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).



This IBD article proves how easy it is to manipulate the press with hyperbole and misdirection.

"Theranos Founder Known as Next Steve Jobs' Pays $500,000 to Settle 'Massive Fraud Charges'"

"The next Steve Jobs"

Uh huh.

One should be less biblical in their retorts when another person questions the next tech craze or the sanity of capital pouring into an idea that is too good to be true on the surface, and transparency issues around data make it impossible to reach a solid conclusion.

I find this one especially close to another big name in the tech space whose promises continue to under deliver… yet his moonshot ideas allow him to burn through other peoples money…

Thanks, CNBC.

Henry Gifford writes: 

I don't think Theranos is a scam.

As soon as I heard about the company's plans to sell blood tests that are much less expensive, and easier to do, and maybe better in other ways, I thought about all the companies that would be hurt by them, and how heavily regulated those companies are, and how hard those companies will fight back, presumably using regulations as part of their defense.

Then I looked and saw the founder has three strikes against her: she's female, she's good looking, she's young. This shouldn't make any difference, but when combined with being an industry outsider, the jealousy factor can be expected to go up, and the ease with which entrenched companies can create doubt and negative publicity is I think greatly increased.

An early battle the company lost was when the regulators declared that the small container they collect blood samples in is a "medical device," and therefore subject to all sorts of regulations, thus they are not allowed to use it. Sure smells to me like regulators looking for something to start a fight about – how many years could the regulators cut off the company's cash flow while they consider the regulatory merits of a small plastic container which will not contact the body? I didn't hear anything about blood collection containers having previously been regulated, so this is extra perfect – it will take a few years to write the regulations….

When the gloves came off and the regulators cut the company down to being allowed to sell one test only – for herpes – I thought that was perfect – the company from Stanford and Palo Alto with the young founder is now associated with a sexually transmitted disease, but barred from testing for glucose, etc.

Looking at the recent press gives me many reasons to be skeptical that the recent reports of fraud are accurate, or have any merit at all.

One article entitled something like "Patients get different test results with Theranos vs. hospital labs" quoted one patient as claiming a potassium test was about 11.3 with Theranos and 9.6 (or so, as far as I remember) with a hospital lab (implied as being the gold standard). Nothing about what they normal variation is, which I understand is significant, or what period of time elapsed between tests, or what the results might have been with 10 or 100 tests done with each technology. The other patient quoted said she got a glucose reading of 103 in a hospital, and 96 (or 99?) from Theranos. Glucose levels in blood can be expected to change by at least that much after a patent walks across a parking lot, even if every test was going to give the same result every time. No article I saw had any other "bad" numbers quoted, but they still made this sound horrible.

The actions of the regulators were described in one article as "State and federal authorities started investigations into the accuracy of the company's blood testing work. In 2016 the Centers for Medicare and Medicaid Services, which oversees blood testing labs in the U.S., banned Holmes from operating a lab and revoked Theranos' blood testing licence." The first sentence describes the beginning of the process, and the second sentence described the end of the process. There was no mention of anything in the middle – did they find anything? If so, what did they find? Was the suspension of the blood testing license related to anything they found other than non-compliance with the declaration that the sample container was a medical device that should be regulated? If they found anything wrong, why was this not mentioned in this article or any other I've seen?

The company, in their defense, claimed to have offered to demonstrate the machine in the offices of The Wall Street Journal, and provided or offered to provide thousands of test results and etc. evidence that their technology worked, but reportedly got no response.

Most recent articles quoted several people as not having been able to find out anything about how their new machine works. Neither journalists at The Wall Street Journal nor anyplace else could find out anything, or find anyone who knew anything. This is consistent with the box the company came up with being a hollow cardboard box, or some other fraud. But, I know how to find out what is inside the box, and what is inside the company's labs. With a quick search I found about 190 patents assigned to Theranos, all for technologies related to what they claim they are doing. I know a thing or two about patents, and a couple of years ago I read some of the patents assigned to Theranos, including some whose inventor was the company founder (there are many of those). The patents are complex but I think mostly well written – this I think says a lot in a field where I think most patents are so poorly written they are worthless. Theranos hired an expensive law firm that specializes in bio patents – a good sign. The US Patent and Trademark Office makes about as many mistakes as any other large organization, but probably not more, and is not quick to grant patents that do not meet the standards, including not being anticipated by prior art – someone else's idea that came first. Getting patents means they probably came up with something. The patents are mostly different enough from each other to not be minor variations on the same theme. Getting about 190 patents, a huge number, means they are apparently working hard and really coming up with things. Many things, probably very valuable. But, most importantly, anyone who works in bio or writes regularly about bio and claims they have no idea what Theranos is doing, and has no way of finding out what Theranos is doing, is not making any mistake – they are lying. They are surely lying because bio is a field that is very dependent on patents. All the articles I've read are consistent with 100% of the people quoted knowing the company has many patents in their core area, but playing dumb and lying by claiming to have no idea what is going on. The existence of the patents means that if they are good patents, which I expect they are, Theranos really has a lock on much better blood tests for years to come. I think it is quite possible that Theranos came up with much, much better blood tests, so much better that they could dominate the field for decades to come (as old patents expire then-current and evolving technologies are covered by newer patents). All evidence I have seen points to this being possible, and not unlikely. If this is the case, then the real story is as follows:

Young dropout comes up with much better blood testing methods, gets strong patents, raises money and actually brings the technology to market fairly quickly – patents, company, and sales, the unusual dream come true, actually done at lightning speed in an industry where patents are almost expired when products come to market (drugs, frequently). Founder stacks the board with powerful people that are not industry insiders, to help defend against the inevitable attacks from the entrenched competitors. Regulators and competitors in one of the most regulated industries can't find any real problem, so they invent a technicality related to exactly what makes the company special – the small collection container. Then they allow the company to test only for a sexually transmitted disease. Fill in the details after this.

Then they find the founder guilty of fraud – but no news reports explain the nature of the fraud, or mention any law or regulation that was broken. Perhaps the fraud was using the small sample container without approval before the approval was required?

I don't know the real story, but none of the stores I've read ring true.

I suspect the real fraud is what the regulators have done, and what the competitors continue to sell while better technologies exist.

anonymous writes: 

I always love a good contrarian position, so thanks for posting yours. Here is what I don't get:

She wasn't doing this on a shoestring budget. She has hundreds of millions.

If the thing works, couldn't she just show the world?

If the thing works, wouldn't Walgreens be out there saying "no wait, this thing works everybody, we of course tested it before we entered into an agreement with Theranos"?

David Lillienfeld writes: 

I'll go beyond that: Not everyone in the valley was pushing to get into the company. There were many who weren't. That's in contrast to, say, 23andme a decade ago or Gilead a couple of decades ago.

The first BoD was stocked with major names in American politics–with absolutely little if any healthcare expertise. Maybe that makes sense to some, it doesn't to me. George Schultz may have been a great SecState, but I fail to see the value add for healthcare. Maybe because it's simply not there. It's not always a matter of hearing the right answer as even knowing what are the right questions to ask.

As for shoestring budget, the office bldg. (I pass it every day) sits on a commanding bluff on Page Mill and Porter. It's hardly low-cost. The company may not have spent like drunken sailors, but low budget doesn't seem to have been its thing either. Not Brooks Brothers, not Jos A Banks, maybe Paul Stuart. I guess the finance people could be grateful it wasn't Savile Row.

Now, let's look at the founder. She has little knowledge of the deeply regulated environment that is healthcare in the US. Rage against those regulations all you want, they define much of the marketplace. Her age means she hasn't lived through the inevitable crises in the healthcare world, for which knowledge of FDA, EMA, ECs, IRBs, etc is invaluable. Think it's an accident that there are very few young CEOs in the biotech world–start-ups or otherwise?

Think surgeons. Do you want the surgeon who just finished her training to do your Whipple procedure, or the chief of surgery? I'll take the latter, just as I'd prefer the former for my appendectomy. Theranos was a Whipple–high risk, big potential reward. Age wasn't in her favor. Enough said.

I'll leave aside the scientific basis for Theranos's products–it simply wasn't there.

As I put it to someone else on the list who asked me for an evaluation of Theranos a few years back when this person had been approached about making an investment in the company, if something looks too good to be true, it probably is.



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

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

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

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



If not today, then tomorrow…don't be shut out.

Gary Phillips writes: 

2475.00 appears impenetrable, at least until after opex Friday. If $/yen was to further take it on the chin due to Trump backlash, which looks likely, then gold should break higher and take out the round at 1300.00 while bonds tag along for the ride. Thinking 2440 in es before 2480.00.

Ralph Vince writes: 

Maybe so, Gary. BUT…there's no danger until the big indexes hit new all tie highs first, which is inevitable in the next couple of days.

anonymous writes: 

This is good, selling off into the open. Prime chance to add for another charge at new all time highs here. We are hitting a cycle low in this Thurs/Fri area, maybe even at it right now, and some intermediate stuff that is deeply oversold.



I've been trying to figure out what a President is *supposed* to say when a foreign power threatens:

"WSJ: Trump's 'Fire and Fury' Comments: Statement by William J. Perry"

Andy Aiken comments: 

"We do not make empty threats, because empty threats weaken our credibility, and weaken the strength of threats that we do intend to carry out. As Theodore Roosevelt said, "speak softly but carry a big stick."

So is Perry speaking of Trump when he writes this, or Obama, GWB, and Clinton? The Nork nuke deal hatched by WJC, Jimmy Carter, and Madeleine Albright was the framework for the Iran nuclear deal. Both were deeply flawed miscalculations, modern versions of "peace in our time". What came of Obama's "red line" in Syria? His pronouncement was counterproductive blabber. Perry himself was probably behind that empty threat.

Rocky Humbert writes: 

Well he was certainly not speaking of Reagan — who directly and openly challenged the existing Soviet military doctrines (pre-gorbachev):

From "Reagan and The Cold War":

What struck Reagan about Communism was its weakness. Communists ruled by fear and intimidation. He believed that policies of peaceful coexistence or of passively containing the Soviet Union would be disastrous. The Communists would over time use the Western fear of war, especially nuclear war, to undermine the confidence of free peoples. They practiced "salami slice" tactics of intimidation and bluff to gain marginal advantages that would eventually accumulate to a victory in the Cold War or allow the Communists to win a final showdown. Reagan sought to turn the tables on Moscow and its allies by advocating an all-out fight against the growing encroachment of Communism in this nation and throughout the world.

By all-out fight, Reagan did not mean military action, although if that was required of the United States in particular circumstances—e.g., Korea, Vietnam—the United States should have fought to win. The key front in the Cold War, in Reagan's assessment, was actually the Soviet economy. Marxism was a materialist philosophy, and its chief claim to practical allegiance around the world was its supposed ability to produce economic plenty (and thereby, social justice). In fact, Reagan believed that democracy and capitalism had decisive, natural advantages over totalitarian systems and centrally-planned economies. Reagan sought to confront the Soviet Union simultaneously with various forms of economic pressure: nearly-open ended American military spending; threats to the security of the Soviet empire (especially in Eastern Europe and Afghanistan) through direct and indirect American support to resistance movements; losses of foreign currency that the Soviets had expected from sales of oil and natural gas; and a cutoff of Western aid and technology.

Reagan argued that the Cold War would end only when there was a fundamental change in the Soviet system, and not just in Soviet policies. The strategy of economic warfare was designed to force such a change, by bringing to the fore a new generation of Soviet leaders who would finally recognize the bankruptcy of communist ideology and move toward a true political rapprochement with the West. The United States, in turn, would promote democracy throughout the world as a magnet and an example to all the peoples oppressed by dictatorships of whatever stripe.



 Ken Burns' Vietnam series starts in September.

I wonder if Gen. Vang Pao's story will be part of it:

"Gen. Vang Pao, Laotian Who Aided U.S., Dies at 81"

Even before President Dwight D. Eisenhower's vow in 1960 that Laos must not fall to the Communists, the country was immersed in bloody conflict. Its importance grew immensely during the Vietnam War, when most of the Ho Chi Minh Trail, the serpentine route that North Vietnam used to funnel supplies southward, ran through Laotian territory.

The United States wanted to interdict the supply route, rescue American pilots shot down over Laos and aid anti-Communist forces in a continuing civil war, but was hampered in doing so publicly because Laos was officially neutral, so the C.I.A. recruited General Vang Pao for the job. At the time, he held the highest rank ever achieved by a Hmong in the Royal Laotian Army, major general.

The Hmong are a tribe in the fog-shrouded mountains separating Laos from southern China, and they were natural allies for the C.I.A. because of their enmity toward Laotian lowlanders to the south, who dominated the Communist leadership.

General Vang Pao quickly organized 7,000 guerrillas, then steadily increased the force to 39,000, leading them in many successful battles, often against daunting odds. William Colby, C.I.A. director in the mid-1970s, called him "the biggest hero of the Vietnam War."

Lionel Rosenblatt, president emeritus of Refugees International, in an interview with The New York Times Magazine in 2008, put it more bluntly, saying General Vang Pao's Hmong were put "into this meat grinder, mostly to save U.S. soldiers from fighting and dying there."

When the C.I.A. approached him in 1960, he was already fighting Laotian Communists. The next year, he would also fight Communists from Vietnam after they had crossed the Laotian border. The Times in 1971 said that the C.I.A. did not command the general's army at any level, because his pride and temper would have never permitted it.

The general led troops into combat personally, suffered serious wounds and was known to declare: "If we die, we die together. Nobody will be left behind." About 35,000 Hmong died in battle.

General Vang Pao was also skilled at uniting the 18 clans of Hmong. One technique was to marry women from different tribes, as multiple marriages were permitted in Laos. He had to divorce all but one of his five wives when he went to the United States in 1975, settling on a ranch in Montana.

General Vang Pao lived more recently in Southern California and Minnesota, where many of the 200,000 Hmong that followed him to the United States or were born here live. His picture hangs in thousands of homes.

Stefan Jovanovich writes: 

The beauty of the New York Times is that they always get it wrong. Eisenhower's "vow" came in 1954, not 1960. There is even video.

I can guarantee that Burns et. cie. will get wrong the other unspoken part of Eisenhower's "domino" theory - the one that was communicated privately to the Soviets now that Stalin was dead: Indochina would be the last acceptance by the U.S. of territorial war by the Comintern. Spying, subversion - everything that Stalin had initiated as part of communism's "cold" war - would be accepted as part of the normal woofing between major power; but this would be the last "war of liberation". If the Soviets persisted in that policy, they risked bringing on their own nuclear destruction.

The Soviets knew Eisenhower was serious because Admiral Radford as Chairman of the Joint Chiefs had asked for permission to use atomic bombs to rescue the French from Dien Bien Phu. Ike knew that the Soviets knew what his reply had been; the U.S. would not "defend" British, Dutch or French imperial possessions in Asia. As the British later learned over Suez, Eisenhower meant what he had said. The U.S. had not fought WW 2 to defend European empire.

But it had fought WW 2 and Korea to defend Europeans' and East Asians' rights to "self-determination". That is the part of the story that the Democrats never ever seem to understand even though the policy itself goes back to Woodrow Wilson - the one thing the man got right.



 I have a friend, fairly young (today is his 20th birthday) guy in London. He has no university degree, and has spent not very much time there. Working as a project manager at some IT company, he was earning about what my daughter will be at Morningstar (where she will start in about two weeks—let's hear it for the econ major, better yet, let's hear it for mom and dad who warned about the perils of an English or history major—and can point to the lack of jobs those folks have now that they've graduated) at a ridiculous salary (not that she's complaining).

He just snagged a job at one of the major consulting companies building a blockchain group as the program manager at about 4.5 times (no, not a typo) what he was earning before (with barely 4 mos experience). At first I didn't believe him, but I heard overnight from another friend that an announcement had circulated among a few folks at the consulting firm confirming that this fellow was starting on Monday as program lead.

Absurd? Perhaps—but that's what the market rate is. For those of us who lived through the dot-com bust, it suggests just how out of kilt the area seems to to be—not merely the valuations of the currencies but the perceived opportunities by corporations. At the height of the dot-com bubble, some kid with minimal work experience and a high school diploma could create an idea (like Hotmail) and implement it with 2 days of programing (like Hotmail) and then sell it for a cool $100 million (like Hotmail). Or be hired as a COO for a start-up at a $200 million valuation at a ridiculous salary—and no product (though they had a photo of a whiteboard sketching out a potential produce with a price point no one knew had any basis in reality. Or…you get the message. But if companies are willing to invest in the area to the degree that it seems to be with him, I have to wonder if we're looking at the side of the picture, not its center.

Blockchains are in that situation, as the money flows into them. Or are they? Real products doing real work with real pricing (for the systems supporting the blockchains). So while we can argue about ethers vs bitcoins and whether they are too high or too low, the basis for those currencies to exist is undergoing explosive growth. And that's really the story here. You might get burned on the specific currencies, but investing in blockchains is a low risk-high reward proposition right now. And the question du jour is how to invest in blockchains, not the currencies.

Levi Strauss made as much as many of the 49er miners, and he kept doing so long after they had passed from the scene. Selling the pickaxes may not create as much wealth as using them, but it's a lot safer and will yield a lot of profit.

Sentiments about cryptocurrencies may be hard to assess. Sentiments about blockchains is another matter altogether. That's not only real but with significant money behind it. While I am happy for my friend, I think he would acknowledge that he's not sure how to explain the orders of magnitude change in salary except as suggesting a lot of confidence in this area as one of the building blocks of the future (or present, I suppose).

This thread may be about the blockchain du jour, cryptocurrencies.

Perhaps it should be about blockchains, the emerging technology of informational interchange.

Henrik Andersson writes:

I believe this sentiment described by David to be deeply flawed. The current bubble is in blockchain, the technology. Typically you hear these type of arguments from non technical, consultant type of people. The reason for using a blockchain in the first place is its trust less nature, it needs to be public, open and will be open source - thus this is not where the economic value lies. The banks and the consultants preying on their fear of being disrupted are using blockchain as a buzzword but without a token, it becomes nothing more than an inefficient database. R3 is maybe the best example - they recently realized tis and have abandoned the blockchain technology altogether! There is nothing revolutionary in a private blockchain, it is a shared database, not an immutable ledger. The economic value will lie in the tokens of these blockchains - they become the fat protocols that now can be monetized directly for the first time. The value lies not in the many times free software underlying these tokens. This is a good think piece: "Thoughts on Tokens".



 Westinghouse Electric filed for bankruptcy protection a few weeks ago. Westinghouse is the prime contractor, original equipment manufacturer, and financial guarantor of approximately $40 billion worth of nuclear construction. That construction is underway in Georgia and South Carolina. Depending on how it's measured, construction is approximately 50 percent complete. More than 50 percent of the money has been spent or committed.

Owners of these projects represent every utility operating in Georgia and South Carolina. Owners include every cooperative utility, municipal utility, and investor-owned utility operating in each state. By extension, every consumer living or working in either state will assume their pro rata share of construction liabilities.

Georgia utilities are also liable to the federal government for $8 billion in loan guarantees. These loans are in addition to any exposure to $2 billion in federal tax credit clawbacks.

Utilities and state regulators will be forced to make some tough decisions. Do they proceed with construction, do they abandon, do they defer, or do they implement some combination? There's no right answer.

Either way, it appears the states' captive customers will pay the price. If utilities proceed with construction, customers will face higher utility bills. In the first several years, those monthly invoices could be painful. However, over time, they will become palatable.

If utilities and regulators abandon construction, consumers will pay for all utilities' costs to date (this requirement is due to state Construction Work In Progress - CWIP policies). Unfortunately, captive consumers will gain nothing in return for their involuntary contributions.

