wondering if it makes sense to sell US Postal System assets. 

anonymous comments: 

There are basically three different theories on what to do with the post office.

Theory 1: The post office is dying. The solution lies in free markets which means privatizing it which may or may not mean ultimately the sale of many of its assets and properties.

Theory 2: Yes first class mail is dying, but package delivery is increasing. We can't privatize the post office because nobody will ever be able to put together this package of assets/distribution again. The post office just needs to re-purpose it's assets the way it has already started to do and get into same day package delivery. This of course is supported by the postal union and its political allies.

Theory 3: (This was once the position of the postal union, and is now relegated to weird, out of touch leftists): The postal union is an American institution that connects us all into a society. Yes, you don't know anybody who hangs out at the post office, but believe me, if we close a lot of post offices it will devastate small communities where people hang out at the post office. Again, you don't know anybody who hangs out at the post office, but millions of people do.

It's an interesting debate between theories 1 and 2, but unfortunately the debate is always mixed up with a bunch of people lobbing Theory 3 stuff into the conversation.

anonymous adds: 

New Zealand's experience: "history of new zealand post".



 Why MC Rove's way ahead of the curve prediction that the "automation is going to take all of our jobs" theory was not correct:

"Why Isn't Automation Creating Unemployment"

Stefan Jovanovich writes: 

Consider the source: a law school in Boston.

"In the more distant future, the story might be quite different and service sector jobs might experience the kind of declines we now see in manufacturing."

1. Manufacturing employment in the U.S. is actually increasing because 3-D printing and other new forging and fabricating technologies are reviving job shops.

2. "Service" sector jobs are already declining. The big employers now are the box stores - Wal-Mart, Lowes and Home Depot to name a few, medical care, and "education". The box stores and other retailers have already seen peak employment. The non-profitistas come next.



The use of deception by the US in the missile strike on Syria where they sent destroyers to the Mediterranean and had the Syrians thinking the missile strikes would come from there but in actuality they came from 3 other directions was similar to the market deceptions where they have a market that is usually associated with a move like bonds down which usually is associated with S&P up but then S&P tanks as it did on February 5th.

Anatoly Veltman writes: 

Interesting. Does anyone have good number: were 70% of Tomahawks shot down, or only 30%? 

Stefan Jovanovich replies: 

There are no "reliable" sources for such matters, but it is usually wisest to take the military reports first as "data".

As the report notes, the attack came from US Air Force bombers, Navy ships and a Marine electronic warfare suppression support aircraft. It is also careful to specify that there was no intrusion into "Syrian" air space by any plane. Only the munitions "invaded".

The reported "feint" is mostly Washington Post nonsense. The attacks came from every point of the compass except North. (Theoretically, the U.S. destroyers in the Black Sea - the Carney and Ross - could have launched their missiles; but that would have been a direct provocation of Turkey and Russia.) The French frigate and the British Virginia class submarine fired their missiles from the Mediterranean. The American attacks came from the Red Sea and the Persian/Arabian Gulf. The Syrian AA capacities, which are entirely Russian, were limited.

What I find notable is that this was very careful gunboat diplomacy on both sides. The Americans, French and British clearly warned the Russians and Syrians that there would be an attack; the buildings and their surrounding areas had been completely evacuated. The Russians, in turn, were careful to keep S-400 systems turned on but they did not launch their ground-to-air missiles while the attacks were underway. 

Anatoly Veltman writes:

Wow. Stefan's opinion, although carefully qualified, tends toward 0% (?) Russian Minister claims 71%.

Stefan Jovanovich responds: 

The truth is always the first casualty. My initial report had the British attack coming from a Virginia class submarine in the Med. Right weapon, wrong country. The sub was the U.S.S. John Warner.

The British Forces net has a detailed report of the weapons used.

Here is the report from TASS.

The Russian report says that the defensive weapons used were the S-125, S-200, Buk, Kvadrat and Osa air defense systems. The Pentagon referenced the S-400. The differences among these weapons is considerable.

The S-125 was introduced by the Soviets in 1961.

The S-200 also dates from the Cold War but is still in active service - hence, the Wikipedia page. The Syrian inventory dates from the 1980s.