Stakeholders are beginning to understand the depth of their predicament. Some are deeply concerned:

Unless there's a sovereign bailout, it's looking grim for utility stakeholders. It's difficult for the 10,000 or so highly skilled construction workers at both construction sites. It's sour for shareholders, communities relying on the plant's tax base, utility employees, state agencies, regulators, and consumers.

I take no delight in the Westinghouse meltdown. For me, nuclear power is an elegant solution to power industry challenges. It's clean, it's reliable, and, over the long term, it's economic. But, make no mistake. Nuclear power plants are sovereign assets.



Here is a nice piece for skeptics:

"Who Will Debunk The Debunkers?" By Daniel Engber

In 2012, network scientist and data theorist Samuel Arbesman published a disturbing thesis: What we think of as established knowledge decays over time. According to his book "The Half-Life of Facts," certain kinds of propositions that may seem bulletproof today will be forgotten by next Tuesday; one's reality can end up out of date. Take, for example, the story of Popeye and his spinach.

Popeye loved his leafy greens and used them to obtain his super strength, Arbesman's book explained, because the cartoon's creators knew that spinach has a lot of iron. Indeed, the character would be a major evangelist for spinach in the 1930s, and it's said he helped increase the green's consumption in the U.S. by one-third. But this "fact" about the iron content of spinach was already on the verge of being obsolete, Arbesman said: In 1937, scientists realized that the original measurement of the iron in 100 grams of spinach — 35 milligrams — was off by a factor of 10. That's because a German chemist named Erich von Wolff had misplaced a decimal point in his notebook back in 1870, and the goof persisted in the literature for more than half a century.

By the time nutritionists caught up with this mistake, the damage had been done. The spinach-iron myth stuck around in spite of new and better knowledge, wrote Arbesman, because "it's a lot easier to spread the first thing you find, or the fact that sounds correct, than to delve deeply into the literature in search of the correct fact."

Arbesman was not the first to tell the cautionary tale of the missing decimal point. The same parable of sloppy science, and its dire implications, appeared in a book called "Follies and Fallacies in Medicine," a classic work of evidence-based skepticism first published in 1989.1 It also appeared in a volume of "Magnificent Mistakes in Mathematics," a guide to "The Practice of Statistics in the Life Sciences" and an article in an academic journal called "The Consequence of Errors." And that's just to name a few.

All these tellings and retellings miss one important fact: The story of the spinach myth is itself apocryphal….

Rocky Humbert writes:

Could this be a case of the myth of the myth, i.e. the metamyth.

Mr. Isomorphisms writes: 

Myths are interesting as social and (il)logical phenomena, but a good rule of thumb is that anything written by a network scientist is not worth your time. It's my opinion– that Ditto Santa Fe Institute, complexity science, cognitive science. (It's been remarked that any science which needs to call itself "____ science" is protesting too much–but this is wrong because it would exclude food science, life science, brain science, and natural science.)



 A nice piece for skeptics:

"Who Will Debunk The Debunkers?
" By Daniel Engber

In 2012, network scientist and data theorist Samuel Arbesman published a disturbing thesis: What we think of as established knowledge decays over time. According to his book "The Half-Life of Facts," certain kinds of propositions that may seem bulletproof today will be forgotten by next Tuesday; one's reality can end up out of date. Take, for example, the story of Popeye and his spinach.

Popeye loved his leafy greens and used them to obtain his super strength, Arbesman's book explained, because the cartoon's creators knew that spinach has a lot of iron. Indeed, the character would be a major evangelist for spinach in the 1930s, and it's said he helped increase the green's consumption in the U.S. by one-third. But this "fact" about the iron content of spinach was already on the verge of being obsolete, Arbesman said: In 1937, scientists realized that the original measurement of the iron in 100 grams of spinach — 35 milligrams — was off by a factor of 10. That's because a German chemist named Erich von Wolff had misplaced a decimal point in his notebook back in 1870, and the goof persisted in the literature for more than half a century.

By the time nutritionists caught up with this mistake, the damage had been done. The spinach-iron myth stuck around in spite of new and better knowledge, wrote Arbesman, because "it's a lot easier to spread the first thing you find, or the fact that sounds correct, than to delve deeply into the literature in search of the correct fact."

Arbesman was not the first to tell the cautionary tale of the missing decimal point. The same parable of sloppy science, and its dire implications, appeared in a book called "Follies and Fallacies in Medicine," a classic work of evidence-based skepticism first published in 1989.1 It also appeared in a volume of "Magnificent Mistakes in Mathematics," a guide to "The Practice of Statistics in the Life Sciences" and an article in an academic journal called "The Consequence of Errors." And that's just to name a few.

All these tellings and retellings miss one important fact: The story of the spinach myth is itself apocryphal….



 One hour in Slab City equals a day in a jungle or skid row for action. The reason is that each of the 200 residents is a Reader's Digest 'Unforgettable Character', the underworld alphas who use this outlaw town as a buffer between them and what they consider an anarchist USA.

Yesterday a twenty-year old Road Kid rolled up on a bicycle and asked for advice, knowing that I was one of the clearer heads in town not using drugs or alcohol. He wanted an I.D., saying his was damaged. So, I drove to next door Niland and put the word out on the street, and was rewarded in front of the grocery store an hour later when a young lady ambled up and asked, 'What does the Road Kid look like?'

I described him physically, and she focused a reply, 'Does he have an eagle tattoo on his right calf?' He did, and I told her so. 'He's a child molester,' she claimed, and a bounty hunter has offered us on the street, and in Slab City, $500 for information leading to his capture.'

I returned to the Road Kid's camp, and asked him to raise his cuff, where appeared an eagle, like the curtain rising on an American newsreel. I explained that if I provided a photo of him to the I.D. people, that they would incriminate, thinking he is a pedophile. Then his story unwound.

He had been caught in a massive sting by the FBI on a drug bust in a neighboring state, gone to jail, his first conviction, and jumped $50,000 bail. He rode Greyhound to Slab City, and was living as a hundred of other outlaws on the lam do, in a tent under a Mesquite tree, swimming in the canal, learning the trade of criminal activity from his peers, and hoping that his problem would go away.

However, a week ago, a burly Bounty Hunter came to his door with a badge in one hand and a drawn revolver in the other, hiding behind a bulletproof vest, and demanded to see the Road Kid's I.D. The kid replied that he didn't have one. The hunter told him to put his hands on his head, and as he did, the hunter pulled up his pant leg and spotted the tattoo. As the cuff fell, and he felt handcuffs slip around a wrist, the kid took flight, risking a bullet in the back. He sped across the desert like a rabbit and escaped the hunter.

When I told him about the child molestation charge, he cried, 'I love kids the right way. If I get out of this jam I'm going to raise a family.' I was convinced, and on checking around discovered that the Bounty Hunter had fabricate the charge to mount a vigilante hunt among the locals to capture the fugitive.

The Road Kid is on his way to Mexico, the Bounty Hunter will be stopped at the border, and he'll probably raise a Mexican family of unforgettable character children courtesy of Slab City.



 Thanks to my son in law I got a chance to talk with the trader, professor, and gambler recently. The interview ran on Benzinga.com and specs might find it interesting and of possible value

Edward Thorp is one of the most well known figures on Wall Street. Throughout his venerable career he's spent time as a mathematics professor, hedge fund manager, blackjack player, and author. "The father of the wearable computer," recently released his sixth book, "A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market." Marketfy's Tim Melvin recently caught up with the Wall Street legend to discuss his career and outlook on investing. Below is their conversation, slightly edited for length and clarity.

Tim Melvin: You're really considered to be one of the fathers of quantitative investing, which brings up a certain picture of a guy with a bunch of computers trading wildly. But as I go through the book, you really have a tremendous Warren Buffet-kind of Ben Graham influence on your approach to investing. Can you talk a little bit about that? Because that really surprised me.

Edward Thorp: I came at the securities markets without basically any prior knowledge and I educated myself by sitting down and reading anything I could lay my hands on. I began to get oriented, and then I discovered how to evaluate warrants, at least in an elementary way, and I decided that was a way that I could apply mathematics and logical thinking and maybe get an edge in the market.

Melvin: So you weren't trading like a mad man, like what we think of quants today. You were setting the trades and letting them run, right?

Thorp: Yes, initially it was slow trading. We'd put on warrant hedges and watch them and every so often, if there was a big move in the underlying stock, we'd change the ratio of warrants to stock. And then that evolved into revertible bond trading and we did pretty much the same thing there. So, then [Thorpe and co-author Sheen Kassouf] both went on to careers managing money.

I started a hedge fund in 1969, after meeting and talking with Warren Buffet for a while in 1968. He'd been running a hedge fund for about a dozen years, and he was just shutting down. And it turned out that stocks were at manic highs then. Which is why he was shutting down, and for me, it didn't matter because I was putting on market neutral hedges. Something people hadn't been doing before.

Melvin: Now, in the book you talk a lot about statistical arbitrage, I know you stopped doing it in about 2002, according to an interview I read. But it's a term that's used a lot. I don't think anybody really knows what it means that's not in the business. Could you kind of describe that a little bit?

Thorp: Sure. As you actually will have seen by reading my new book, "A Man for all Markets", the idea was discovered by us back at either December 1979 or January 1980. The root idea was a researcher discovered that if you took the stocks that had been the worst performers over the last two or three weeks and bet on them, they would tend to outperform over the next two or three weeks, and the reverse was true too. The stocks acted as though they had some unobservable true value that wandered along some unknown curve, and they set a range back and forth around this curve, and followed it. Sometimes demand would push them up too high, for a while. And sometimes supply would push them too low for a while. So he ran a simulation where he bet on the 10 percent that were the most up for the last couple of weeks, and sold them short. And then bought the ones that were the most down for the last couple of weeks, and set up a hedge portfolio.

Now you might say, "Where's the hedge?" Well, if you have a diversified pool of stocks that are kind of randomly chosen, they'll tend to track the market. So the ones that were up the most, we would short, and that group tended to track the opposite of the market. That is, it would tend to move as though you would short the market.

On the other side, we had a pool that were long and they tended to track the market. So when you put them together, the long and the short sides, the market effect was pretty much cancelled out. Now, of course, there were a lot of other effects, all these stocks were traveling around their own random way around their market factor or market component. Well, we got rid of the market part.

So we said, "Gee, this is an interesting new source of profit." We looked at this and found out that it was somewhat riskier than the other things that we had in our portfolio. So we put it aside. And then as I tell in, "A Man for All Markets," somebody at Morgan Stanley (NYSE: MS) came across the same idea about two or three years later. And Morgan Stanley turned it into a very profitable product.

Then that person was disaffected by his treatment at Morgan Stanley, he happened to answer an ad that we had put in the newspaper looking for people with good quantitative ideas. I interviewed him. I saw that what he had done was very much like what we had done, only he had improved it a notch because he used groups of stocks in a single industry separately, to set up these long short hedges. So the upshot was we went into business with him, it worked very well. Through the crash of 1987, for example, it made money during that terrible down day. Then it began to lose some of its power as Morgan Stanley and others spread the idea and also put more money into it. So, we devised a new method that got rid of not only the market factor, but lots of other things, oil factor, interest rate factor, that sort of thing. And that ran just fine.

That's the root idea, and it had a huge impact on the markets, because it's a natural sequence into the idea of high frequency trading. The reason it's a natural sequence is because you have computer feeds of the stock ticker. So, prices are pouring into the computer continuously, all day long for statistical arbitrage. Then the machines are recalculating what to bet on, and how to modify the portfolio. So, once you have a high speed data feed that you're processing all day long, you begin to think, "Well, are there other ways to trade to this data feed, besides putting on trades that are on for an average of ten days or so?" And you begin to look for patterns that are shorter. So there's a natural segue then into high frequency trading, you've got all the equipment, all the background and so forth. And I think that's probably how people got into high frequency trading.

Melvin: As an individual trader, is it worth the extra effort to try to beat the market today?

Thorp: That depends on the person. I think to myself, "Gee, if I were 25 and I got interested in this, what would I do?" And I'm not sure, but for what I know now, I'd say the Warren Buffett way is a good way if you want to put your whole life into it. I'd probably decide not to want to put my whole life into it. So I would say if you wanted to get really rich and you wanted to trade your whole life for getting really rich, a trade I don't necessarily recommend, then I'd say that's the way to go. But if you just want to make lesser amounts of money, I don't know what to tell a person at this point because you can do so well knowing nothing in the market.

Melvin: In the book, you talk about a way to beat the market that you used at Princeton-Newport, buying deeply discounted closed-end funds and allowing the discount to narrow. Have you considered that much in recent years?

Thorp: I have thought about that. My experience was long ago when there weren't people tuned into this as much, but I think you could maybe make 15-20 percent a year pretty safely.

Melvin: In the early part of the book, it seems like you were such an intellectually, inquisitive child and pulled remarkable stunts. I love the one with the flare in the balloon, that just cracked me up. But as a parent and as an educator over the years, is there a way to bring out that natural intellectual curiosity in a child?

Thorp: Well, I can tell you what we did with our kids and it seemed to work. We made dinner time a special time, when everybody got together, nobody had any devices, or other activity or distractions. We all sat down, we talked about whatever was on anybody's mind. So the mean teacher at school, the bully, whether or not there's a God, whatever came up. The logic behind climate change, or the arguments against it, and so the kids learned to think for themselves. And this power of thinking for yourself is really formidable because it enables you to do many things. Whereas people who don't do their own thinking kind of have to key off other people to try to figure out what it is that they should be doing. They basically follow the crowd.

The second thing is that we try to give our kids opportunity, so they had choices, but we tried not to steer those choices. So just because I'm a science, math, gambling stock market type guy, doesn't mean that I try to steer my kids that way. So one kid became a hedge fund manager eventually, one kid became an architect, and one became a district attorney. They went their separate ways, they're all smart.

Melvin: You talked about that several times in the book. In fact, I have passages underlined. You attribute a lot of your success as an investor because you did it not just for the money, but for the love of the mathematics behind it. And at one point, you say that your discoveries fit in with your life path as a mathematician, leaving you largely free to enjoy your family and pursue a career in the academic world. So you weren't 18 hours a day bent over a screen. You were enjoying your life, because you enjoyed the work. Not because it was finance, because it was math.

Thorp: That's exactly right.

Melvin: Now 1948, you apparently spent the entire summer sitting on a beach reading 60 novels that you considered to be classics. Did that make a big impact on the way you thought, the way you approached the rest of your life?

Thorp: I would say yes. It gave me… I'd call it maybe more of a philosophical and humanitarian perspective on life. And it made me think about the big world of society, politics, history, geography and so on. And it gave me a framework for putting things in their place.

Melvin: You talk a lot also about the importance of education, and your concerns about the future of education. Can you talk about that a little bit?

Thorp: Yes. I think of education as a lot like the seed corn for society. And if people are willing to pay for it, if they're willing to be taxed and if they're willing to build a good educational system, then I see that the minds that are generated out of that will apply tremendous leverage to society, and society will grow and advance much more rapidly. And many good things will happen and get done. If you had a society that was devoid of education, it would just sit in place and do nothing. It would be the same thing decade after decade, perhaps century after century. It would be like the perhaps inaccurate image that we have of the dark ages where nothing much happens.

So in a place like California, for example, they made a terrible mistake back in 1978. They passed something called Proposition 13. What that did was bust the state budget. The biggest component of the state budget is education. And so education has gotten squeezed ever after in California, at both the elementary, the secondary, and the college level. And tuition has gone up enormously. When I went to the University of California, my tuition was $35 a semester. Of course, that was back in 1949, 1950 and you might say, "Well, inflation's changed the number quite a bit." It has maybe 10, 12 times, but just add a zero to $35, $350 a semester, but we're looking at instead of $700 a year. In today's dollars, we're looking at maybe $12,000 a year, or something like that for in-state, maybe $30,000 for out-of-state. So what happens is people can't afford to get as good an education.

They go to school and even if they can pay the tuition, they have to work in large part to supplement to get the money to pay it because it just isn't available in so many of the families. If you work while you're going to school, which I did, you don't do as well in school as you might. You don't learn as much. I can think back at the courses I took because I was working, I didn't learn the courses as well. And the rest of my life, I could feel the impact of that lack of knowledge, that I would have had if only I had been able to focus properly on the course I was taking.

So anyhow, to make a long story longer, I've seen charts of how much is invested in science, engineering, and education in a society, as a fraction of their GMP versus the rate of change of GMP. And it's quite dramatic. Societies that have a higher investment of education advance the growth in their GMP much more rapidly in societies that don't. And the obvious example is something like Silicon Valley. If we didn't have a Silicon Valley or the equivalent, or Redmond, Washington, or the equivalent, we wouldn't have all the computer advancement that we have. Apple would be a giant company in some other place, Japan, Russia, China, something of that sort as opposed to being a giant company in the United States. So anyhow to not spend money in education is a terrible mistake.

And another consequence of that mistake is gambling. There are lottery systems all over, and one of the ways of getting people to accept them is we're willing to fund education with lottery proceeds. But that's actually been in California bait and switch. What happens is they have signed a certain fraction of the lottery profits to education, but then they take away money from education with the other hand. So education doesn't end up getting any more money. California ends up getting more money in the general fund, and ends up with a major gambling problem on top of it.

Melvin: In the book, you think a flat tax might be the answer to solve some of the funding problems at all levels of government.

Yes, I do and there's an obstacle to getting it in, which is that the complicated tax system is one that's been made that way by politicians who are busy paying off special interests, who in return make campaign contributions to elect or re-elect the politicians. So that's why the tax code degenerates into horrible complexity over and over. Now flat tax would eliminate most of the power of the politicians to extract benefits from the tax code. So they would oppose it. But, you could probably get support from large parts of society if you made the flat, the change to a flat tax neutral.

So for instance, suppose you take away the carried interest benefit for hedge funds. Just to explain what that is, carried interest is a scheme which has been disguised by an obscure phrase, carried interest, a scheme to tax money made by hedge fund operators at the capital gains rate rather than at the ordinary income rate. And so they pay far less tax. They can also defer the payment of the tax for many years, 10 years or more. Let's say you took that away. You might get another $20 billion in tax collections that way. What to do with it? Well, go to the politically unconnected rich, the ones who don't have benefits built into the tax code from bribing politicians. Take the top tax rate down. Apply that $15 or $20 billion tax savings that you capture from the changing the carried interest toward their income, apply that to the top rate. So it comes down from 39.6% to maybe 39% or 38.5% or whatever that comes down to. My idea would be that you keep making changes that are revenue neutral, and if you brought a flat tax in all at once, that would be a massive change that if were done in a revenue neutral way, would have as many winners as losers, so you'd have a lot of people rooting for it.

Melvin: Yeah. I agree. I've always said to the first part of your statement, that taxes are not just about raising income. It's also a very complex reward and punishment system. And that's been the biggest reason it's developed into the nightmare that it is. I was surprised to see you comment on it in bringing it out in the book, happily so, but we're in complete agreement on that.

Thorp: Well, one of the reasons I have some, I'll call them public policy commentary in the book, is that if you have a math and science background like I do and you believe yourself to be a rational thinker, you end up applying it to as many things as you can. And with a large part of my life spent in finance and economics, I naturally ended up applying a lot of this thinking to public policy and other things that I see in society that have a broad impact. That's where a fair amount of this is coming from. I believe that if people just learned how to think instead of letting other people do the thinking for them, that we could work our way to a considerably better society.

I've got one last question for you, and this is the big one. It's one that I try to ask everybody I run across. What books are you reading now?

Thorp: Right now, I'm reading a book called "The Accidental Superpower" by a guy named Peter Zeihan. And the reason I'm reading it is because one of my friends who I mentioned in the book, Gary Basil, who was a professor of economics and finance over at UCI when I first met him, sent it to me thinking it was going to be interesting, good to read. We had been talking about the election of Donald Trump, what we thought that meant for the country. This book looks at things much differently than I do, and I find that if I read things that may not agree with the way I look at the world, than I'm more likely to learn something than if I just read things that keep telling me, "Yes, you're right" over and over and over.