The Buk, Kvadrat (Kub), and Osa are of a slightly more recent vintage; but none would be called "modern".

The question to be asked: Why would the Russians omit any mention of the S-400 when the Americans had identified it? The S-400 is the one system that is not a worked-over antique.



It appears New Jersey's governor will sign a bill subsidizing the state's nuclear power plants:

"One bill would provide two Public Service Enterprise Group nuclear power plants with subsidies costing ratepayers about $300 million per year."

While friends at American Nuclear Society and Nuclear Energy Institute may be celebrating, those invested in the power markets may have a different view.

The issue is "market response." When a state pays an owner to run their plant independent of regional market signals, the owner will run his plant. In fact, the owner will happily run their plant when their production costs fall below market prices.

That's fine for the nuclear plant. It's not fine for other participants. When large assets ignore market signals and continue to produce, market-clearing prices for everyone crashes. The nuclear owners win, other producers lose. Those other producers include coal, natural gas, oil, hydro, wind, solar, and storage.

FWIW: Consumers win with lower energy costs (yes, they could get some of their $300 million back). State and local governments win with SIP programs and tax bases.

The power market may adjust bids in the attempt to offset state subsidies. While adjustments help, they would not address the behavior.

This is not a new problem. In US, EU, and other deregulated power markets, nuclear plants frequently ignore market signals. When they do, market-clearing prices frequently cross $0.00. With added incentives to "must-run", zero-priced energy may appear more frequently.

To be candid, I'm being a bit ornery. I believe it's in the nation's best interests to keep existing nuclear plants running. For free-market proponents, there are no perfect solutions. For New Jersey (and Illinois and New York), this is one of the policymakers' least bad options.

IMO, there's another choice. It relies on markets. It would reside at the wholesale level (multi-state). The grid could offer a two-tier pricing system for capacity. One tier would be for baseload plants, which would capture nuclear, large coal, large hydro, and large natural gas. The other would be for non-base load plants, which would include small gas, oil, small hydro, wind, and solar.



P. Allen Smith, a fellow alum from my undergraduate days, produced this informative segment for his PBS show. It's about the Memphis Cotton Exchange Museum, and has good shots of the exchange trading floor and the big board. There are some very nice historical pictures of the floor during it's heyday.



In the last few days one of the economic talking heads commented on how he has "not seen volatility like this since" sometime in the past. I forget whether the former time was 1998 or 2008, but it doesn't matter, as there are many periods in the past with greater volatility.

My quick look at past volatility consists solely of looking at the height and duration of VIX in earlier periods. I took the standard measure (VIX) because of its relatively universal acceptance. I could use some of my own measures, but not without the risk of being flamed for subjectivity, despite the fact that they compare with VIX on a relative basis.

Question: Is there something I am missing? Is there some measure of vol that I am unaware of? Could the high volatility simply refer to the gentleman's equity balance? Could this simply be an effort to gain a headline, i.e. fake news? Any thoughts?

Gibbons Burke writes: 

The VIX seems skewed to being more sensitive to downside volatility and not so much to upside volatility, and it is based on one instrument: the S&P 500 index calls and puts and their ability to speak to the volatility of the underlying index.

The standard Historical volatility calculation of the same underlying instrument used as the input for option pricing models is somewhat more flexible in that it can be applied to any instrument since all it requires is daily closing prices, and the S&P 500 retroactively before the VIX was created.

The two measures, VIX and SPX historical volatility correlate closely—and most interesting is when they depart from that correlation, which shows that the options market is anticipating something which has not shown up in the movement of the underlying. You know all this of course, and have developed some very interesting work on options and their open interest already as it relates to the underlying, no?

In technical analysis realms, average range, and Wells Wilder's Average True Range (which considers the previous day's close as part of the day's range if it is above or below the high or low of the day, which captures post-close volatility and gap moves) has been used as a volatility measure for input into risk allocation components in trading systems, and as breakout bands for trading systems like one made famous by Larry Williams and others like Steve Notis.