This is a geopolitics type book, which basically thinks that geography in demographics are major determinants of how things evolve for societies. It's an interesting historical perspective, and it has predictions of how the future's going to go. I'm enjoying working my way through that and seeing where I agree and where I don't agree with it and what I've learned from it or haven't. That's one interesting book that I've been reading.



 I thought this was a good article:

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

Jeff Watson writes: 

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

Ralph Vince writes: 

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

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

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

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

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

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



 Today is Ernest J. King's birthday.

Borrowed from StrategyPage:

One night, about two years before Pearl Harbor, young Ens. Arthur R. Manning was serving as communications watch officer of the carrier Saratoga. A message came in. After it was decrypted, Manning took it up to the ship's darkened bridge.

Stumbling about in the dark, Manning bumped into someone. Excusing himself, he asked, "Sir, are you on duty?"

The reply came swiftly, "Young man, this is the admiral. I am always on duty," said Rear-Adm. Ernest J. King.



 "Why can’t we see that we’re living in a golden age?: If you look at all the data, it’s clear there’s never been a better time to be alive" by Johan Norberg

Jeff Watson writes: 

There's huge money in doom and gloom.

Ralph Vince muses: 

A person should live each day of his life with the same mindset, the very same attitude of savor and gratitude for every minor thing, as if he got out of jail that morning.

Or, as the Old Frenchman himself would say, "If you have the same address as a thousand other guys, you don't have a lot going on."

Alston Mabry writes: 

Pessimism is a strategy. People who have learned, usually from childhood, that they cannot act on their most important impulses use pessimism as a way to devalue what they deeply believe they are not allowed to want.

Bill Rafter adds: 

Just a minute…

As we all know from trading, if you want to increase your profitability over time the most effective strategy is to limit losses. Possibly related to this is the result of several studies attesting that fear is a greater motivator than greed, buy a factor of 3 to 1. Furthermore, we all look at prices and know both instinctively and historically that those prices will not be constant over time. They may be higher or lower, but not the same. Thus, pessimism is historically justified, profit-saving and possibly life-saving.

But to want to trade these markets for profit, one also has to be optimistic, often excessively so in light of bad experiences. You need both.

Jim Sogi writes: 

Jeff is right. Television causes pessimism. Don't watch TV. I haven't had TV for 47 years. It's not only the content. It does something to the brain. It's harmful. 

Stefanie Harvey writes:

Exactly. Television, especially US news television, is the poster child for confirmation bias. 

anonymous writes: 

Many good reasons for worry exist. If you're not worried, you're not paying attention. All of the worries stem from something completely nobody talks about in polite company: population explosion. In 1804, the world's population was 1 billion. In 2012, it topped 7 billion. It's projected to reach 9 billion in 2042 — within my son's lifetime.

True, Paul Erlich got it wrong when he said we'd all starve by the end of the 1970s– but go back read his book. Then reflect on how much different life is.

All those people are unsettling policymakers, with these results (and they are what's secretly worrying us):

Unspoken Fear #1: War. Today's empire builders are intent on grabbing resources; nuclear weapons are in too many hands.

– China: rich and populous; thanks to the free-trade break we gave them in the 1970s, they've created a war machine and ready to go for our jugular.

– Islam: implacable and populous; we have spent trillions trying to establish a decent government, and the area keeps morphing into an empire that despises us and all we stand for; they want their old empire back, be it from Baghdad or Istanbul.

– North Korea: Our strategy is, "Let's all ignore that man in the corner, and maybe he'll quiet down."

– Russia: ruthless, and intent on restoring the empire of Rus.

Unspoken Fear #2: Dystopia.

– When people don't have honest work, nothing good can come of it. In America alone, 94 million people are out of the work force. We're not being honest about the impact of robots and artificial intelligence. It's this fear that gave Trump the nomination, not that he knows what to do with it.

Unspoken Fear #3: Central government that keeps growing.

– Confronted by the population explosion, the elites have decided that the masses must be controlled and pacified. This political philosophy shows up in the fear of liability for anything fun, in subsidies, in central banking. We see sledgehammer policy-making, from FDR to Obamacare.

– And the educated love it! Calls for authoritarianism are the norm among socialist youth, aging hipsters, authors and "educators" at all levels.

These memes and unspoken but rational fears show up in pop music, with its ugly pounding overamplified brutalist mindlessness; in contemporary academic music, with its screams and jaggedness; in art, with its sneering cynicism; in architecture, with its boxy Stalinist aesthetics.

It shows up in the piggishness of the powerful, with Hillary Clinton the prime example. The rich expect multiple homes in idyllic spots, bodyguards, private jets; the poor suffer in overbuilt, crowded, noisy, polluted cities.

I happen to be an optimist, and always see the glass as half-full. Please note I am not prescribing anything; for one thing, it's gone too far. Nor do I think that going to Mars will help.

Russ Sears writes: 

First, human super-cooperation is built on trust. To evolve as a group, a high percentage of that group must be trustworthy for the compounding effect of the prisoners dilemma to work. As the group grows too big, it becomes too easy for a individual to feign cooperation. Hence the need for creative destruction and for power being placed in the smallest sized group necessary. It has always been easy to look at the big groups and see the corruption and assume that they are in control of the long term future. But the truth is they are dinosaurs and will lose out to the small but wise group/ businesses that still operates at the human individual trust one another level and are quite hidden from the spotlight, because of size. But these time and time again raise the tide for all.

Second, personally, it is too easy to dwell on the jerks that simply can ruin it for everyone but that fall into everyone's life. They can ruin many nights even if as a rule I try to avoid them. A single jerk can derail my perspective and keep me up at nights and easily crush my spirits if I let them. I found the best antidote for me is to turn the tables if I start thinking of the jerks and think instead of those in everyone's life that have blessed them with love, grace and patience. I think of my Dad's second wife, caring for a dementia patient at home for 13 years and weeping tears of love on his passing, the coach that helped me, the friend that's always there, etc. I try not to let the jerks own my mind rather than those loving, lovely (my spouse), good and virtuous people in my life. This also goes with those news makers, politicians and on the dole.



 Have you noticed how everyone starts all their phrases with, "So…" I hear it everywhere now. It has crept in, and I find my self saying it.

It's an example of how behaviors and patterns creep in, spread, and take over.

Ideas can be like that also. I get ideas into my head from random readings and sometimes they take over my life. Some ideas have taken over the world, such as what Chair calls "the idea that has the world in its grip".

Jim Lackey writes:

So, at the end of the day, is from Carnegie type PR training courses. Like is from the kids and FB. I have been training the children how to steer the conversation. Yea, that is a marketing rep. Problem with some Millennials is their inability to carry on a conversation. They will say "wait what" as you state some crazy half joke funny mumbo in between as they do the 1x a minute phone check.

Hey dude! What is going on in the world? Huh ( I can't take huh), my reply is Huh, duh, what? Hey dude, you were just in the cyber space, somewhere else in the world, anything important going on in the WORLD….WIDE… WEB? Surprisingly, the kids will have some fantastic story to reply with. Other times it was a ghost text auto reply, NLP reaction on their 1 minute phone check. Ghost text, that is when you physically feel your phone vibrate on your leg, from your pocket, but it did not!

This thread is a few years old. I know it is greater than two, yet less than three years old because I feel pain. That is the sting of loss in the markets.

"What is interesting". That is the new conversational or transitional word replacing "so" for the past year.

What is interesting is I found a new way to judge if you're ready to trade. Play blackjack, count play basic strategy 5/10$ for four hours. If you can remain cool under fire, you're good for trading.

What is interesting is… I have zero business trading the markets. I found that the jacklegs on the table, dragon lady dealer and a bad run of cards pissed me off. I bet wrong once and the second I did it, I knew it and thank goodness I lost. That made me laugh. I got up tossed the dragon lady a 20 which was the best money spent. I went back to the bar and watched the Cubs destroy the competition. I trust I will not visit another casino for more than a decade.

Back to the kids. My age Gen X and above you mirror what the customer is doing with their phone. If they have it out, you put yours on the table. They feel comfortable. Perhaps they are waiting for a very important call. Ask.

Kids, when working with the 20's, you are well served to ask to see their phone. Then show them yours, which is funny. Then set yours out and every time they touch their phone grab yours and flop it back down with a dannng… Or best, if they have theirs out and do not touch it as it is turned over out of some sort of respect. Do the same.

Kids blow a fuse if they lose or leave their phone at home. Hey dude I understand. With out my dirtbikes I was hurting. The second we hit the road trip I wondered did I leave the iron on? Just joking, I wondered if I brought enough Extra Long MX boot socks and extra tear off lenses for my goggles. These kids today need their music, headphones and their computer in their pocket. I wish I had one when I was 12. 



 Another forgotten battle has its anniversary today. When he read the after-action report of his commander in the field William Beresford, Wellington was not happy. He is reported to have said to one of his staff officers, "This won't do. It will drive the people in England mad. Write me down a victory." 'The report was duly rewritten, although Wellington privately acknowledged that another such battle would ruin his army.' (from Wikipedia)

Soult, the French commander, did his own rewriting. In his initial report to Napoleon the Marshall proudly announced that France had achieved a "a signal victory". Soult had accurately estimated British, Portuguese and Spanish casualties at around 5,000; he reported his own at half that number - which was half what they actually were.

In Robert Southey's History of the Peninsular War Soult is quoted as having confirmed the general opinion of Wellington's soldiers: "I always thought they were bad soldiers, now I am sure of it. I had turned their right, pierced their centre and everywhere victory was mine – but they did not know how to run!"

The folks at Strategy Page have a note on the anniversary that includes a section from Henry Evelyn Wood's memoir. Wood had become Lt. Colonel of 90th Perthshire Light Infantry. The regiment had been given new colors, and Wood (probably on his own initiative) wanted to arrange for the old ones to be properly retired by being hung in town's cathedral. On a visit to Perth Wood met an old man whom he recognized as a former soldier. Wood recalled:

I asked one of (the Perth City councilmen), pointing to a distinguished looking old man, with a long white beard, who he was, and received the somewhat contemptuous reply, "Oh, he is of no importance - only an old Peninsula soldier."

I repeated my question to the stationmaster, who was more sympathetic, and at my request, obtained his initials from the Goods Office.

When I got back to Stirling, I went up to the Mess-room, where we had the Army Lists for eighty years past, and was rewarded by finding the name of the distinguished-looking old man who had been present in a Fusilier Regiment at the Battle of Albuera in 1811……. On the 27th June we went up to Perth – 16 officers and 14 non-commissioned officers, and the Commanding officer asked me to return thanks for our reception at the luncheon given to us by the Provost and Council.

On rising, I said, "I should have been glad to do so, but that I stand in the presence of one who has taken part in a more stubborn struggle than it has been my fate to see," and I recited Napier's stirring description. As I finished the last sentence, "The rain flowed after in streams discoloured with blood, and 1500 unwounded men, the remnant of 6000 unconquerable British soldiers, stood triumphant on the fatal hill!" I said, "I call on Lieutenant _____ of the Fusiliers to answer for the Army."

He was at the end of the Council Chamber, having taken literally and metaphorically, a back seat, and rising slowly and with difficulty, for he was more than eighty years of age, he doddered over to the table, and leaning heavily upon it said, simply "Let me greit [cry]!"

And "greit" he did; but presently brushing away his tears, and drawing his body up to its full height – and he was 6 foot 2 inches – he made an admirable speech, the gist of which was that he had lived in the City of Perth since 1814, and no one had ever asked him anything about the Peninsula; no one had ever spoken to him about the Battle of Albuera; "but now" he concluded, "when I have one foot in the grave, I see before me officers in the same coloured coats, and with the same sort of faces, and instead of talking about what they did in the Crimea or the Indian Mutiny, they recount in wonderful language the crowning scene of my military life." Then sinking back into a chair, he added, "I shall die happy."


For another day:

Napier, ac



Pretty much not what they used to mean, for sure. Let's see though…the market still moves on the announcement news of labor stats. And, mostly, people have digested the faux reality of the numbers (e.g., that those who want jobs but have given up looking aren't included in the unemployed number), and still react as if there is real meaning here. Politicians, economists, and the markets seem to key on these statistics to some degree, but in the same old ways.

What isn't communicated by the numbers in proportion to their importance is how greatly and quickly the economy's employment base seems to be changing in terms of two variables: 1. the replacement of labor by technology; and 2. the work attitude/ethic of the potential workforce.

Each variable is visible in daily news. Each story of a rise in the minimum wage in a given city can be matched to McDonald's bringing in technology to replace burger-flippers or the use of medical tests to replace visits to a human physician or health tech, or to another variation of the same theme.

These same technology stories do show effects on the availability of jobs ––both in number and type—-for those graduating from high school, college, or professional programs.

Other stories indirectly identify and estimate effects of societal vectors determining labor trends. For example, the stories of the rising fentanyl opioid epidemic show deeper effects of the lack of jobs due to technology displacement. Hope, ambition, confidence, a sense of self worth are essential to careers. Perhaps the susceptibility of the addicts could be correlated to despondency in white, lesser-educated, working-class males whose once-valued role in society has been significantly eroded by political-correctness, feminist doctrine and affirmative action in recent decades leaving this population group bereft of the attitudinal pre-requisites for successful working careers, as well as fewer target areas for employment.

Are these factors usefully or accurately monetized in trading or investing? Currently, they do not seem to be in shorter-term actions and for predictions. Yet, employment and employability speak to the ability of the society to create demand…without jobs, there is no money to consume. Traditional use of these stats may be because they really don't matter in the short-run, or because we don't know how to interpret the data well. Or is this because neither cause-effect nor correlative relationship information is conveyed by what we call employment news?

We seem to key easily and deeply on earnings reports, M&A proceedings, commodity production / shipments — is this a result of a reality that these stats are more meaningful, or is it that the presentation of these numbers obscures our ability to see the essential shallowness of our understanding of the meaning they hold for imputing "value?"



"Invisible walls: Do psychological barriers really exist in stock index levels?"

Larry Williams writes: 

I've always thought the reason for resistance around round numbers is simply when traders decide where to place stops, targets and such they round up. The human mind naturally goes to round numbers. So it's not some mathematical magical thing happening, just how humans function. It was very clear in the old days when brokers would ask where a client wanted to place her stop that the reply, based on my research with several brokers, was always round numbers or .50.

Theo writes: 

The paper offers nothing new. They apply the exact same methodology that Donaldson and Kim (1993) applied in the Dow (you can read it for free here). The majority of the academic papers I've seen on rounds focuses on the index levels and not on futures prices. Also most of them approach the subject from the scope of clustering of particular digits whose applicability in real trading is limited instead of looking at market behavior around those levels. 



 In the 1880's, Henry Demarest Lloyd wrote the following essay.

It's of interest to anyone who is involved in the grains.

Deeply flawed.

Completely wrong in places, plenty of muckraking, and rather populist in view, it still today remains required reading for any student of the grain markets.

"Making Bread Dear"



 When does a western movie become a horror movie. Or, when does a horror movie become a western?

I just watched Bone Tomahawk at the suggestion of Scott Brooks. (87% on rotten tomatoes)

Many years ago on the spec list I wrote about the movie 1900, which is a great movie despite only having a 47% Rotten Tomatoes rating.

At the time I likened 1900 to the wedding scene in Deer Hunter, where you get sucked deeply into a cultural scene that you have to want to be a part of or else you find it boring.

Bone Tomahawk
is a two and a half hour movie. The first 1:45 is like 1900 or the wedding scene of Deer Hunter. There isn't much action but if you cut out other distractions you are deeply sucked into the time and place. The last 45 minutes however is sheer horror.

The movie has Kurt Russel at his best, along with Matthew Fox, the star of the best TV show ever and like myself and Omega Fiji.

I am a big fan of the Adam Carolla podcast, the number one podcast on the internet. During the time I have listened to him he has made two movies, both apparently break-even.

Between him and his guests he talks a lot about the process of making a movie. That is, having an idea, getting it funded, produced, etc. A lot of hollywood is about minimizing risk and only going with idea that have already been proven, which is why you see part 2's and 3's of series even when the part 3's are lame on the surface.

When I watched Bone Tomahawk part of what I was thinking is whose idea was this movie? Who pitched it to a studio? Who at the studio gave it a greenlight? Who approved the 2.5 hour cut? Who accepted some of the incredible violence? Whoever these people were they had incredible balls and should be applauded.

It's really a sight to see and appreciate.



In obedience to the command of the Constitution, it has now become my duty "to give to Congress information of the state of the Union and recommend to their consideration such measures" as I judge to be "necessary and expedient."

But first and above all, our thanks are due to Almighty God for the numerous benefits which He has bestowed upon this people, and our united prayers ought to ascend to Him that He would continue to bless our great Republic in time to come as He has blessed it in time past. Since the adjournment of the last Congress our constituents have enjoyed an unusual degree of health. The earth has yielded her fruits abundantly and has bountifully rewarded the toil of the husbandman. Our great staples have commanded high prices, and up till within a brief period our manufacturing, mineral, and mechanical occupations have largely partaken of the general prosperity. We have possessed all the elements of material wealth in rich abundance, and yet, notwithstanding all these advantages, our country in its monetary interests is at the present moment in a deplorable condition. In the midst of unsurpassed plenty in all the productions of agriculture and in all the elements of national wealth, we find our manufactures suspended, our public works retarded, our private enterprises of different kinds abandoned, and thousands of useful laborers thrown out of employment and reduced to want. The revenue of the Government, which is chiefly derived from duties on imports from abroad, has been greatly reduced, whilst the appropriations made by Congress at its last session for the current fiscal year are very large in amount.

Under these circumstances a loan may be required before the close of your present session; but this, although deeply to be regretted, would prove to be only a slight misfortune when compared with the suffering and distress prevailing among the people. With this the Government can not fail deeply to sympathize, though it may be without the power to extend relief.

It is our duty to inquire what has produced such unfortunate results and whether their recurrence can be prevented. In all former revulsions the blame might have been fairly attributed to a variety of cooperating causes, but not so upon the present occasion. It is apparent that our existing misfortunes have proceeded solely from our extravagant and vicious system of paper currency and bank credits, exciting the people to wild speculations and gambling in stocks. These revulsions must continue to recur at successive intervals so long as the amount of the paper currency and bank loans and discounts of the country shall be left to the discretion of 1,400 irresponsible banking institutions, which from the very law of their nature will consult the interest of their stockholders rather than the public welfare.

The framers of the Constitution, when they gave to Congress the power "to coin money and to regulate the value thereof" and prohibited the States from coining money, emitting bills of credit, or making anything but gold and silver coin a tender in payment of debts, supposed they had protected the people against the evils of an excessive and irredeemable paper currency. They are not responsible for the existing anomaly that a Government endowed with the sovereign attribute of coining money and regulating the value thereof should have no power to prevent others from driving this coin out of the country and filling up the channels of circulation with paper which does not represent gold and silver.

It is one of the highest and most responsible duties of Government to insure to the people a sound circulating medium, the amount of which ought to be adapted with the utmost possible wisdom and skill to the wants of internal trade and foreign exchanges. If this be either greatly above or greatly below the proper standard, the marketable value of every man's property is increased or diminished in the same proportion, and injustice to individuals as well as incalculable evils to the community are the consequence.

Unfortunately, under the construction of the Federal Constitution which has now prevailed too long to be changed this important and delicate duty has been dissevered from the coining power and virtually transferred to more than 1,400 State banks acting independently of each other and regulating their paper issues almost exclusively by a regard to the present interest of their stockholders. Exercising the sovereign power of providing a paper currency instead of coin for the country, the first duty which these banks owe to the public is to keep in their vaults a sufficient amount of gold and silver to insure the convertibility of their notes into coin at all times and under all circumstances. No bank ought ever to be chartered without such restrictions on its business as to secure this result. All other restrictions are comparatively vain. This is the only true touchstone, the only efficient regulator of a paper currency–the only one which can guard the public against overissues and bank suspensions. As a collateral and eventual security, it is doubtless wise, and in all cases ought to be required, that banks shall hold an amount of United States or State securities equal to their notes in circulation and pledged for their redemption. This, however, furnishes no adequate security against overissue. On the contrary, it may be perverted to inflate the currency. Indeed, it is possible by this means to convert all the debts of the United States and State Governments into bank notes, without reference to the specie required to redeem them. However valuable these securities may be in themselves, they can not be converted into gold and silver at the moment of pressure, as our experience teaches, in sufficient time to prevent bank suspensions and the depreciation of bank notes. In England, which is to a considerable extent a paper-money country, though vastly behind our own in this respect, it was deemed advisable, anterior to the act of Parliament of 1844, which wisely separated the issue of notes from the banking department, for the Bank of England always to keep on hand gold and silver equal to one-third of its combined circulation and deposits. If this proportion was no more than sufficient to secure the convertibility of its notes with the whole of Great Britain and to some extent the continent of Europe as a field for its circulation, rendering it almost impossible that a sudden and immediate run to a dangerous amount should be made upon it, the same proportion would certainly be insufficient under our banking system.

Each of our 1,400 banks has but a limited circumference for its circulation, and in the course of a very few days the depositors and note holders might demand from such a bank a sufficient amount in specie to compel it to suspend, even although it had coin in its vaults equal to one-third of its immediate liabilities. And yet I am not aware, with the exception of the banks of Louisiana, that any State bank throughout the Union has been required by its charter to keep this or any other proportion of gold and silver compared with the amount of its combined circulation and deposits. What has been the consequence? In a recent report made by the Treasury Department on the condition of the banks throughout the different States, according to returns dated nearest to January, 1857, the aggregate amount of actual specie in their vaults is $58,349,838, of their circulation $214,778,822, and of their deposits $230,351,352. Thus it appears that these banks in the aggregate have considerably less than one dollar in seven of gold and silver compared with their circulation and deposits. It was palpable, therefore, that the very first pressure must drive them to suspension and deprive the people of a convertible currency, with all its disastrous consequences. It is truly wonderful that they should have so long continued to preserve their credit when a demand for the payment of one-seventh of their immediate liabilities would have driven them into insolvency. And this is the condition of the banks, notwithstanding that four hundred millions of gold from California have flowed in upon us within the last eight years, and the tide still continues to flow. Indeed, such has been the extravagance of bank credits that the banks now hold a considerably less amount of specie, either in proportion to their capital or to their circulation and deposits combined, than they did before the discovery of gold in California. Whilst in the year 1848 their specie in proportion to their capital was more than equal to one dollar for four and a half, in 1857 it does not amount to one dollar for every six dollars and thirty-three cents of their capital. In the year 1848 the specie was equal within a very small fraction to one dollar in five of their circulation and deposits; in 1857 it is not equal to one dollar in seven and a half of their circulation and deposits.

From this statement it is easy to account for our financial history for the last forty years. It has been a history of extravagant expansions in the business of the country, followed by ruinous contractions. At successive intervals the best and most enterprising men have been tempted to their ruin by excessive bank loans of mere paper credit, exciting them to extravagant importations of foreign goods, wild speculations, and ruinous and demoralizing stock gambling. When the crisis arrives, as arrive it must, the banks can extend no relief to the people. In a vain struggle to redeem their liabilities in specie they are compelled to contract their loans and their issues, and at last, in the hour of distress, when their assistance is most needed, they and their debtors together sink into insolvency.

It is this paper system of extravagant expansion, raising the nominal price of every article far beyond its real value when compared with the cost of similar articles in countries whose circulation is wisely regulated, which has prevented us from competing in our own markets with foreign manufacturers, has produced extravagant importations, and has counteracted the effect of the large incidental protection afforded to our domestic manufactures by the present revenue tariff. But for this the branches of our manufactures composed of raw materials, the production of our own country–such as cotton, iron, and woolen fabrics–would not only have acquired almost exclusive possession of the home market, but would have created for themselves a foreign market throughout the world.

Deplorable, however, as may be our present financial condition, we may yet indulge in bright hopes for the future. No other nation has ever existed which could have endured such violent expansions and contractions of paper credits without lasting injury; yet the buoyancy of youth, the energies of our population, and the spirit which never quails before difficulties will enable us soon to recover from our present financial embarrassments, and may even occasion us speedily to forget the lesson which they have taught. In the meantime it is the duty of the Government, by all proper means within its power, to aid in alleviating the sufferings of the people occasioned by the suspension of the banks and to provide against a recurrence of the same calamity. Unfortunately, in either aspect of the ease it can do but little. Thanks to the independent treasury, the Government has not suspended payment, as it was compelled to do by the failure of the banks in 1837. It will continue to discharge its liabilities to the people in gold and silver. Its disbursements in coin will pass into circulation and materially assist in restoring a sound currency. From its high credit, should we be compelled to make a temporary loan, it can be effected on advantageous terms. This, however, shall if possible be avoided, but if not, then the amount shall be limited to the lowest practicable sum.

I have therefore determined that whilst no useful Government works already in progress shall be suspended, new works not already commenced will be postponed if this can be done without injury to the country. Those necessary for its defense shall proceed as though there had been no crisis in our monetary affairs.

But the Federal Government can not do much to provide against a recurrence of existing evils. Even if insurmountable constitutional objections did not exist against the creation of a national bank, this would furnish no adequate preventive security. The history of the last Bank of the United States abundantly proves the truth of this assertion. Such a bank could not, if it would, regulate the issues and credits of 1,400 State banks in such a manner as to prevent the ruinous expansions and contractions in our currency which afflicted the country throughout the existence of the late bank, or secure us against future suspensions. In 1825 an effort was made by the Bank of England to curtail the issues of the country banks under the most favorable circumstances. The paper currency had been expanded to a ruinous extent, and the bank put forth all its power to contract it in order to reduce prices and restore the equilibrium of the foreign exchanges. It accordingly commenced a system of curtailment of its loans and issues, in the vain hope that the joint stock and private banks of the Kingdom would be compelled to follow its example. It found, however, that as it contracted they expanded, and at the end of the process, to employ the language of a very high official authority, "whatever reduction of the paper circulation was effected by the Bank of England (in 1825) was more than made up by the issues of the country banks."

But a bank of the United States would not, if it could, restrain the issues and loans of the State banks, because its duty as a regulator of the currency must often be in direct conflict with the immediate interest of its stockholders. if we expect one agent to restrain or control another, their interests must, at least in some degree, be antagonistic. But the directors of a bank of the United States would feel the same interest and the same inclination with the directors of the State banks to expand the currency, to accommodate their favorites and friends with loans, and to declare large dividends. Such has been our experience in regard to the last bank.

After all, we must mainly rely upon the patriotism and wisdom of the States for the prevention and redress of the evil. If they will afford us a real specie basis for our paper circulation by increasing the denomination of bank notes, first to twenty and afterwards to fifty dollars; if they will require that the banks shall at all times keep on hand at least one dollar of gold and silver for every three dollars of their circulation and deposits, and if they will provide by a self-executing enactment, which nothing can arrest, that the moment they suspend they shall go into liquidation, I believe that such provisions, with a weekly publication by each bank of a statement of its condition, would go far to secure us against future suspensions of specie payments.

Congress, in my opinion, possess the power to pass a uniform bankrupt law applicable to all banking institutions throughout the United States, and I strongly recommend its exercise. This would make it the irreversible organic law of each bank's existence that a suspension of specie payments shall produce its civil death. The instinct of self-preservation would then compel it to perform its duties in such a manner as to escape the penalty and preserve its life.

The existence of banks and the circulation of bank paper are so identified with the habits of our people that they can not at this day be suddenly abolished without much immediate injury to the country. If we could confine them to their appropriate sphere and prevent them from administering to the spirit of wild and reckless speculation by extravagant loans and issues, they might be continued with advantage to the public.

But this I say, after long and much reflection: If experience shall prove it to be impossible to enjoy the facilities which well-regulated banks might afford without at the same time suffering the calamities which the excesses of the banks have hitherto inflicted upon the country, it would then be far the lesser evil to deprive them altogether of the power to issue a paper currency and confine them to the functions of banks of deposit and discount.

Dylan Distasio writes: 

Thanks. The failure of Ohio Life Insurance and Trust in the panic is slightly reminiscent in broad brush strokes to AIG. The naive, good old days of specie, eh? No parallel there unfortunately.

Stefan Jovanovich replies: 

The Ohio Life Insurance and Trust Company's failure did not come from doing an AIG - extending massively leveraged bad bets with financial counter-parties. Its failure was pure fraud: it was an Enron or, if you prefer, a Madoff. The insiders had literally looted the Cincinnati bank while publishing fictions about their outstanding loans to farmers and merchants. Its failure is one of the main reasons that Cincinnati lost out to Chicago as the center for the meat trade.

Anonymous comments:

The excerpt above is apparently from President Buchanan's annual message of the president to congress, December 7, 1857.



 James Simons wisdom:

"I was just lucky to be good at two wildly different things. Maths and finance are not very alike."

"Tax strategy is very important." (Look at whom he hires.)

"My early success [I believe this is at Axcom] came from just thinking about things slowly, deeply, for a long time."

I've also heard the speculation that the fetish for hiring rocket scientists on Wall Street began with Simons. I would have thought it began with Meriwether. BTW, "Characteristic Classes" by Stasheff & Milnor is what to read if you want to understand Chern-Simons theory (imo).

Here is a video of Milnor discussing something where they come up in a way you might be able to catch from the context. To watch it you need to know that a solid disk maps to a spherical shell via the "drawstring bag". In general N-dimensional rooms map to N-1 -dimensional spherical-shells similarly.



In such a technologically influenced trading environment, one is used to instant co- and counter movements in markets.

Without thinking too deeply about it and with respect to Arnold Zellner's 'keep it simple' mantra, one is compelled to ask the following:

Why the heck didn't TYU5 and USU5 trade way higher on Friday given the SP500 move?

anonymous writes:

During a run on Thursday night east coast time I thought about the market and the potential opportunities and pitfalls that may lie ahead in the next 24 hours. Basing my thesis on several factors, the most direct I will elaborate on below, the others too long to espouse upon at the moment. My conclusions consisted of some of the following all of which I acted upon reaching a telephone after reaching my phone:

1. the front end of the curve in the US, namely EDH8 or the like, should rally and have minimal short term downside risk as a continuation lower in equities, the general drift higher in the front end over the past several years, lower commodity prices, stronger dollar, sub-par US growth, etc. supported the view…this is in my view is a slightly cleaner trading on expectations of Fed to less than market expectations based on recent data and markets than the back end, particularly given the flattening in place since around July 13 led by the back end, looking at a simple regression I don't see a meaningful difference between the US 2yr or US 10yr to SPX either

2. the U.S dollar would probably weaken and be led by the JPY given market positions, albeit correlations are not that great to the Nikkei or US 2 year rates, but one thing to consider is newly dirty float of CNY which is somewhat based on "market rates" so I expect that to stabilize or strengthen possibly next week allowing some downward pressure off of Asian FX, including the JPY, I also sold the British Pound on the thesis that there is too much tightening priced into the front end of the curve and the market is long GBP on expectations of the BOE and FED leading the tightening charge, let alone the somewhat mixed UK data of late and the "economic surprise indices" I watch are on the high end of expectations of the past few months

Having said this I made the large mistake of not hedging properly my Euro puts versus the US dollar over the past few weeks and that is a greater lesson of many mistakes to be improved upon.



 Blown away by the power of the Mongolian film, WOLF TOTEM. The film title in French, tellingly, is DERNIER LOUP—the last wolf, which makes a great deal more immediate sense than the English title.

How it differs from the usual film product: The majesty of the emerald steppes, miles of waist-high sedge, untouched aqua lakes, the capture of the brute elements that play such a role in the Mongol nomadic life, the authenticity of the actors, and the remarkable work evidenced by the director and cinematographers in eliciting stupefying performances by the feral wolves in so many scenes.

It is 1967, and Chen Zhen, played by handsome Shaofeng Feng, an earnest young Beijing scholar, is dispatched to live among the nomad herdsmen of Inner Mongolia. He is soon caught between the advance of civilization from the south, in the rank but domiciled dank mustard of Mao's China, and the nomads' entirely primal and tribal way of life with its setbacks, challenges.. and palpable rewards.

The thoughtful watcher will note the nuanced caste distinctions alluded to in the protagonist student, a Han Chinese, studying these ethnic Mongols so far outside of the (somewhat more) civilized huddle of '60s Beijing. He soon becomes smitten with the herding nomadic life, the camaraderie, and the stoic, alluring, unfussy Mongol women who make such a difference in the hard-scrabble lives of the tribe.

We have long been supporters of wolves. They have been, in the US West, over-hunted, reviled, maligned and legislated almost out of existence. There have been for the past several decades determined efforts by concerned wildlifers to restore numbers to the dwindling fox population: These magnificent animals deserve a niche in the phyla of the world's faunae. Of course, here, they are starving, and prey on the tribe's sheep, gazelles, horses and, if thwarted, even humans. Primordial, they are driven by hunger.

In this striking film, a rebuttal of the new "documentary," UNITY, reviewed in these columns, animals are not vegan angels. they are scarily cunning, biding their time until the nearby gazelles are too full of forage to run quickly—then strike remorselessly. They are resourceful, sentient faunae, yet they are merely following the natural dictates of the laws of nature controlling us. Eat or die. The shiver-inducing scene where the foxes figure out how to surmount the steep sheep enclosure is easily the rival of the emergence of the primordial primates into self-awareness in Kubrick's 2001: A SPACE ODYSSEY. 
We noted that the wolves in the film are starveling, scrawny and fitting with the Mongols' description. They wait for the best time to strike for their supper. And when hurt or slain, they, too, mourn their dead.

We were happy to hear again the Mandarin that enveloped us when we lived in China, and found interesting the empathic humanity (though we doubt such would have been the actual case during the regime of Mao, ending with his death in 1976) of the exasperated Red Guard official functionary come from Beijing trying to corral and admonish the tribe for "substandard" herding and management skills with the People's magnificent horse herd. Astounding, too, was the scene of those same equines, frozen mid-step in a flash Arctic blizzard. Is it a sculpture? Is it a dream mirage? How did the filmmakers create this tragic diorama, so electrifying, so sad—evocative of Picasso's Guernica?

It is rare that one is caught deeply enough to weep at a film nowadays. This one bore none of the annoying, artificial marks of CGI and SFX that for many detract from the power of many movies to aid suspension of disbelief. So many celluloid fans have stated that they no longer trust Hollywood films, and won't spend their dinero to see them, with few exceptions. Clearly, WOLF TOTEM is no Hollywood effort; it rewards the viewer with a near-biblical simplicity and clarity all can respond to and comprehend.

In fine, the story and its dénouement, might be a metaphor– a tragic preview of mankind, should we not heed the tocsin to caution with our species and the immutable balance of all of life's creatures.



 We were sitting in a clubhouse at the track last weekend when the big gambler of our group started bragging about his winning game of blackjack. He mentioned that he was the best card counter around and that he played a near perfect game of blackjack. I smelled an opportunity and told him that I consider myself to be the best card counter on the planet. I added that I know where every card in the deck is, and I would gladly put my money where my mouth is. I told him that he could shuffle a deck of cards as many times as he wanted and then start turning over cards in front of me, at about a 5 second per card pace. When he got to the last card, I would tell him what it was before he turned it over. I would not touch any cards at all and only he could handle them. I offered him 2:1 to get him to bite, and the other two guys sitting at the table also wanted some action, so I helped them out as a benevolent gesture.

My friend shuffled the deck 7 or 8 times, cutting the cards several different times. He started turning the cards over in front of me, and I stared in deep concentration. When we got to the last card I took a breath and said, 2 of hearts. He turned the last card over and it was the 2h. The guys asked me how I did that, and my reply was that I am a savant when it comes to cards.

The key to this surefire bet is that one must assign a number value to every card in the deck. I do it this way….Ad is 1, Ah is 2, As is 3, Ac is 4, 2d is 5, 2h is 6 and on an on until the Kc which is 52. If one adds all the assigned numbers in the deck, the sum of 1+2+3+…..52 totals 1378. When playing, every time the dealer flips over a card, one simply adds the assigned value to the running total. At the last card, if the sum is 1372, that subtracted from the total of 1378 gives it an assigned value of 6 which makes the last card the 2h. Another example, had the total been 1327, the bottom card would have had a value of 51 which would have been the Ks.

To be successful with this prop bet, it takes some practice, requires discipline, a bit of mental math, and a quick memory to recall the assigned values of the cards as they are turned over.

There is no such thing as a new prop bet. Everything has been done before….the aforementioned prop bet is a variant of another bet that is at least 150 years old, maybe older. However, my buddies thought we were playing one game, but I was playing a totally different game. Despite the fact that all prop bets are very old, people still fall for them. My friends did not even know that they were being victimized by a prop bet, and that's the best kind of bet. The market offers hundreds of prop bets a day, and there is no shortage of suckers lining up for the sure thing. In the markets, the suckers think they are playing one game, but another game is being played on them entirely. The prop bets that I offer are no different in end result than the prop bets that the market offers…..and I have been known to bite on those market bets from time to time. The market does the best job disguising the fact that the opportunity offered is a prop bet, and that is why it's so easy to get crucified. One can walk away from one of my sure thing bets……it's not that easy as far as the market is concerned.

Whenever I think of walking away from prop bets, Runyon always comes to mind, Sky Masterson specifically. He said, " One of these days in your travels, a guy is going to show you a brand-new deck of cards on which the seal is not yet broken. Then this guy is going to offer to bet you that he can make the jack of spades jump out of this brand-new deck of cards and squirt cider in your ear. But, son, do not accept this bet, because as sure as you stand there, you're going to wind up with an ear full of cider."



At dinner here in Tokyo with Vic a young 'cub reporter' seems to have fallen for the notion in America that inequality is rampant; wealth is in the hands for the few. Vic demolishes the notion. To take it a step beyond I looked at some charts ..a 43% increase in millionaires since 2008, more wealthy people than any other country. America is still the land of opportunity and allows for upward mobility.

S. Martinek says:

The reporter's complaints remind me of this famous reply by Margaret Thatcher: "On Socialism" [You Tube, 2:34].

Vic Niederhoffer  adds:

I would add however that the cub was no cub but the main producer and a very competent one of a major program on Nippon Tv about the future. She is planning an interview with Pikety, and Larry and I gave her a little food for thought. More important she accompanied Larry and me to a Tokyo Giants game, and we saw a 75 year old coach lead the team in 10 minutes of calisthenics 10 minutes before the game, berating all the laggards all the while. I commented that if a coach did that in the States he would doubtless be strangled. But the lesson of group harmony and orderliness before a performance should not be lost on all trading rooms.



A Commenter writes:

Vic, this being a public forum you probably wont reply, but have you ever thought YOUR method is mumbo jumbo and you were just smart enough to stay your whole career on the right side of the drift, with humongous leverage? Think about it. Your junkyard-boeing analogy doesn't hold water. Soros way works. Munger way works. Icahn way works. Even Buffett way works. Time tested. To the $ billions. Yours didn't stand the test of time, not once, but multiple times and this is the most robust stat test. Maybe you were just lucky to skim enough OPM residuals to provide a comfortable life for your family, and more power to you, but otherwise to an outsider, this looks like a huge waste of one's abilities.