A newer volatility measure which came out of chaos theory ideas when they became popular measures the total range (or true range) over some n-period window of previous market activity, and measures the sum of all the individual period ranges (or true ranges) as a ratio. Two instances of this volatility measure are Adam White's VHF index (vertical-horizontal f-something) and CTA Ed Dreiss' Choppiness Index. Both are solid conceptually, easy to calculate, and are already implemented in many systems.

anonymous writes: 

For the S&P, here is the mean daily High-Low range as a % of the Open, for each year since 1962:

year  /  mean daily H-L as % of Open

2018 -  1.44%
2017 -  0.51%
2016 -  0.95%
2015 -  1.10%
2014 -  0.86%
2013 -  0.85%
2012 -  1.06%
2011 -  1.62%
2010 -  1.36%
2009 -  2.00%
2008 -  2.74%
2007 -  1.17%
2006 -  0.85%
2005 -  0.88%
2004 -  0.95%
2003 -  1.41%
2002 -  2.08%
2001 -  1.75%
2000 -  1.84%
1999 -  1.54%
1998 -  1.58%
1997 -  1.42%
1996 -  1.01%
1995 -  0.72%
1994 -  0.82%
1993 -  0.71%
1992 -  0.82%
1991 -  1.11%
1990 -  1.31%
1989 -  0.95%
1988 -  1.22%
1987 -  1.77%
1986 -  1.12%
1985 -  0.79%
1984 -  1.00%
1983 -  1.01%
1982 -  1.60%
1981 -  2.03%
1980 -  2.21%
1979 -  1.55%
1978 -  1.60%
1977 -  1.37%
1976 -  1.60%
1975 -  2.16%
1974 -  2.58%
1973 -  2.06%
1972 -  1.53%
1971 -  1.54%
1970 -  2.09%
1969 -  1.74%
1968 -  1.78%
1967 -  1.62%
1966 -  1.77%
1965 -  1.26%
1964 -  1.16%
1963 -  1.26%
1962 -  1.73%

Sushil Kedia writes:

​VIX measures the price of volatility all are wagering on. Price is the weighted mean/vector sum of all individual values of volatility the various have for themselves. 
Combining a few well accepted ideas, here & everywhere else: 
Depending on where one is in the market food chain there are different versions of what is noise and what is tradeable information content. 
So a simple and effective & consistent to calculate the value of volatility for oneself is to objectively write down what is the minimum movement size below which you dont act. For a HFT robot it could be every tick & for "markets cannot be timed behemoths collecting only other people's money, a.k.a. long only passive funds" it could be 5%. Whatever it be define your sensitivity and lets call it your sensitivity unit move. 
Then each occurence of a move of a unit size is counted — as in counting by toes or a computer programme over any observed length of data. Count the absolute vaues of the Unit sensitivity. Divide the net change over the same length of data with the sum of absolute values of unit sensitivities observed. 
A straight line move would thus give you zero volatility or noise and a perfectly tradeable information content. If however over the observed length of data, on the other hand, net change is zero then there is only noise. 
I remember, many years ago Bill & few others had discussed here how Point & Figure method from the university of mumbo jumbo is an approach that is very similar to this thinking and a fantastic way to separate signal and noise relevant to each as per their forebearance within the food chain. 



Pardon my links but this is pretty interesting conversation between Elroy Dimson and Meb Faber.



The other day, I wrote/postulated the equation:

MTM Impact of Long Ins - MTM impact of short Ins = = - (Opportunity Impact of Outs + Opportunity Impact of Virgins)

(details here)

Transposing this symbology:

<=> MTM Impact of Long Ins + (Opportunity Impact of Outs + Opportunity Impact of Virgins) = MTM impact of short Ins

Interesting perspective comes by:

Given that the present moment monetary value of gains and losses made by long and shorts must be equal in value, the insertion of Opportunity cost (which has infinite degrees of freedom for value of time) in this equation is more a logical symbolism than any arithmetical thing (which is only derivable by focusing on the present moment).

If markets are falling & the shorts are gaining, it is not only the suffering of the existing longs but a much larger mass of the Virgins is stacked in along with the Outs to fight with the Longs in their war with the shorts!

If markets are rising however, the self fulfilling prophecy of trend-following works much more given financial markets follow the economics of giffen goods (ownership is the utility, there is no physical use of the financial asset).