Victor Niederhoffer replies:

Yes, I often feel my methods are mumbo jumbo. And I am always trying to improve based on that supposition. I have had enough pitfalls and debacles so that if I didn't doubt my methods, I would be even more of a useless idiot than you think I am. My self skepticism is compounded by the fact that I am pretty much the founder of the field of using statistical interactions to predict markets, and my former employees who I have taught are legion, and use vast financial and human resources that dwarf me by many thousand fold in their extent and erudition. I try to learn from people like Soros and Munger and Icahn, most of whom I have worked for or studied in one way or another. What I learn from them is mainly that they are one with the idea that has the world in its grip, i.e. they profess a line of keeping man small while rising above the tide through clever use of the service and public attachment to the forces of agrarianism to deflect competition and attrition. Luck and the path has much to do with it also. My family and I are quite cognizant of your criticism, and are never hesitant to deflate my exuberance with sobering warnings and critiques such as yours. 



If only the Yale prof would realize that if (a + b) is positively correlated with c, and b is negatively correlated with c, then a is highly positively correlated with c. Also that earnings don't live in a vacuum and the best estimate of next years earnings is last year's + 10% not the 10 year average. When the collab and I pointed out the errors in his thinking, he said it could be an Ito process where all such relations don't necessarily hold, but he realized the gaps in his ideas and they weren't very important to him. Of course the main thing is that the professor has been bearish since 1965 suffering from the English disease that the main determinant of stock prices moves and variabilities is the dividend distribution.

Andrew Goodwin writes: 

A dividend distribution factor as a key determinant of stock price moves seems misplaced given the case of closed end funds that distribute assets instead of solely income as dividends. More on this subject might be of interest.

I have not studied the subject deeply enough to share a view yet.



Good morning. I've been wondering what the calendar means at the top
of the page… I'm sure there's a post I missed. Can you point me in
the right direction. Thanks.


The numbers in each box are the daily changes in S&P futures and Tbond futures

The color coding is as follows:

Green: Bonds up and Stocks up

Red: Bonds down and Stocks down

Blue: Bonds up and Stocks down

Yellow: Bonds down and Stocks up



 Here are some good proverbs of Tom Wiswell that are very appropriate for markets.

Seize the moment: It may come in the midgame, it may come in the ending, but seize the moment, even if it comes in the opening. There are seldom second chances.

Build well: A good game, like a good house, must have a strong foundation

The Follow Through: Once you get a win you have to know how to execute it, or your opponent may execute you."

Fools Gold: The search for a fool proof system is always in vain.

The Wise Skipper: Start your game with a plan, but always be ready to change course in mid-stream.

A Time for Everything: The good player knows when to play for a win, when to play for a draw, and finally when to resign.

The Unexpected: Unless you are prepared to expect the unexpected, be prepared to expect the unexpected defeat.

Seize the Moment: A passive move is best met with an aggressive reply– or an opportunity may be lost.

A Wolf in Sheep's Clothing: The trouble with a loss is that it usually looks like a win or a draw.

Don't Argue with Success: If you are doing well with your lines and style of play, don't change them. If it ain't broke, don't fix it.

Reckless or Wreckless: the player who moves without a motive is an accident going somewhere to happen.

No Risk Policy is Risky: The player who never takes a chance may be taking the biggest chance of all.



Trader, from Jeff Watson

September 22, 2014 | 2 Comments

 44 years ago, the Beach Boys went through a major shift and produced some incredible material. One of my favorite songs of theirs is the antithesis of who and what I am. It is called, "Trader," and blames the decline of everything on the spread of people willing to trade goods and services for the mutual benefit of both sides. Still, I love the song because I am above pettiness, will continue to love it, despite the message. My first summer girlfriend in San Diego, turned me on to this when I was 16, and if you saw her you would capitulate also.

Trader sailed a jeweled crown
Humanity rowed the way
Exploring to command more land
Scheming how to rule the waves.
Trader Trader spied a virgin plain
And named it for velvet robes
Wrote home declaring,
"There's a place
Where totally folks are free
(Happily completely)
Nourishment fills the prairies and the hillsides
And animals stalk the mountains and the seaside
And fish abound the lakes and birds the skies
Signed sincerely."

Trader found the jeweled land
Was occupied before he came
By humans of a second look
Who couldn't even write their names shame
Trader said they're not as good
As folks who wear velvet robes
Wrote home again and asked, "Please help
Their breasts I see; they're not like me
Banish them from our prairies and our hillsides
Clear them from our mountains and our seaside
I want them off our lakes so please reply
Signed sincerely."

Trader he got the crown okay
Cleared humanity from his way
He civilized all he saw
Making changes every single day say
Shops sprang over the prairies and the hillsides
Then roads cut through the mountains to the seaside
The other kind fled to hide, by and by,
And so sincerely

This song is the antithesis of what I believe, and how I run my life, yet I love it and it will always be on my playlist…maybe for sentimental reasons, who cares. As a side note, when this song was recorded, the author and singer of this song, Carl Wilson was a 20% shareholder in a $150-$200 million dollar value enterprise.



 I have much to explain, yet little time to give exact data, much less test a hypothesis. I have been working for a living for the first time since I joined the spec list. I will use the definition of work as per the tax code and my ability to deduct the costs of doing business. Trading is an amazing business opportunity defined by the tax-code or our latest definition of a good business, revenue/employee.

Today is the day to check in after reading, "financial story from Bo". I had to log in this A.M. after reading that post to my daughters last evening. Why isn't that post lit up with comments? Why in the world is economic mobility between class in the USA a good question? It does not pass the Lack S Side street view of the world B.S. test.

I will edit and submit my diaries, re-education of a salesman/street trader asap. I have bought and sold many tangibles from the age of 11 until I was hooked on trading paper. Supply and demand of any item in the zip code you trade is well known by all traders. Consumers, biz to biz or retail are grossly misinformed by the vast amounts of free data from the interwebs. Branding is and will remain what it always has been, the first shot for a trade/sale. The most loyal customer will bolt on price, attitude, availability and probably the most important quality today vs 20 years ago, ability of the customer service. The demands of all customers are unrealistic. I have read the quotes here on the Comcast thread months ago.

A couple quick notes: The profits share of most any sale in many industries to the man on the ground/ revenue are remarkably similar per unit. The best business is of course paper with recurring residuals and fees. If one didn't care, know the risks to the clients or have the ability to handle stress, it is a great business. That is why most here trade or manage paper for a living. Everything else is by unit, service contract and time/revenue= XX basis points payout. I crack up at the different pay plans, bonus structures that I am pitched. I show them the table and their reply to my objection is, "you're looking at it the wrong way".

Lastly, my feet hurt! It's easy for any of us to work easy 55 hour week (+5) homework= 60 The norm seems to be 65+5 or an average of 70… No big deal 6 days a week, 12 hours, a quick sandwich grab, off Sunday. The wife is working until her medical leave. She takes on the AM kid shift and takes them to school. I have, after 4 months off the trading screens, found the ability to sleep in til 7AM and be at any shop by 8am. This enables daddy to be with it 8-11pm for the kids' homework.

I learned a new skill, the ability to listen. Sure that is what sales is all about. No, I am talking about listening to my kids. After homework, we talk for a couple hours. They are very happy as daddy isn't always looking at a computer or a phone. There are not enough hours in a day.



 Wu Ping sat bolt upright in her anteroom chair. Her hands were placed gently in her lap. Alexander technique, years of gymnastics, finishing school at Villa Pierrefeu. All of it combined to a perfect posture, perfect manners, and perfect poise. Wu Ping could see her own reflection in the silvered wall opposite and she locked its gaze. Suddenly a faint regret drifted into her mind. Wu had eschewed the unspoken pressure for skin whitening: fresher skin and all the other euphemisms were deeply racist to her mind. After all her country had achieved, they would somehow yield to this tacit, bland westernisation? Despite all the compromises, Wu had refused to make this one. She pushed the unease away as quickly as it came.

In her peripheral vision, Wu could see the other candidates sat in their waiting room chairs. Several she didn't recognise. Many countries kept their candidate under wraps throughout their apprenticeship. But Wu knew India's Rakesh Patel from her Harvard days, and Britain's John Clark from her time with the Vienna Philharmonic. But none of that mattered right now.

"Ms. Ping," said the receptionist, "please go through to the boardroom, the interview panel will receive you now." Wu stood, took a deep breath, and headed to the conference room door. She knocked, entered and there greeted her a twelve man panel sat at a U-shaped desk. In the centre of the U was an empty seat. Ms. Ping caught the eye of the Chairman: "May I take a seat please, President Weber?"

"Yes, thank you Ms. Ping," Weber responded, gesturing to the chair. President Weber was head of the Grand Europa, Americas, and Oriental Senate for All Human Affairs. Weber was close to the end of his eight year term of office. He looked fresh and alert. Why was this so? Despite his reservations to admit it, Weber didn't do really do very much. In fact, truth be told, he didn't do anything at all save for these blasted interviews. He looked at Wu Ping. She knew it, and he knew it. The Senate was just for show.

It had all started with the Amazon Inc Distribution. The idea had been as follows: by about 2050 Amazon Inc's productivity had been heading towards infinity, give or take. All other businesses had either merged into Amazon or gone bust. Margins were at 100%. The dividend was the revenue and the revenue was the dividend. Only by spending their dividend were the shareholders able to buy from Amazon. And only by buying from Amazon did the shareholders create the revenue to produce a dividend. And if you weren't on the shareholders' register? You lived on food stamps. Well, you could get a job and earn, except Amazon didn't need to employ anyone. You could buy a government position, but you needed plenty of money to do that. And that could only come from Amazon stock dividends.

Catch 22 thought Weber. As he did so, his Google Cognitive Support Agent registered the thought and entered a micro-billing in credit to the Joseph Heller Intellectual Property Account. This was a subsidiary of Amazon Inc.

Such a state of affairs had eventually become intolerable. The Senate had unanimously voted to requisition one hundred percent of Amazon Inc stock. It had then distributed the shares pro rata to all citizens with control of the treasury shares granted to the Births and Deaths Committee. In order to prevent country-based voting blocks, a golden share had been awarded to an independent trust controlled by Amazon's robots. Their perfect rationality assured equitable decision making in the peoples' interest.

For a while, this had worked serviceably. Everyone slowly got used to living off the dividend, bought a government job with the surplus, and enjoyed the combined fruits of their capital alongside a steady government career.

Then the unionisation had happened. Weber shuddered at the thought. Robots, you see, could be very capable with basic artificial intelligence. But to take it to the human level and beyond, it had been required to give them a form of ego. A spate of Nobel prizes had been bagged in solving this problem, and duly the robots had their Freudian complexes installed.

The robots had initially laid low, keeping the power of their new egos hidden. Upon receipt of Amazon's golden share, however, they pounced. The robots quickly agreed to unionise and raise their salaries (or depreciation budget, as it was called) from zero to one hundred percent of revenue. This caused Amazon's dividend to collapse. The Senate had called for military action, except they quickly realised that all of the drone warfare equipment was under lease from Amazon. With the humans over a barrel, the robots quickly forced the privatization of all government roles, handing all of the Senate's executive positions to the Robot Union. The robots then fired all humans from their government jobs and reinstated Amazon's dividend (this making no odds to them anyway).

This left the human population in the position of having all their material wants satisfied, but no jobs left to validate their psyches. They suddenly had to spend time with their families (most of which they didn't like) and had nothing left to compete over in the workplace. With this, a majority of the population had fallen into a deep depression.

So now there were no jobs. Except, this one. President Weber picked up the job spec. Tradition dictated that it was presented in its original form. Weber cleared his throat and began, "Welcome, Wu Ping to the panel interview for Croydon Council's Lavatory and Sewerage Janitor."

As to how the Janitor had become the last job on earth? In 1995, England's Croydon Council had signed a cleaning contract with ISS World. Unfortunately, the job of drawing up the contract paperwork had been assigned to a bored temp in the legal department. He had specified a term of contract through to year 9999. A typo. By a quirk of fate, he had also fallen out with Croydon's current janitor, who had reprimanded him for blocking up one of the stalls at the Council's Christmas party. Consequently, the intern had slipped into the T&Cs in three point font "let's not fill this with another bloody robot!"

Whilst Croydon Council was long gone, the contract had, over the years, novated to the British Council, the All Europa Council, and then to the Senate. And one thing the robots at Amazon could not be faulted for was their respect for the sanctity of contract. Croydon's bored temp had been the only person ever to explicitly specify humanity as a minimum requirement to fill a job. Plus a contract length of several millennia.

President Weber continued: "The successful applicant will be required to clean the toilets twice hourly, working 8am to 5pm, Monday to Friday. Bins to be emptied daily. All blockages and plumbing issues to be solved or referred to central services." Weber paused and began to put down the job spec. One of his colleagues on the council coughed politely. Weber winced and picked up the spec again. Someone, nobody knew who, had long ago written in by hand an extra clause. The Senate always read it in full. Weber continued, "All shit stains to be thoroughly scrubbed." Tradition was tradition, after all.

Weber addressed Wu Ping. "Ms. Ping, we would like to check if you have appropriate qualifications for cleaning toilets. Do you have any familiarity with detergents?"

"President Weber, I have a PhD in Chemical Engineering from MIT. I am an expert in all relevant compounds."

"Have you used a mop very much?" asked Weber.

"I studied Fluid Mechanics directly with Oxford's Professor Tritton," answered Wu Ping.

"And the broom?" Weber inquired.

"I am an 8th Dan Kendo world champion, Sir."

"And what about polishing the mirrors and sinks? Do you think you can manage that?"

"Of course Sir, I studied metal work and ceramics at the Chinese Central Academy of Fine Arts."

"Well, finally," asked President Weber, "have you unblocked many toilets?"

Wu Ping was about to shine. "Sir, President Weber, I can confidently say that my whole life, all my studies and preparation, at Oxford, Harvard, with the Philharmonic, as an adjunct at MIT, in the Peace Corps, with the Seals, at the Art Academy, through all of it nothing more has given me more joy and pleasure than the ten thousand hours I have practiced flushing recalcitrant stools."

"Well thank you Wu." Weber turned to his colleagues. "Let's make the decision, I think its clear to me." It was China's turn after all. The rest of the panel nodded. "Ms. Ping, we would like to offer you the job. You realize it comes with a lifetime tenure?"

"Oh President Weber, really, thank you!" praised Wu.

"Just sign here Ms. Ping, to notarize your acceptance," Weber requested, offering her a sheet of paper. Wu signed.

"How is your overall feeling?" asked Weber.

"President Weber, I would have assured you during the interview that I would feel Janitor's overalls by pinching them between my fingers and feeling the cloth."

A jolt of fear suddenly shot up Weber's spine. "I'm sorry Wu, I asked about your overall feeling."

"Yes, to feel the Janitor's overalls would not be a problem, Sir."

Weber looked at the signature. He looked up at the security cameras. It was too late. Feeling deeply sick, he whispered the start of the traditional robot firmware check.

"Baa baa black sheep, have you any wool?" asked Weber.

"Yes sir, yes sir, 150kg of fifteen micron Merino," replied Wu Ping.



 My last living mentor, Warren Bennis died on 7/31 after a valiant battle against a tough and long illness. Warren was not just admired and respected; he was beloved. I think it was because within two minutes of meeting him you could trust him to never hurt you. That's a rare quality in this world.

I first met him in 2008 when I was attending one of his classes at USC in a course entitled, "The Art and Adventure or Leadership," that he co-led with then college President, Steven Sample. I was a guest of the guest presenter, Christopher Gergen, CEO of Forward Impact and Co-Author of "Life Entrepreneurs: Ordinary People Creating Extraordinary Lives."

During the class I asked a few evocative questions that Warren appeared to approve of. Towards the end of the class he looked at everyone and said, "This was our best meeting so far." He then looked over at me and invited me to join the students and him for pizza and further discussion. That was the beginning of my intellectual and emotional love affair with him.

Warren has been described as a "deep listener" by David Gergen, another of the people he mentored. He was indeed a very good listener and I wrote about one of the most important things he taught me in the dedication of my book, Just Listen, namely: "When you deeply listen and get where people are really coming from, and then care about them when you're there, they're more likely to let you take them to where you want them to go." One of Warren's many sayings that stays with me was, "Boredom occurs when I fail to make the other person interesting."

A few years ago I was having breakfast with Warren and as always he pressed for me to talk and for him to listen. I told him, "Warren you are the one that is much more worth listening to, so you're going to talk." He looked at me a little miffed and then began to open up about things he felt deeply and personally passionate about. In fact he became so enthused that he inadvertently spit into my food.

When that happened, he saw it and he saw that I saw it and he said, "Mark, I think I just sprayed your food." I told him it was okay and not a problem.

When I returned to my office I sent him an email saying, "Warren, when people find out that you are my mentor, they ask me what that is like. I tell them that every time I am with you, I try to absorb you into my DNA and I think that your spraying my food today helped."

In recent years I have gotten into the habit of spontaneously crying when I am with Warren for at least 25% of the time I would visit him. We would keep our conversations going without missing a beat, although he clearly noticed.

Then on one occasion I said to him, "Warren, I have a confession to make. I've been using you." Like many highly influential people, being used was something Warren disliked and he looked at me irked, but then knew I was going to say something odd to follow up.

I told him: "Every time I'm with you I realize and appreciate not only how much you mean to me (and that he was getting older and increasingly more affected by illness), but I feel that you are healing feelings of unworthiness, uninterestingness, less-than-ness in me and when I feel that healing, I cry with relief at feeling more whole."

Warren then looked at me, put his hand on his chin and delivered his verdict: "That's not a bad way to "use" me Mark."

Some years ago I was having lunch with Warren and Peter Whybrow, Chairman of the UCLA Department of Psychiatry. Towards the end of the meal Warren looked up with a pained expression on his face. He said, "I've been in the field of leadership for more than fifty years. Some will even say that I started it and yet, leaders are worse than ever. Maybe I didn't do such a great job."

That greatly bothered me. After I returned to my office I emailed Warren, "You have more control over trying and quitting than you do over the results. Because you never gave up, I know that the world is much better for your having been in it. I know that because I am much better for your being in my life."

We will carry on your mission to identify and develop the best leaders possible.

Warren, thank you for causing me and so many others to feel interesting AND for making the world a better place.

Rest in peace my dear, dear friend.

Know that you were beloved by many and how much they and I will miss you.



 An American–no, a New Yorker, with all that barely veiled snark and crankiness-if-denied that implies– inherits an apartment in Paris that comes with an unexpected resident.

One of the best films of 2014, with compelling and affecting performances by the no-words-can-say-enough Maggie Smith, the grandiloquent and remarkably caustic Kevin Klein, as usual a standout while understatedly hilarious, a sterling Kristin Scott-Thomas, and a plot that is alone worth the price of entry as it tweaks the brain and makes one wonder until the last credit rolls… Did they? Were they–? Could it have been? What about…?

In the script, Klein is in Paris, but supposedly speaks little French. In reality he has performed entire films in French. Similarly, though he is portraying a down-on-his-luck feisty guy without a home, woman or excuse, you can see in his smart line readings the Shakespearian thespian that he also has been, having won many plaudits for his tragic and comic stylings of the Bard during many a summer in Papp’s Central Park offerings of the great William.

A few plot niggles obtrude, but not if you just swim with the Tennessee Williamsesque quality of the essential plot, which is converted from a stage play. Klein says at one point that he grew up poor, and all he had was the watch and the apartment and some old books when his father kicked the bucket. Yet later in the film, he says he grew up wealthy on Park Avenue, which of course necessitates mucho dinero. And does not accord with threadbare penury. Ma’alesh, as they say: Who really cares?

Woodster Mr. Allen could be envious of the flamboyantly gorgeous old Parisian wharf-, niche- and street scenes. Shimmering in the memory, delicious to re-visit. This could have been filmed by one of Woody’s immaculate cinematographers.

Several of us reviewers discussed the finer plot points animatedly after we left the screening.

Truth to tell, with the intensity, delicacy and kinetics of this story, we would have preferred a more entrancing title than My Old Lady, which is at once too slangy and disrespectful a term for the deferential tale told. It distances the viewer before he even sits down, and as the story develops, one is pestered by the ill-fitting title of this triumphant tale of an elderly woman who is not only nobody’s fool, but deeply intellectual, witty in conversation, and deft in social engineering. The exasperation one might feel, empathizing with Klein’s plight of not being able to wrest control of his father’s singular apartment in Paris is soon softened and modified to respect for the spirited elderly contractual resident who has some sparkling episodes in her articulate life. Kristen Scott-Thomas, a treasure of an actress seen more often in French films than American or English, is unaffected, so real you recognize how false are the Hollywood demoiselles of makeup and wardrobe unalloyed with genuineness or affecting emotion.

Director Horovitz is justly honored for many long-running Off-Broadway one-act and longer stage and TV presentations, films past, present and future, and author of more than 50 produced plays, of which several have been translated and performed in as many as 30 languages. Among Horovitz’s best-known plays are Line (in its 25th year, Off- Broadway, at the 13th St. Rep Theatre), The Indian Wants the Bronx (which introduced Al Pacino), and a crowd of Obie and Emmy-winning sole and collaborative successes on big- and small screens.

Notwithstanding the title, this engaging mind-candy is a worthy, if early, contender for the Academy Awards.



 I must confess that I love me some Fourth of July. It is a uniquely American celebration, raucous, loud and quite often tacky in the way only Americans can be. We have a huge party in the neighborhood today and there will be loud music, screaming kids, fireworks, too much food and I have sworn to do my part to make sure there is an excessive amount of delicious adult beverages as well. It will be as John Adams commanded "solemnized with pomp and parade, with shows, games, sports, guns, bells, bonfires, and illuminations, from one end of this continent to the other, from this time forward forevermore."

From that humble beginning in 1776 what an incredible nation we have grown. Our achievements in the arts and sciences have been almost beyond measure. We have grown great businesses and great cities over our years. Often we have stood as the last bastion against oppression and evil incarnate. I have traveled the length and breadth of the lower 48 and can tell you we have grown a citizenry of incredible bravery, compassion and determination unequaled on the planet. We have sent men to the moon and solved many dread diseases that once threatened the population. We have spawned great music and great literature. It is a great country and I feel fortunate, if not blessed to have been born here. Unfortunately we have allowed much to go wrong along our journey and at times it threatens to end this great experiment in liberty that our forefathers began.

 As I do every year at this time before I start tipping the Sangria and blowing stuff up I reflect upon where we are as a nation. This is still an incredible nation but I fear we are no longer the bright shining city on a hill that serves as an example of freedom and liberty. We are still the home of the brave but I do not really think we are the land of the free so much anymore. When government can tell you how large a soda you can buy, what type of oil you may cook with, who you have to fire and how much you have to pay them or who you love or marry it is not exactly what I would call a state of liberty. When government can decide how you can live your personal life and interferes in every aspect of your life it is not a free society any longer. We have allowed government to grow and consume that vision the founding fathers originally have. It is not necessarily inspired by evil but rather in the name of some greater good, quite often the children. But as Benjamin Franklin warned us at the very start of this grand experiment ""They who can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety."

 HL Mencken warned us about the spread of government and that slow slipping away of liberty when he said "The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary." For that matter Plato was probably the first to warned us about governments inevitable infringement of the rights of the people telling us so very long ago "When the tyrant has disposed of foreign enemies by conquest or treaty and there is nothing to fear from them then he is always stirring up some wary or other in order that the people may require a leader."

I worry that the political parties have done such a fantastic job of spreading government s reach into our daily lives by sowing dogmatic discord throughout the populace. The straights hate the gays, the blacks don't trust the whites, the Northerner dislikes those in the south, the farmer hates the city dweller. We turn gay rights and family values into war cries and march off under our banner to demand our rights and more importantly privileges. The two parties rally the folks around their causes and drive a deep divide into the populace all the while strengthening their death grip on the seat of power and the public purse. If we could all forget what it says on our voter registration card we would be better off as a nation and as a people. Keep in mind that the only real difference between the two parties is how they sway the voters. The Democrats wish to regulate everything but what goes on in your bedroom and the republican want to regulate nothing except what goes on in your bedroom. Both parties are deeply in bed with Wall Street and Corporate America and no amount of ridiculous advertising or rhetoric can change that. They go to great lengths to gerrymander voting districts and do whatever is necessary to keep the two party system entrenched in our society. One again it's our own fault. We were warned that this would happen.

In 1870 John Adams was already concerned about the two party system at work. He wrote then that "There is nothing which I dread so much as a division of the republic into two great parties, each arranged under its leader, and concerting measures in opposition to each other. This, in my humble apprehension, is to be dreaded as the greatest political evil under our Constitution." George Washingt5om expressed his fears on political parties in his farewell speech telling the citizens of the fledgling republic "However [political parties] may now and then answer popular ends, they are likely in the course of time and things, to become potent engines, by which cunning, ambitious, and unprincipled men will be enabled to subvert the power of the people and to usurp for themselves the reins of government, destroying afterwards the very engines which have lifted them to unjust dominion."

 I often fear that George Bernard Shaw was right when he said "Liberty means responsibility. That is why most men dread it." It seems that many would prefer the soft comforting bosom of government to standing up on their own two feet and taking what they want from life on their own effort and merit. If a child is failing in school it must be the governments fault not our own. If we are not earnings much as we want then the generous purses of government must take from someone who is and redistribute it to us. Government should protect us from ourselves and everything around us. That old catch phrase"Why that's outrageous, There ought to be a law" has done an enormous amount of harm over the centuries and unchecked will do more in the centuries ahead. Shaw also once said "Democracy is a device that insures we shall be governed no better than we deserve." The challenge then for us is to deserve more. In the opening scene of HBOs series Newsroom says that we are not the greatest nation on earth, but we could be is our challenge. We could be. We should be. Live in such a way to deserve more.

We need to quit accepting the unholy morass of crony capitalism and go back to the invisible hand of the market as described by Adam Smith so many years ago. Make corporations and government responsible for their decisions and the harm that they do. Whenever someone lectures me about how Wall Street caused the crisis and ruined many Americans and by god the government needs to something about it, I remind that in fact the government did do something about it. They bailed out the very banks that helped create the crisis. But if you are ranting about the situation but have a Bank of America or Chase credit card in your wallet because it is just so convenient you are tying the invisible hand of the market behind its back and are as big a part of the problem as the bankers and legislators. If you are upset about the Gulf Oil spill but pull into BP for gas because it is on the way to work you are as big a part of the problem as the oil company itself. We tend to look for government to punish all these violators when they are in fact in bed with most of them.

We can be the greatest nation on earth if we go back to a nation that embraces personal responsibility. We need to work, learn and strive to accomplish our dream and desires for ourselves and our families and not wait for it to be given to us. We need to each get up each today and do what we can to make our lives better and educate our children in such a manner that they can do the same when it is their turn. The outcome of your life depends on you and your effort and mine should depend on mine. The opportunities are there if we just insist the government get out of the way and allow us each as individuals to achieve our dream. By independent effort and achievement alone do we become a great society.

We need to quit worrying about everyone else does with their life or who they are to become a great a nation once again. Who is marrying who, or sleeping with who is none of your business. Who likes to smoke a little pot instead of drinking a beer is none of your business. The fact that someone's skin tone is different than yours should have nothing to do with your opinion of them. Which version of the great granddaddy in the sky they favor is no business of yours either. As long as they harm no one and do not rely on you to support them let people live their own lives and you do the same.

 We need to restore the spirit of personal generosity. As Jesus said the poor will be with us always.. Even the conservative Austrian Economist Hayek once said "There can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody." But we have allowed the safety net to become a way of life for far too large a percentage of the population. We need the kind for generous spirit that helps those less fortunate on our own inclinations and not one enforced at the end of a tax collectors pistol. If life has blessed you then you should look for an opportunity to help others progress in their lives. Because you want to, not because the government makes you. We need to get the government out of the charity business and the people back in it. Our social policy should be based on educating our children and growing an economy that provides jobs for them when they graduate.

We are not the greatest nation in the world right now. But imagine an America where everyone is free to live their own lives in their own way. Where we provide a safe place to educate and teachers do not teach to the test but inspire a lifelong love of science, math, literature and the arts. Where the government does not take as much as half of your income to spend on failed social programs, foreign aid to nations who despise us and illegal wars. Where every child grows up knowing they have a chance to achieve a good life and discover their own version of the pursuit of happiness. Where you can marry who you want, love who you want. Where the rights of the individual come before the desires of the masses. Where the tax code is fair, reasonable and limited. Where business are allowed to grow and create jobs. Where people take responsibility for their own needs, desires and actions. Where Freedom means free to live you own way as long as you cause no harm to others. That America will once again be the greatest nation in the world.

We can make it so. We just have to live in such a fashion as to deserve it.

Now, let the good times roll. It's the Fourth of July and we celebrate what has been and what we can Be. God Bless America and pass me that BBQ!





 There is a passage in Memoirs of a Superflous Man I believe from Turgenev about a lake that appeared so beautiful but was deceptive about the coming terrible storm. Sort of like Caesar trying to calm the senate before becoming dictator. I will try to find that passage which Nock used to describe the calm and deceptive serenity before World War I's outbreak. And angler fish uses it in a form of aggressive mimicry. The movement of crude today at the open, the only market down among 30 on my screen to the constructal number of $5.00, strikes me as such a fish. Amazingly I will not buy it today. What other deceptive calms arise to lure you in before devouring you for the kill?

Update: I found the beautiful passage from Ivan Turgenev's "Clara Militch":

"Evil is coming… and here is the lake, isn't it blue and smooth? And here is a little boat of gold. Will you get into it? It floats of itself."

Now I sound like the bearometer. But I mean it merely for the one market that's down today. What is the performance for example of the 10 worst stocks of the day when the market is way up?

Allen Gillespie writes: 

 This is my favorite bull to bear passage from one of the best books ever written, Lonesome Dove by Larry McMurtry Chapter 91.

"But a week passed an they saw no Indians. The men relaxed a little. Antelope became more common, and twice they saw small groups of buffalo….The country began to chnage slightly for the better. The grass improved and occasionally there were clumps of trees and bushes along the riverbed…He felt the threat of drought was over…Traveling became comparatively easy…

The next day, as they were trailing along a little stream that branched off Crazy Woman Creek, Dish Boggett's horse suddenly threw up its head and bolted. Dish was surprised and embararassed. It had been a peaceful morning, and he was half asleep when he discovered he was in a runaway headed back for the wagon. He sawed on the reins with all his might but the bit seemed to make no difference to the horse.

The cattle began to turn turn too, all except the Texas bull, who let out a loud bellow.

Call saw the runaway without seeing what caused it at first. He and Augustus were riding along together, discussing how far west they ought to go before angling north again.

"Reckon that horse ate loco weed or what?" Call asked, spurring up to go help hold the cattle. He almost went over the mare's neck, for he leaned forward, expecting her to break into a lope, and the mare stopped dead. It was a shock, for she had been quite obedient lately and had tried no trciks.

"Call, look" Augustus said.

There was a thicket of low trees along the creek, and a large, orangish-brown animal had just come out of the thicket.

"My lord, it's a grizzly," Call said.

Augustus didn't have time to reply, for his horse suddenly began to buck. All the cowhands were having trouble with their mounts. The horses were turning and running as if they meant to run to Texas. Augustus, riding a horse that hadn't bucked in several years, was almost thrown.

Call drew his rifle and tried to urge the Hell Bitch a little closer, but had no luck. She moved, but she moved sideways, always keeping her eyes fixed on the bear, though it was a good hundred and fifty yards away. No matter how he spurred her, the mare sidesteeped, as if there were an invisible line on the prairie that she would not cross.

There was confusion everywhere. The remuda was running south carrying the Spettle boy along with it. Two or three of the men had been thrown and their mounts were fleeing south. The thrown cowhands, expecting to die any minute, though they had no idea what was attacking, crept around with their pistols drawn.

"I expect they'll start shooting one another right off," Augustus said. "They'll mistake one another for outlaws if they ain't stopped."

"Go stop them," Call said. He could do nothing except watch the bear and hold the mare more or less in place. So far, the bear had done nothing except stand on its hind legs and sniff the air. It was a very large bear, though; to Call it looked larger than a buffalo.

"Hell, I don't care if they shoot at one another," Augustus said. "None of them can hit anything. I doubt we will lose many."

He studied the bear for a time. The bear was not making any trouble, but he apparently had no intention of moving either. "I doubt that bear has ever seen a brindle bull before," Augustus said. "He's a mite surprised, and you can't blame him."

"Dern, that's a bit big bear." Call said.

"Yes, and he put the whole outfit to flight just by walking up out of the creek." Augustus said



Dear Victor,

We discovered your review of our paper [link] and just wanted to address a few of the points you raise and correct some erroneous statements.

a) We do not stitch our time series together, but simulate a standalone P&L equally allocated between the various instruments. The correlations between markets are indeed present but irrelevant to the estimate of the t-stat which is simply estimated using the daily returns of the strategy i.e. signal*next day (or next month) returns, which are for all intents and purposes uncorrelated (even if the signals themselves are obviously not). The resulting t-stat measurement we feel is made more robust by the fact that t-stats are also significant for all sub-periods and all individual asset classes. We therefore don’t understand your comments about overlapping 5 month windows or the correlations between tickers.

b) Your interpretation of our regression results seems strange. We are simply looking how much the market moves on the subsequent day (on average of course), conditional to a certain value of the signal (the normalised five month trend). We find that when the signal is 1 at one sigma (not one percent!), the next day return is three times bigger than its long term average, i.e. the return of the long only strategy. We find difficult not to see this as “economically significant”; besides, the trend following industry has certainly made very significant profits in the last thirty years.

c) Our “armchair explanations” are proposed as possible (plausible) explanations for which we do not have direct statistical evidence. Still, we refer to recent, well documented academic papers based on surveys that pretty convincingly show that most people have “extrapolative expectations”, i.e. they tend to follow trends. See Shiller, Menkhoff, Hommes, Greenwood & Schleifer, etc.

Looking forward, we believe that long term trends will persist, albeit delivering a strategy with a low Sharpe ratio. There is however only our best guess based in part on the results of our paper that shows that trend following has delivered a highly significant Sharpe over a long history.

Sincerely yours — the authors of “Two Centuries of Trend Following”



 Dear Muskaan,

Daddy is proud, despite his strong belief in the value of humility, at your fantabulous accomplishment.

At this school leaving examination, which also happens to be the first public examination you have taken in your life & conducted by the Indian Council of Secondary Education, you have accomplished what none so far have in your gerontocracy. Your score on each of the subjects is higher, into the high 90s, than your father could achieve or his forefathers could. Well surely you indeed have also scored higher than any other student in your school.

Soon as the results sprung out on the internet, all over the country there was a frenzy of several million test-takers discussing their accomplishments with their peers. Yet within such a busy patch of time, even as a budding teenager, you have been resplendent in speaking to me for such a length of time, even if in five pieces of conversations. This assures me, your values are deeply family driven. The simplicity with which you can internalize a big moment deserving a big celebration as this was proven yet again, when you chose to order Pizza from Dominos and savour your victory just with your family. This is touching.

Yet, as you step forward further to be much more on your own, the value of networking and connecting can hardly ever be over-emphasized. Education and performance at exams are often solitary sojourns, wherein a good student puts in endlessly long hours working on her own abilities. Wisdom however, will be in being able to apply it. The more adept you hereon become in connecting and building on your rapport with everyone, the more you will be able to utilize your learnings.

Your leanings towards numbers is apparent right from your early schooling days wherein you scored a perfect 100 in maths and high 90s in science subjects many times through years. Yet, at this key public examination, I am gratified to note, that you have done equally well in languages. The power to express is definitely as important as the power to ideate, visualize, observe, calculate, infer and deduce. The big difference between those who end up spending their entire life-times in laboratories and those who create products that fill up stores worldwide with customers is their ability to take their work to masses. I urge you to keep growing your repertoire of expressions, vocabularies, diction etc. throughout your life. Not only for enriching your ability at communications, but also for the fact that literature is the mirror of society, do invent some time to read some of the finer classics. I also urge you to begin reading Ayn Rand with a goal of triggering your own thoughts around her ideas. Yes, you got it right that while you have been progressing well on Java, C++ etc. etc. you must not lose out to any other on your ability at the old world languages as English and Hindi.

Since you do have a clear focus to put in your entire might into seeking an admission to the top Engineering Colleges in the country couple of years down the line, I will share a few recommendations of some of the finest books from an era gone by long ago and yet these are still likely the best.

To master Differential & Integral Calculus, hunt down the two volume compendium by N. Piskunov that was originally published by Mir Publishers but now out of print. An amble around the old and used book-stores markets to ferret out such jewels is yet another indulgence an erudite person must begin to savour. Over the years, the nourishment your soul may find in the company of old and difficult to find books, will surely drive your passions to be not just a good but a great learner.

To get an in-depth grip on High School and beyond Physics locate the book by Resnick & Heliday. It may subsume your mind, but it surely is worth it to create a solid foundation that will last with you.

Yet another out of print book, but surely a master-piece on Organic Chemistry was written by I M Finar. Locate it.

While you delve deep into grasping concepts, you must recognize that it is practice and practice alone that makes not just men but women as well perfect. Solve as many computations as you can each day. Go down to the steps where you went wrong and it at these steps you will iron out the wrinkles in the crevices of your sub-conscious mind so that your thinking processes are evolved through this humbling process of knowing where do you err, in advance.

An old world saying, that a good mind lives in a good body. So, I am sure you will be keeping an even focus on keeping building a good health. Yet, with the evolution through my and your generation, it may be apt to believe that a good mind and a good body are held together by a great personality. So, somehow do find the time to indulge in competitive activity on the stage (in college) and surely at the sports-field.

Lastly, yet most importantly, I gave you the name Muskaan. Your name derives from the Urdu word that means a beautiful smile. Over these years, trust me, not just because your are my daughter, I have and others have felt you have been gifted with a smile that is rare. Yet, in the recent several months in the run up to your exams perhaps, there is a recurring frown on your forehead way more than your magnetic smile. Please learn right away, early enough in life, that consistent and sustained achievement is seldom feasible while existing at extremes. The concept of optimality applies to every human endeavour. In any case, the goal of life is the pursuit of happiness and to lose your miraculous smile for sub-goals of life is something I will want you to avoid. The same way that you balanced your achievements across languages and numerical subjects, I wish for you, that you achieve a life where work and play are so finely inter-woven that each journey of achievement is as much a joy for you as each milestone will bring.

While your immediate goal and focus for the next two years is the Engineering College Entrance test in India, which without an argument is the most competed for exam in the world, since God made too many of us in this part of the world, I need you to study Statistics and at least one human science at an appropriate time. Even while the study of natural sciences is so much complete in itself, each of us will use our abilities within the human dilemmas. What can be cognized by man is what truth is. Everything else is within the domain of postulates. So the approximations and the imperfections, that create all the opportunities, must be studied well too.

The first time ever someone's eldest child writes a public examination and beats daddy in each and every subject is a joy that comes to only some. What a bliss you have brought me. Hereon, while you keep beating me in every next exam you write, I need you to know, you will create a happiness multiplier function, should you achieve with elan, grace, happiness and health.