In simpler language what it implies to this back-bencher in the class of counting is that its not tough to visualize a mirrored convexity working in the markets. The present moment, defined in terms of change in prices, is where the Outs and Virgins appear to have the minima. But either which ways the price changes, the Outs and the Virgins are on the side of the longs!

The short seller is the loneliest animal in the food chain of the market wilds (you can see him here). He is not lonely only in the long run due to the drift, but at each change of the tick!



We are at a point where MA 50 day is crossing down the 100 MA…

Sure, we are in a low, and maybe we will see a bounce to retest higher values, but the point is, use this rebound to lighten up, thanking God for giving us new highs from which to sell, or are you really aiming for new highs ?

What should push the markets to new highs in your point of view? Better express it now than later…

Adam Grimes writes: 

Is there any statistical edge to the 50 day MA crossing the 100 day? This is something that is easily testable, and if you have tested it and found no edge (beyond the baseline drift, of course)… then the only reason to be talking about it now is that we must be convinced "this time is different" and it matters this time, right?

If so, why?

Unless there are good answer to those questions, isn't all discussion of moving average crosses just noise?



 There's a new game in town. It's called Stockpile, an app/brokerage that allows one to buy fractional shares of stocks in price increments online. They also offer gift cards at places like Target where one can buy fractional shares of every stock on the S&P 500 and many ETF's etc. One can buy the gift card, open the account, and redeem it for a partial share. It was very disconcerting on so many levels to see a rack of gift cards of partial shares…at a Target. At $0.99 per trade, it's very expensive considering it's almost a buck for a partial share. Still, the millennials will love it. Stockpile's website is here.  Here's a very good Youtube of Jim Cramer discussing Stockpile with the founder. Here's what the rack of gift cards looked like.



Nice interview with Dimson:

Episode #100: Elroy Dimson, "High Valuations Don't Necessarily Mean That We're Going To See Asset Prices Collapse"



 I've been busy at Slab City. The three year era of rental cars expired when I pulled my old Ford Contour out of mothballs and it promptly blew a head-gasket. So I'm riding a Honda 185 motorcycle that is fun. I put a sidecar on it that fell off, so I'm looking at the world again between the grips of the Honda. I've been sleeping in a shipping container on the rim of the Walmart wash where a couple people were found in a public display like the Tarot Hanging Man card. Slab City has changed dramatically in the past two years since DailySpeculations began printing some of the Slab series that are accumulating into a book. The surprise is the power of the press that has catalyzed the shift. There has been a tremendous influx of travelers, weirdos, and anarchists who used digital devices to research 'Free places in USA' for which there is a preponderance on this town. They are marijuana smokers down to the last man and woman, supplanting the methamphetamine population. The cultural impact is vivid: Marijuana, just legalized in California, is basically a sedative, whereas methamphetamine is a stimulant. The town has become safe and boring to and because of this author. I'm going to get on the motorcycle and drive south to San Felipe, Baja to finish the book, and then look toward new horizons.



 I have a cold and so not much energy for anything other than watching tv. I'm catching up on Michael Woods' show about China, and in episode three there is an incredible story about the siege of Kaifeng and the destruction of one of the dynasties in the early 1100s by northern invaders (vid cued up to that point). If you watch it, be sure to get to the poem that is read, "On the Defeat of the Nation" by Li Qingzhao.

I can't find an online version of that specific poem by Li Qingzhao, but I did find this group of translations of some of her other poetry, and there is some really striking stuff with such a clear voice from nine centuries ago:

A sample:

Last night, dead drunk, I dawdled
While undoing my coiffure,
And fell asleep with a sprig of
Faded plum blossom in my hair.
The fumes of wine gone,
I was woken out of my spring sleep
By the pungent smell of the petals,
And my sweet dream of far-off love
Was broken beyond recall.

Now all voices are hushed.
The moon lingers and softly spreads her beams
Over the unfurled kingfisher-green curtain.
Still, I twist the fallen petals,
I crumple them for their lingering fragrance,
I try to recapture a delicious moment.

Leo Jia writes: 

In Turkey today, it is illegal trying to inquire about one's ethnicity. The country stands by a slogan that it is one country, one race, and one religion. I bet they learned the tactics from China just about 2000 years ago when all the country men were termed the Han.