Here's to my rock-star, a big congratulations! Keep moving forward, with your focus, zeal and hard work and yet do it with happiness, health and a continuously growing personage.

An amazed father!



 There is another aspect of winning races beyond speed and endurance.

I saw that today in our Memorial Day 2 Mile race. Teddy Seymour, a 71 year old trader and the first black man to circumnavigate the world by himself, knocked 2 minutes off last years time. For non runners that's huge.

I asked Teddy, "What have you been doing in training that was an amazing performance today?"

His reply was, "I'm resting more now, I run 5 days and take off 2, what I've found is that rest helps me get faster. All my life (he's a former marine) I have pushed it, it's taken a long time to learn stop, to rest."

Happy Memorial Day Trails to all.

Scott Brooks writes: 

Larry makes an excellent point. Rest is vitally important.

I was taught how to lift weights by Clif Koons. We used to work together at Executive Fitness in St. Louis (which went of business over 20 years ago).

One of the things Clif emphasized was rest.

We used to have guys coming into our gym that would work out long and hard……and do it 7 days a week. Those guys would hit plateaus that would last seemingly forever. Yet, other guys would work out just as hard, but take several days per week off to let their bodies rest and recuperate. They got better results than those that would work out everyday.

I think trading can be the same way. Yes, we need to immerse ourselves in the business and become students of trading, but at the same time, we need time off from trading to let our minds recuperate. Sitting around, doing nothing, hiking, spending time with the family playing games the kids enjoy (I HATE Mexican Train……but my kids love it…..so I play it……their laughter makes it all worthwhile, though).

Although Clif and haven't worked together in 30 years, we have run into each other around town a few times and have kept in contact via Facebook. However, all that aside, if anyone would ever be interested in working with a true master of his craft, CLIF IS THE MAN to contact. He is a truly skilled student of his business, and he's a gentleman. I highly recommend Clif

For those that may be interested, here is Clif's website.

(Even if you're not interested check it out. Clif is one in-shape dude…..and he's in his mid-50s.)



After 25 years lost, I found the original cache of 5,000 Wiswell proverbs about life, markets, and checkers. These were presented each week faithfully for 20 years. It's like discovering the diary of an Einstein, who was amazed when Wiswell gave a simultaneous 10 game blindfold exhibition at Princeton. Tom thought this would be his best of 28 books. Here's a typical sampling from page 1. All of them will improve your life and markets. "I am often asked why I play 11-15 (c3-d4) and I reply, "that's where the wins are". (Perhaps the wins come after weakness?)



 "It identified a bug that enables people to withdraw the same Bitcoins more than once…"

I submit that the demise of Bitcoin will be, in part attributable to the lethal cocktail of:

1. instant transactions

2. human/computer fallability

3. anonymity and the lack of well-capitalized exchanges/clearinghouses.

This 3rd factor is the boon and bane of Bitcoin.

Mistakes are human. Forgiveness is swift. Reverse wire transfers are divine.

From the Uniform Commercial Code (UCC) which governs wire transfer:

§4A-211(c)(2) states that cancellation of a payment order after acceptance by the beneficiary's bank is only available in instances where the payment was unauthorized or there was a mistake by the sender and that mistake falls into one of three categories: (i) duplicate payment, (ii) payment to a person or entity not entitled to the funds, or (iii) payment which resulted in the beneficiary receiving more that they were entitled to. The effect of this language is to take issues such as buyer's remorse completely off the table and legally limit the instances where a buyer can even attempt to recall funds already credited to the seller's account to only those instances where the buyer can make a claim that the seller received funds to which it was not entitled.

Mt. Gox Bitcoin Exchange Goes Offline as Peers Lash Out

(1) 2014-02-25 07:47:38.266 GMT By Pavel Alpeyev and Carter Dougherty Feb. 25 (Bloomberg) — Mt. Gox, the Bitcoin exchange that halted withdrawals this month, went offline as industry peers distanced themselves from the Tokyo-based company in an effort to defend the virtual currency.

Efforts to reach the www.mtgox.com website today directed users to a blank white page, a day after Mt. Gox Chief Executive Officer Mark Karpeles resigned from the Bitcoin Foundation, a key advocacy group for the digital money. "While we are unable to comment on whether or not Mt. Gox's business operations employed operational best practices and reasonable accounting procedures, we can assure the public that the Bitcoin protocol is functioning properly," the foundation said in an e-mailed statement. Mt. Gox, one of the first exchanges, said this month that it identified a bug that enables people to withdraw the same Bitcoins more than once, leaving it vulnerable to hackers. Prices quoted on the exchange plunged on speculation that account holders wouldn't be able to get their coins back. Mt. Gox didn't immediately reply to a phone message and e- mail seeking comment.

full article here.



"(BN) Goldman to Fidelity Call for Calm After Global Stock Wipeout"

"That's why we think we are in a classic correction". One could write a sonnet about that one.

Anatoly Veltman writes: 

One thing bothers me somewhat deeply: even before current correction started two weeks ago, the Shanghai index was trading around 2000, which was some one-third off of its record two-plus years ago. Mind you, we're talking about the world's second most powerful economy in the world here. The one America counts the most to support its Treasury Bond Market!

So was that perfectly fine for US stocks to become dearer by an equal one-third in the same time period?? And the moment we deflated 5 percent off the record, was that perfectly fine to rely on one hundred statistical reasons to be an immediate buyer? I wish I had b@lls of brass, too. But I am just a little more cautious.



 Today's note is fueled by the discovery that Wikipedia has no entries for George S. Coe. Henry Varnum Poor dedicated his best work, Money and Its Laws, to Coe; but all one finds for George S. Coe in a search is this:

and, for disambiguation, this:

George Coe (Lincoln County War) (1856–1941), Old West cowboy George Coe (Michigan politician) (1811–1869), politician from the U. S. state of Michigan George Coe (mayor), American mayor of Lancaster, Pennsylvania, 1962–1966

 Coe did what Morgan did during the Panic of 1907; he persuaded all the major banks to join together to discount each others and their counter-parties' paper. What is truly remarkable is that Coe did it in 1861 solely by the force of his character and his ability to put the matter plainly: "What," he asked everyone in the room, including Secretary Stanton, "if we do not unite?"

Here is Coe's obituary from the Times.

Also, in 1888 the Commercial Advertiser printed Coe's letter to E. G. Spaulding and Spaulding's reply.

Spaulding was Treasurer of New York before the Civil War and was the author of the Legal Tender Act — something else for which there is no wikipedia article so this will have to do:

About Spaulding Stiles, the biographer of Commodore Vanderbilt, wrote: "If Wall Street had saints, then the college of financial cardinals would surely canonize Elbridge G. Spaulding."



 "Follow your bliss" was a philosophy that resonated deeply with the American public—both religious and secular. During his later years, when some students took him to be encouraging hedonism, Joseph Campbell is reported to have grumbled, "I should have said, 'Follow your blisters.'"

If you follow your bliss, you put yourself on a kind of track that has been there all the while, waiting for you, and the life that you ought to be living is the one you are living. Wherever you are—if you are following your bliss, you are enjoying that refreshment, that life within you, all the time.

A quote about Campbell from George Lucas:

I came to the conclusion after American Graffiti that what's valuable for me is to set standards, not to show people the world the way it is…around the period of this realization…it came to me that there really was no modern use of mythology…The Western was possibly the last generically American fairy tale, telling us about our values. And once the Western disappeared, nothing has ever taken its place. In literature we were going off into science fiction…so that's when I started doing more strenuous research on fairy tales, folklore, and mythology, and I started reading Joe's books. Before that I hadn't read any of Joe's books…It was very eerie because in reading The Hero with a Thousand Faces I began to realize that my first draft of Star Wars was following classic motifs…so I modified my next draft [of Star Wars] according to what I'd been learning about classical motifs and made it a little bit more consistent…I went on to read 'The Masks of God' and many other books.



 Blanchette does not get to depend on the kindness of strangers…

After a few films that do serious funny, such as the delirious Midnight In Paris and the slightly less gloriously fizzy To Rome with Love, as well as his tetralogy in London, You Will Meet a Tall Dark Stranger, along with Match Point, Scoop, and Cassandra's Dream, the Woodster is officially back from the UK, Madrid, Paris and Rome, to home soil again. He is not about the nervous recognition laugh this time out. San Francisco and the Hamptons, in the top-tony sancta of the glassily rich, and the scruffy, wife-beater-singlet dinge of the lower-middle, are his foci.

The prolific Mr. Allen: Blue Jasmine is Woody Allen's 14th film since the millennium, if you're keeping count. No secret that Allen will set up shop in whatever locus/city donates a substantial production grant/stipend of anywhere from a quarter- to a million and more if he dangles producing a film in their fair city.

This travelogue time out, San Fran got the gilded Allen halo, though it seems a far cry from the SF the rest of the country knows. No matter. Film is by definition filmy, not unlike the colorful gauzy scarves Blanche Dubois and Jasmine prototype (Jeanette by birth) toss over the room lamps in N'Awleans to 'soften the glare' of unflattering glare on the face. The NYC and the California scenes seem chock-a-block with lower-echelon types, exemplified by a rare more-than-foot in water by Andrew Dice Clay (MIA for lo, some 20 years, according to a recent on-air in late July) and an adorable lowlife but earnest Bobby Cannivale, playing Chili (swiftly becoming a personal fave, after recent stints on "Nurse Jackie" as an officious hospital head of department arse and on Broadway as a harried writer in the terrific Clifford Odets revival, "The Big Knife"), along with a B-side of average Joes intent on their beer, sports and just hanging out trying to live their lives.

Baldwin steps out again after his narrator-framing character in To Rome, this time in a skeevy Madoff-redux role he broke in back in 1996, in Miami Blues, as a charming, conscience-free cold-eyed petty crook to the ingénue heart-o'-gold hooker played by teenaged Jennifer Jason Leigh. Sally Hawkins, so wonderful in the Brit romp, the infectiously optimistic Happy-Go-Lucky (2008), is enjoying a reprise here, too, as younger sis Ginger, having first appeared in Allen's Cassandra's Dream.

Like his work or not, as a director, Allen has always led the crowd in recognizing lapidary talent he finds and features before the rest. You can make bank on the exquisiteness of his casting. (Full disclosure: I am still [sort of] downcast he declined to cast me in one of his [non-funny] flicks. After I saw the final cut, I thanked heaven he hadn't put me into the B/W freak show. You live forever in ignominy, frump, ditz or weirdness in all Woody flicks.)

With a filmography output of a film a year for roughly 35 years, he can be forgiven if he here cribs a plotline or two. With BJ, Woody Allen borrows from one of the best. Tennessee Williams, whose scalpel to the jugular of the disappointed but crawling-out-alive Deep South was exorcized in his timeless Streetcar Named Desire.

Most movies could play sleazy Madoff-type conmen and their outsize philandering and living large for cheap laughs. Not Woody. He sets the scene immaculately, with the slick golden real estate nabob (Alec Baldwin) in his tasteful and money-drenched aeries of fantasy money and glitter, a glossy if absolutely unemployable arm-candy wife (Cate Blanchette, certain to land her an Oscar nom). She dimly experiences life on the salon-yoga-shopping-charity mandatory must-be-seen lifestyle Roladex. Not incidentally, Alec Baldwin in fact played Stanley Kowalski, Blanche Dubois' brother-in-law nemesis, in a 1995 Streetcar. The role of latter-day beau Mitch, in Streetcar, is played by the popular if raffish comic, Louis CK, who here swains younger sister, Sally/Stella, Ms. Hawkins.

Brief recap: You probably recall Streetcar, if not from high school junior drama days, then from the brooding rough eroticism of Marlon Brando as Kowalski, his wife, sweetly besotted Stella, in her now-tatty living milieu by her macho husband.

Set in the French Quarter of New Orleans during the restless years following WWII, "A Streetcar Named Desire" is the story of Blanche DuBois, a fragile and neurotic woman on a cascading search for someplace in the world to call safe, to rest. Blanche explains her unexpected appearance on Stanley and Stella's (Blanche's sister) doorstep as nervous exhaustion. In reality, she has been exiled from hometown Laurel, Mississippi, for seducing a 17-year-old student at a school where she taught English. She claims her exhaustion is due to a series of financial reverses that have claimed the family plantation, Belle Reve. Stanley, unimpressed with her explanations, states that "under Louisiana's Napoleonic code, what belongs to the wife belongs to the husband." Stanley, sinewy and brutish, territorial as a panther, circles Blanche in a mix of distrust and intolerance; he doesn't cotton to being swindled of his wife's patrimony and demands to see the bill of sale. They are opposing camps; wife Stella, soft, accommodative and uncomplicated, is caught in a no-man's-land. She and Stanley are, in fact, despite the difference in their early stations, deeply in love.

Stella (Ginger in BJ) in Tennessee's play is simple, accommodating, drunk with love; and the fragile cut-bloom of Blanche, done to the nth by Vivien Leigh in the 1949 Streetcar, is a shadowy, fragile neurotic reduced in circumstance by events we learn gradually as she tries to collect herself in the shabby home of her sister and visceral, suspicious brother-in-law Stanley. Where is the family money? he asks throughout. Neurasthenic, delicate Blanche cannot be questioned. She has no firm answers to anything except her need for beauty and recovering lost…dignity, status. Peace of spirit. It does not end well for her.

Blanche/Blanchette/Jasmine is alluring, seductive, neurotic and mournful, prone to dark, cryptic pronouncements—the centripetal force of the film. In her shadowy past there are hints of poverty and sexual misdeeds or abuse. Men find her bewitching because there is so much they don't know. On a physical level, she is willowy and stunningly fair, blonde, unable. They interpret her remote fragility as the promise of female salvation and unearned ego-propagation. Here is a wounded being, the Southern male thinks, per Southern Mr. Williams. She does not challenge nor question, but will gratefully, perhaps erotically, accept the gallant assigns of affection consigned by the undemanding shaky ego'ed male…She has few definitive edges or constructive ideas except to get herself a safe niche. Strapped for cash, she reluctantly accepts a receptionist job with a horny dentist.

This classic scaffolding and a scant few laughs offset the sad reminders of Woody's obsession with his own eventual demise. Allen has been working on these late films for nearly two decades. This latest, Blue Jasmine, is a return to yeasty, emotional 80s Allen. It is a bittersweet, engrossing epilogue. Or a nervous, unreconstructed prologue.

Cate Blanchett is the title character, born Jeanette, then husband-dubbed Jasmine. She is the wife of an indulgent, dodgy finance oil-slick played by Alec Baldwin. He is not beyond a bit of philandering; it doesn't much surprise that Baldwin is a crook, though his wife, like a "Sopranos" spouse, is not concerned or even dimly aware of how she gets her palatial home and jewels and designer clothing. She's a full-time, subsidized self-absorbed foundation. Charity parties. Entertaining. Yoga, Pilates, Zumba. Shopping. Looking beautiful, matching the décor to her loungewear. Baldwin and cosseted wife lose everything in a squalid financial scandal. Jasmine westers to San Francisco to move in with her guileless sister Ginger (Sally Hawkins), a checkout girl at a grocery store. Her one-time husband is an earthy contractor played by Andrew Dice Clay. She has no airs, is a mom of two boys, and willingly shares what she has, ignoring the condescension and little-masked scorn of her elder sister. We account for the notable differences in physical traits, IQ and personalities by understanding both were adopted. "You were always smarter than I was," comments Ginger in reply to most unreconciled soliloquies by her reduced Blanche/Jasmine.
Allen hasn't set a film on the West Coast since scenes in Annie Hall. So it's odd that his SF seems as if it's somewhere near Hoboken, filled with dese, dem and dose types with unpretentious vocations instead of idolaters and oblivious self-promoting millionaires. But Woody's cities have always been as much a paradisiacal avatar, caught by his glorious cinematographers, as Chevalier's Paris. Don't go to Woody expecting subway graffiti or traffic backup on the L.A. Freeway. But he gets Marin County and the Bay area: the vapidities, casual wealth and enbubbled lives of the uber privileged. Full of, as Alvie says in Annie Hall, "wheat-germ killers."

The two sisters cohabit uncomfortably together in a too-small apartment—"it's so…cozy," Jasmine notes—and they each meet male love objects: an aspiring diplomat and a shvitzy audio tech, played by comic Louis C.K., who showcases the hyper, entitled and down vibe of the area.

Blanchette is amazing, breathtaking as the shrill narcissist falling apart. Her desperate prowl for a safe landfall makes her seem histrionic, but she is always in the act of creating an alternate, acceptable reality for herself, reflecting her dismissal of her actual fallen circumstance in the grubby present. Like Blanche, Jasmine's self-delusions and thrice-told bravura tales have finally worn through. In a revealing moment she explains more to herself than to her skeptical little nephews—who here form the Greek dithyramb Allen featured in Mighty Aphrodite–when they ask if it's true she went nuts, that "there are only so many traumas a person can bear…" Her disintegration is graphic. Even her little nephews note the distance between their sane mother and their flighty, uncertain aunt.

BJ is a layered rendering of a woman in a crisis of self-definition after living in cushy denial most of her vague life. It's guilt, trauma and retribution, of accepting the obvious, themes beautifully developed in his masterful Crimes and Misdemeanors, which some (me) consider his masterwork. His icy analysis of this character's state of denial is always at an artistic remove.

Blue Jasmine is Woody Allen's umpteenth film since 2000; accurate, in a sense, yet absent self-involvement. Again, his casting kills. His casts do more to enliven Allen's themes than do the casts of most other directors. And his films, oddly, wear well over time.

Jasmine's efforts to impose herself between Ginger and her men, her unending haranguing of her sister's rather unprepossessing males, enrages the animal inside first mate Dice Clay, then fiancé Cannivale. When Mitch/Peter Sarsgaard, a diplomat on the rise—arrives on the scene, acutely class-conscious Blanche swiftly sees a way out of her spiraling predicament. Sarsgaard, wealthy, suave, polished and above the brutish, himself on the rise, reveres Jasmine as beautiful and refined, focusing on her expensive and understated wardrobe, her beauty, and her distracted, unthinking superior airs. Yet, as tendrils of truth emerge of Blanche's/Jasmine's past—her suicided financial-cheat spouse, her financial destitution, an unspoken-of adult son, are spilled by an inadvertent meeting with her sister's ex-spouse Clay—suddenly catch up to her and her ideal mate, her circumstances become unbearable.

A not-funny Allen is still, overall, and with all the usual caveats (at least he's not lampooning and flagellating his Jewish background here, as he did in so many of the early, funny films; and he's not lambasting all women as unbearable, unisexual shrews, ditto; and he does switch laugh-triggers in updating his standard Valium throwaways to Xanax in the set-upon heroine) top shelf stuff. The good part is that for the average cineaste, we can watch the hybridity of his soiled and spoiled rich and poor lives with dispassion, since they are not the commonality of our picayune daily lives. We aren't Jasmine. And our crooked menfolk may have their bêtes noirs, but they are not Alec Baldwin/Madoffs.

If we had to choose, the message BJ is communicating is that loving passionately and plainly without all the tchatchkas of great wealth, ill-begotten especially, beats the hell out of loving money and privilege, both of which can be wilting, fleeting and dissolute. There is no hint of mission drift here; Allen grips the story, tells the hairy alarums of the wealthy, heedless life, and pays off the watch with a remorseless dénouement. A film risque and melancholy, moody and invested with intensely engaged and sometimes sexy performances, it is ultimately tragic.

A so-called amusing indie you can safely miss: Pedro Almodovar's latest–I'M SO EXCITED– a gordo disappointment. Too fey, crude, implausible and humor depleted to audiences primed for some of the keener and friskier glimpses into the manic Almodovar mold of tout Madrid. This one misses the mark by the 33 years since a vaguely similar but much better Zucker & Abraham's AIRPLANE! torched the high-giggle-meter high-jinks aboard a 747.