Speaking about Chinese poems, I always wondered in what dialects they were chanted. Obviously not in the mandarin as we know it today, because it's been only widely spoken for less than a century even though it was used mostly in the royal courts as early as the Qing Dynasty some 300 years ago.

But anyhow, due to the nature of the Chinese language being based predominantly more on writing than speaking, it's very hard for a listener to fully understand the chant of a poem, mostly tersely phrased. One just can not easily guess which actual character (which defines the meaning) of a particular sound (which can mean many things) is used.



 The book The Evolution of Everything is a hard-hitting and informative analysis of how unplanned activity in every field has led to greatness.

There are numerous eye opening facts in the book in the field of the economy, government, religion, science and the arts.

The market is shown to be Darwinian, and Smithism and Darwinism are shown to be complimentary forces in every field you can think of.



The moment a tick changes, at that moment parties that transacted on the prior tick "experience" a zero sum game. If the same parties only continue to transact with each other with every further change of tick it remains a zero sum game.

However, soon as the "pool" of competing players changes in the pit, either by someone closing out all outstanding positions for whatever reasons and stepping aside or any new players entering the pit, the game changes. It creates a very interesting web of potential ways to lay out the game in a mathematical sense. This remains true for any further longer / larger time frames. Lets focus on this part.

The gains or losses made, lets call it impact for ease of language, by existing players is shared now with the new ones. But not only MTM impact that can be measured only at the present moment, this ultra sophisticated "game" must account for Opportunity gains / Opportunity losses or the Opportunity impact also.

The zero sum game can still be visualized as zero sum where the sum of all MTM Impact + Opportunity Impact = 0.

MTM or the present moment impact is simple and lets leave it aside. The real juice is this Opportunity Impact construct. Before we enter this labyrinth let us first choose to do a post mortem of those who left the game. Lets use the term "Out" for those who are out of the game. Lets use the word "In" for those who remain in the game up to any point of time.

The Out have taken an MTM Impact and gone! Right? No Opportunity Impact taken by them? Well if I sold out a position at 100 and became an Out, and the price becomes 125 in a year have I incurred an Opportunity Impact of 25? I have, since if i came back into the game a year down the line I would be shelling out 25 dollars more. Same way if price went down to 75 in a year I have an Opportunity gain impact of 25.

This is what makes the market appear like a variable sum game.

Things get a little more interesting and more realistic when we introduce one more final variable, Those Not yet In the game whom lets call for this note, whom we can say name as the Virgins. so for any stock, any contract, any investible or tradeable entity this world produces three types of Players: Ins, Outs, Virgins.

For an easier visualization lets assume we are only evaluating the game of playing the long term drift.

So the MTM Impact of Ins = -(Opportunity Impact of Outs + Opportunity Impact of Virgins)

This equation above is an over simplification and displays only a long only deliverables only contract. If we add the derivatives layer the left side of the equation will have instead:

MTM Impact of Long Ins - MTM impact of short Ins = = - (Opportunity Impact of Outs + Opportunity Impact of Virgins)

Finally if we will allow minds to now wander along a constantly fluctuating market that has the drift or some markets that are bereft of it, different time horizons, different risk-return optimal curve seeking individuals, different tax & liquidity constraints apart from the decisively different placements within the food chain causing differences in information seeking, processing and actionability skills the market can still be described as a zero sum game in terms of the net value of all actions taken, not taken, exposures taken, not taken, different skills, abilities, compulsions to be zero.

Obviously then such a zero is a philosophically provable construct that:

a) Skill pays in markets,

b) As much as luck might pay

c) No one is in a real sense out of the markets. Those without an exposure have a notionally negative exposure to markets! They are the one's who will get lured at some point.

d) Apart from maximising the number of hands feeling that they have a bad game, the tape is likely moving in ways to minimize the number of Virgins of markets left in this world, I surmise.

d) MTM is a game of money management (LHS) which derives its value from the Inability of all those who are not managing their emotions well (RHS)

e) Whether the universal prevalence of deception as an evolutionary tool pervading the markets or the flexions or the skilled they all are part of the grand design of the market mistress who indeed plays a zero sum game on N dimensions, not on a unidimensional game of just MTM.

f) As much as this is true in life that no one wants to die a virgin, the markets have achieved a constructal to fulfill this idea in the context. This is where the deception, the flexionic matrix works most silently.

anonymous adds: 

It is not a zero sum game. True value and wealth are being created in large part due to the liquidity and capital created in the capital markets. As the the prices rise, wealth is created out of thin air, out of confidence, out of technological advances, out of new ideas, out of new people, out of new people participating in the global economy. 



 I ordered fifty books of Narrative Press from Amazon that arrived last week.

The postmaster remarked it was fortunate that I brought a big bag, and I rode the motorcycle lopsided to my camp.

The first book The Oregon Trail: Adventures on the Prairie in the 1840s by Francis Parkman is easily the best account of pioneers of the hundred I've read.

It's a cliche to say Parkman put me there, but he did, ready to trade in my motorcycle.



It appears many American media are worried that the US will lose the trade war against China. That sounds very cowardly. The trade war will hurt parts of the American economy, but how can it lose? For every $1 America sells to China, it buys $4 from China. So China's loss will be at least 4:1 vs America's if the trade war goes into full motion. Plus, a few of the big imports by China, like soybean and Boeing, are irreplaceable. Other things like the semiconductors are critically needed by Chinese economy. So China doesn't really have a lot of weapons.

Any other opinions?

Stefan Jovanovich writes: 

Trade wars helped build the United States. So it should hardly be surprising that the people most dedicated to tearing the country down are hysterical at the prospect that county may be having another one. 

Stef Estebiza writes: 

America has already lost.

You have decided to invest in China/Asia rather than in your population. I would not see it only at the "trade war" level. Globalization has allowed you to ignore internal problems, your population, to focus on foreign profits. The structural problems are the same worsening. Either you decide to reduce your earnings by investing in your own home but by recovering structural problems, your population…or you will have to keep it.

Unbelievable watching the children, the students who survived the massacre in the streets demonstrate against the weapons without the support of the American political parties. It speaks volumes about the real situation of America.

If there's one thing you really have to worry about losing, it's your population…that you've already lost for the interest of a few.

Here in Italy we rejected right and left, the major political parties. There are two major parties in the government, both as out of the popular discontent. If Americans wake up and form a third party (your constitution permitting) you can put Republicans and Democrats in mothballs.

Then either raise your population from poverty, put back a little balance in the system, or they will show you the green mice.

Stefan Jovanovich writes: 

"America" has not invested in China/Asia. Even our war spending kept most of the money here on-shore. (I can remember lobbying to abolish the draft in 1971 after I got out of the Navy and running up against all the Congressmen whose districts were prospering from the war orders.)

When I wrote that trade wars helped build America, I was not being facetious. The times when the United States has been a taker in foreign exchange have been the times when the country's population and wealth have grown. Whenever the U.S. has been "protectionist" - i.e. let people and money come here freely but charged goods and services an admission fee, the place has boomed. Whenever "prudence" - i.e. worries about paying off the debt - and "internationalism" - i.e. let's become allies with the French, British, etc., etc. - has guided Congress, we have "lost", as Stef puts it.

We certainly lose whenever "policy" takes hold and questions of "structural" reform become more important than the common sense that even Congress accepted before our best and brightest all went to graduate school - don't let people come to the country with diseases or criminal connections and choose: (a) free trade for goods and services and no immigration OR (b) open immigration and tariffs. Most of the time the political majority chose (b). They are doing so again right now.



Is the S&P 500 falling because the Chinese wont let American companies profit as much? If this is the reason, why are the US Treasuries not falling? Can America become a safer and better economy (which is what rising Treasuries should mean) while American corporations are going to lose money or make less money?

Or are we being fooled by the tape to imagine that as the Chinese make more money they will buy even more of the US Treasuries? Aah so Ms. Market is trying telling us the Chinese are such fools they will buy more of safe assets in America while negatively impacting America's riskier assets with a long term drift due to the power of compounding the re-investment in growth?

A risk off kind of emotional feeling more than any rationale? Ok so in emotions everything seems as valid. Hmm.


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