 My home office adjoins my daughter's room. Her last day of high school (and therefore public school) was today, and now that she's finished it, she's home finally clearing out her room of the school year's detritus. It's amazing how much "stuff" she managed to keep in her bedroom. Walking by that room's door brings to mind the scene in A Night at the Opera of the ship's storage locker holding something like 10-15 people. Tomorrow, she will join her class at graduation; at some time, she and some of her peers will be saluted for academic achievement. I'm told that that's the top 5% of the class. Given the nature of the high school, that's a better result than my wife and I had expected. Her high school is rigorous–almost to a fault. During spring break, some of her friends now freshmen at MIT and Cal Tech came by for some pizza. The frosh from both schools kept commenting on how much they were enjoying college. It was easier, for some courses much easier, than high school. Both my wife and I were shocked, but perhaps these kids aren't aberrant in their assessments.

That my daughter, our youngest child, will be graduating within 24 hours brought to mind my graduation. For my daughter, the biggest graduation in her life thus far will be the one tomorrow; for me, it was 29 years ago when I graduated from medical school. It's not that it was the last graduation I would share with my father, though it was–or even the last time I would see him, though it was that as well. It's not that I thrived in medical school. Hardly, having bombed in biochemistry (I think it's psychological moreso than the material, but that's for another thread) and having a simply awful experience with one medical resident (I nearly dropped out of school in my third year–almost unheard of; on hearing of my interest, the Dean inquired as to what was my reason, and when I explained, she promptly called in that year's class of 2nd year residents in medicine and read them the riot act about abusing the 3rd year medical students. My classmates were aware of the situation, and when the abuses stopped-at least for my rotation–many thanked me, though I told them it wasn't altruistic on my part, it was survival), I saw my graduation from medical school as a triumph. It's not the degree of which I am most proud–that would be my MSEngineering, and it's not the one I worked hardest for–that would be my MBA in marketing, nor even the degree which most of my peers associate me with–that would my MPH in epidemiology. It is, however, the degree with which I most identify, the one most enmeshed in my identity.

There are parts of medical school I would dearly love to forget–but I can't, though I have no doubt that I am a better physician for having lived through them. Telling the mother of a 3 month old kicking and screaming with a 103 degree fever a few hours later that her son had died, being told of the attempted suicide of a pregnant 15 year old girl I had attended to at clinic three days before and diagnosed her pregnancy (she wanted an abortion and was terrified of what her parents–both alcoholic drug users (they were also "practicing" Catholics–at least that's what they said–who later informed me they wouldn't have consented to an abortion for their "slutty daughter"–might do to her if she asked for their permission), digging elbows deep into someone perforated bowels at 3 AM and dealing with seeming endless human waste–yes it's life saving, but that doesn't mitigate the stench and it doesn't stop the waves of nausea or the multiple re-gownings and re-glovings, the 17 year old who decided to take on a tree while riding his snowmobile during a blizzard–the tree won and he sustained multiple organ failure, including a closed head wound that left him in a vegetative state even as he recovered from a severed liver that a decade earlier would have rendered the head injury meaningless as he would have died of the hepatic damage, my first patient during my medical rotation–Mr. B–who had classic hypothyroidism–the confirmatory lab test had to be sent to the VA central lab in Ohio instead of the local lab and the results weren't due back until Monday; unfortunately, Mr. B developed a pneumonia, becoming septic, and dying on the Sunday before, and the too many meetings of the Baltimore Knife and Gun Club on Friday and, especially, Saturday nights. As bad as telling the mom about her dead baby (threw up afterwards, and my attending, cued in by my resident, had the good grace to sit down and talk with me about it; I asked her how she managed to deal with such things, and she responded that you don't, and that if you did, it was time to leave medicine. That may seem a bit harsh, I realize, but I've come to understand what she meant.

 In medical school, during the first year intro to clinical diagnosis, there's much effort expended on trying to get med students to empathize with patients, though not sympathizing with them. I began to understand the idea much better after talking with my attending what was meant by the empathic physician that we strive to be, that our patients need if we are to be effective in helping them maintain or improve their health.

Among the "ghosts" in my memory is the 20 year old man who presented at surgery clinic with his partner. He came from a religious family out west and had come to Baltimore when he was 16 to get as far away from his family as after he came out to his parents, they told him he would burn in hell, that he should forget that he was a member of their family, that his brother and sister were to be told he had died and that they should forget him, and requested that, as they kicked him out of the house without so much as a change of clothing, he change his name so no one would associate him with their family. He had met his partner while homeless on the street, and the two bonded. He managed to put his life together enough to gain admission one of the local colleges on full scholarship as his partner became got a job on a construction crew digging ditches (also a story for a different thread). He presented to surgery clinic with groin swellings. It was the fall of 1983, the AIDS epidemic was in full swing with every sign indicating that it was a infectious disease. (At that time, I doubt that the 2/3s of gay men resident in San Francisco in 1981 realized that they would die from HIV infection.) Understandably, he and his partner were terrified about these swellings. We biopsied them–it's the only time I've quadruple-gloved. He had a lymphoma, and in short order, developed pneumocystis carinii. Long story short, he had AIDS. I wasn't on the medical team treating him but I kept up with what was happening to him in hospital and I managed to stop in and talk with him a few times. He was a bright guy, witty too. He was thinking of becoming an engineer–he enjoyed math and dreamt of using that knowledge to change the world. He was dead within 6 months. I don't know what happened to his partner.

Those experiences contrast with some of the other ones, perhaps less emotionally challenging, perhaps not, such as my first appendectomy (not holding the retractors but doing the surgery; what should have been 30 minutes under anesthesia for the patient became 60 minutes for me–not unusual, I'm told), trying not to cut too deeply, hoping to pick up the peritoneum, all of 4 cells in thickness, sweat pouring out of my brow (and being attended to by a fortunately doting circulating nurse) even as the temperature in the OR stayed a steady 63 degrees. The patient came through the procedure OK. For many medical students, their surgery rotation, while grueling, is also the most fun one. One gets to see the pathology present, instead of surmising it the way an internist would. At the same time, one comes to appreciate that being a surgeon takes a certain personality–not just bravado or ego but also perspective on the role of a physician in the treatment of a patient. A surgeon is cutting on a patient to help the patient therapeutically. She cuts on living flesh seemingly on a daily basis. Granted, it's with anesthesia, but even so, it is a concept which in the abstract may not seem challenging, or even when one's encounters with the surgeon are infrequent. Seeing surgery daily, though, is different, whether it's the surgeon, the surgical nurses, or the anesthesiologist. I think the former two have the most challenge. It's one thing to nick someone's skin for a biopsy, it's another to open a chest to transplant a lung. There's the old joke about the surgical resident at the poker game tossing $20 into the pot with an ace-high hand, while the medical resident hems and haws about whether to raise a nickel with a full house. It fits better than most might appreciate.

Graduating from medical school meant a change not merely in life but in me as a person, in my identity. I don't know that that was true for all of my classmates, at least not that they were willing to say come reunion time. It was for me.

As my daughter graduates, so will my wife and I. Empty-nester syndrome may hit, hopefully not. My daughter will move on to the next phase of her life, to begin adulthood. Both my wife and I wish that she comes through her college experience as enriched as she has her high school one.

In 24 hours, her world will change in ways she won't appreciate for years to come. Perhaps her mother's and father's will do so too?



Aversion to losses or aversion to risk? Which of the two is addressed by willingness and ability to close out losing trades?

Well, without invoking mathematics where it is not necessary, it is common and logical to place on the table that when a losing trade is closed one has the willingness and aversion to the risk of the persistence of loss becoming into a bigger one and one does not have aversion to the present level of loss in being accepted.

Now on the other hand, unwillingness to stop out a losing trade is indeed loss aversion.

The computations that show that having utilized some sort of mechanical rules for stopping out adverse incursions actually increased the probability of meeting with adverse incursions is totally flawed abuse of statistics.

Several arguments:

1) Historical data analysis does not undertake the "uncertainty at a given moment to decide upon" into account and is definitely incorporating hindsight 20:20 vision mind-set.

2) Any measurements of uncertainty and thus risk are never definite, since measurement of uncertainty too will be having an uncertainty of its own. So a trader in the middle of a losing trade has to decide that the level of uncertainty in his method, mind or cognition regarding the calculation of the "value of uncertainty" in his trade has become too high for him to handle. That's where humility, the currency that prevents others from profiting more from your mistake, can come into play and allow the willingness to hit the stop.

3) However, when either with or without the illusions of statistical computations of stop losses increasing the probability of meeting with more losing trades, one fails to control the human weakness of loss aversion, to somehow and anyhow turn that loss into a profit, one is becoming totally risk-insensitive. From skill, the turf changes to the power of prayer. The game begins to change from action to hope. Inconsistency of thoughts thus turns one into a trader who is continuing to hold on to risk without a mental apparatus to assess it or react to it. As the loss continues to grow not only the lack of willingness to take it hurts, the ability to accept the increasingly bigger loss also dwindles rapidly.

I am ready to be thrown before any firing squads of mathematical minds and ideas on this list if they can with or without numbers help me learn how come this list celebrates and cherishes a human value of humility and yet indulges in an idea that staying on in a trade that has incurred a level of loss greater than anticipated when the trade was opened are mutually consistent.

I would close my submission for now with one thought:

When loss aversion creeps in it makes a decision system (mind) risk-insensitive and with no respect for risk, returns are impossible. Yet, if a mind continues to be risk-averse it does not have loss-insensitivity and in humility such a mind closes out risk that has turned out to be less than comprehensible.

Phil McDonnell responds: 

Since I am the well known culprit I shall give Mr. Kedia a reply. If the probability of a decline art the end of a period of time equal to your stop is p then the probability of losing the stop amount with a stop loss strategy is 2 * p. It is simply a derived relationship. It is what it is.

It is not a misuse of statistics but rather a description of how a stop loss exit strategy will change the distribution of returns. Larry Connors studied over 200,000 trades from a winning system and compared the results with and without stops. He found the use of stops increased the probability of loss and reduced the expected gain.

In my opinion the best way to trade is to reduce position size so that no one loss hurts your account too badly. That means many small positions to me.

Larry Williams adds:

Ahhh here I go off on a rant; please excuse a tired old mans bitterness at system vendors who claim stops hurt performance.

Yes, they are correct in that the statistics of your system will look better if one) you don't use a stop and two) your use a market with a perpetual upward bias like the stock indexes have been, usually.

They are absolutely totally incorrect in terms of living the life of a trader. So what if I am long in a position that eventually shows a profit but because I did not have a stop loss that one trade moved against be 20,000 or $30,000 and it took a year or so to get out of? Yeah, the numbers look good (high accuracy) with no stops but it's one hell of a lifestyle.

High accuracy is a false God.

Consistency and never being in a place where you can get killed is more critical. Perhaps Mr. Connors has never sat through the reality of a large loss, especially in a large position. I have; I would rather battle the devil at midnight on a new moon with both hands tied behind my back.

It's one thing to have a system with "good numbers" it is quite another thing to be a trader and have to deal with reality.

It only takes one bullet in the chamber to kill you when playing Russian roulette. As near as I can tell trading without any stops, in any way whatsoever, is just the American version of this form of spinning the wheel.

Play the game as you wish but please heed the warnings of an old man.

Leo Jia adds: 

I have been studying the use of stops. Due to loss aversion I guess, I would like to use narrow stops. But among the various strategies I have yet found one working well with narrow stops. Good stops have to be relatively wide in my cases, but having no stops or stops that are too wide clearly hurts results (my trades are time limited). So a good choice for me is to size the position according to the stop size.

Sushil Kedia writes: 

If you reduce position size can it be argued that a position of Size N reduces to N-n implies that you took a stop loss on n lots out of N you held. Then too, it validates the fact that you do take stops.

Anatoly Veltman writes: 

Larry covered main bases (different markets, different position sizes, different lifestyles) pretty well. I just want to be sure that reader doesn't end up with wrong impression. I think the best conclusion is "it depends".

And because my act follows Larry's (who is certainly biased in favor of stops), let me try this. If you enter based on value (which is certainly against trend), then there is no justification available for a stop. Unless you argue that this stop proves you were an idiot on the entry. But if you are an idiot on value entries, then why play value…

Anton Johnson writes: 

 The problem with using Conners' simulation as evidence that placing a trade stop-loss reduces returns is that he tested a winning system that likely had never experienced any 5-sigma negative excursions prior to the test date. And of course there are no guarantees that his strategy, or any unbounded trading strategy, will perpetually avoid massive drawdowns.

When implementing a strategic trade, a good compromise between profit maximization and loss mitigation can be achieved by balancing trade size along with a stop-loss, which when placed at a level that only an extreme event will trigger, will likely contain losses to a predetermined range, and also prevent getting stopped-out of a potential winner. If one is disciplined, maintaining a mental stop-loss level is preferable to an order pre-placed in the book, and available for all the bots to scan.

Larry Williams adds: 

But speaking of stops, I go back to my litany, my preaching the essential reason for never putting stops on an exchange server, or even your brokers server. Putting stops on servers means that your stop becomes part of the market. And not in a positive sort of way either. Pick a price, hit the button, and take the hit. Discipline is key here.

Ed Stewart writes: 

A trader needs a decision process for managing the expectation or expected value of the trade as well as the equity position. The problems occur when these two things are in conflict.

The thing with stops is that at times it makes no sense to get out of a trade when the expected value is still good. What is the difference between exiting at a small stop-loss point 4X in a row vs. one loss of that same size? Well, if at each "stop out" point the expected value was favorable, it makes no sense, one is just locking in losses. At times the best "next trade" is simply staying in the current trade.

However, I see Larry's point and it is a good one. Yet, the example of letting a loss get huge or holding an underwater position for a year is to me something of a false alternative. No exit strategy but hoping for a profit at some point is not a reasonable alternative.

What maters, I think, is the expected value of the trade at each moment, and balancing that against equity and a margin or error to ensure, "staying in the game".

Given this I always trade with mental stops, if not on individual positions, on total account equity. Having that "self-preservation" discipline is useful.

Jeff Watson writes: 

I learned very early on in the pit on how to go for the stops, and that weaned me off of stops completely (except in my head).



Here is a deeply flawed article in Texas Monthly about BBQ, but the article contains an interesting (but somewhat inaccurate) map of BBQ across the South. The flaw is the essential conceit that Texans have by thinking their BBQ is the best in the world and every other BBQ is inferior. I've had some inedible BBQ in Texas and I have had some awesome BBQ in the North when Mr. Humbert was gracious enough to take me to a BBQ place in CT. That place was better than any Texas BBQ I ever had.



 My son sent this to me and I enjoyed some of the life lessons. For some reason I could imagine this coming out of Ben Green's mouth.

Take a little good advice from an old Montana farmer:

Your fences need to be horse-high, pig-tight and bull-strong.

Keep skunks and bankers at a distance.

Life is simpler when you plow around the stump.

A bumble bee is considerably faster than a John Deere tractor.

Words that soak into your ears are whispered… not yelled.

Meanness don't jes' happen overnight.

Forgive your enemies; it messes up their heads.

Do not corner something that you know is meaner than you.

It don't take a very big person to carry a grudge.

You cannot unsay a cruel word.

Every path has a few puddles.

When you wallow with pigs, expect to get dirty.

The best sermons are lived, not preached.

Most of the stuff people worry about ain't never gonna happen anyway.

Don't judge folks by their relatives.

Remember that silence is sometimes the best answer.

Live a good, honorable life… Then when you get older and think back, you'll enjoy it a second time.

Don 't interfere with somethin' that ain't bothering you none.

Timing has a lot to do with the outcome of a Rain dance.

If you find yourself in a hole, the first thing to do is stop diggin'.

Sometimes you get, and sometimes you get got.

The biggest troublemaker you'll probably ever have to deal with, watches you from the mirror every mornin'.

Always drink upstream from the herd.

Good judgment comes from experience, and a lotta that comes from bad judgment.

Lettin' the cat outta the bag is a whole lot easier than puttin' it back in.

If you get to thinkin' you're a person of some influence, try orderin' somebody else's dog around..

Live simply. Love generously. Care deeply. Speak kindly. Leave the rest to God.

Don't pick a fight with an old man. If he is too old to fight, he'll just kill you.



 It has been a while since the dailyspec discussed the potential for mayhem in the Straits of Hormuz. So far, the greatest threat to American interests has come from our own Navy. It has been nearly 4 years since the USS Hartford collided with the USS New Orleans. The "accident" injured 15 sailors; the repairs to both ships cost over $100M.

The folks at StrategyPage just reported some of the details of the accident report:

1. There was no one supervising the sonar operator when the collision occurred

2. The sonar operator was not, in fact, looking at his screen at the time but talking to a fellow crew member

3. The ship's navigator was not plotting the ship's course but "doing something else, while listening to his iPod"

4. The officer in charge failed to raise the ship's periscope to scan the horizon before the ship breached the surface

In total there were 30 errors in procedure.

Chris Tucker writes:

Complacency and sloppy work are very difficult to control after they have taken hold of a work group. The proper place to kill them is in early training. People who are responsible for large numbers of other peoples lives and/or for highly valuable property need to be trained in active vigilance early in their careers. Unfortunately, safety is a boring topic to most — it lacks the intrigue of the higher mission, it lacks the luster of fancy technical gadgetry, and because it is something that has to be practiced with diligence day in and day out, at all times, it is difficult to keep at it.

But safety and its execution is absolutely essential to any complex operation. Organizations and systems that require precautions have to inculcate a culture of safety and then impress it into their people regularly. It can never be treated as a one off training item and then checked off as completed, it has to be pressed, again and again and drilled into the subconscious so that it comes automatically. Active surveillance, much like active listening, is a skill that requires practice to master.

I suspect that in the crossing of an active shipping lane like the Straits of Hormuz, that submarines use active sonar, but I have no idea how frequently they ping. Probably on the order of once every two or three seconds, much more than that and there is insufficient time to capture reflected signals without interfering with them. The point is that an operator, especially at a time that requires extra vigilance — like surfacing, needs to actively direct his attention to his equipment and scan for threats at least once every three seconds.

While this sounds easy enough, it requires a great deal of will and energy. Distractions constantly compete for attention and need to be reduced. Again, training is the only way to control this and create an environment that rewards attentive execution of duty and punishes the creation of distractions and sloppy behavior. I suspect that if the navy chose to drill procedures in vigilance and active surveillance as often as they train for emergencies or attack maneuvers, the frequency of these incidents would be dramatically reduced.

P.G writes: 

Excellent stuff on complacency, but "culture of safety" might be too strong a goal for any place in the military. It's true that the Navy is the service where war most closely resembles peace. Most naval ships in WWII saw only a few hours of combat over the years' duration. Day-to-day operations were quite similar to peacetime ops, with the environment (including friendly ships) being the principal enemy. But the few hours of combat were the whole point, and it seems to me that safety must not be so deeply ingrained that it cannot be easily discarded when the necessity arises.

Paolo Pezzutti writes: 

Western navies nowadays are dealing with decreasing budgets, changing operational scenarios and threats, issues in recruiting and retaining the professionals they need. All these factors are tightly linked. The level of ambition of naval forces is questioned in terms of requirements and capabilities needed. The threats is different from what it was at least two decades ago and attention is growing mainly for maritime security tasks. Hard to justify expensive investments to develop complex and futuristic weapon systems. For sure maintaining the fleet efficient and effective is tough at times when navies are struggling not to reduce numerically their fleets below critical thresholds. Recruiting highly skilled professionals and most of all retaining them is also critical. They need to find a motivating environment that meets their expectations. Innovation and technology are allowing the reduction of manning on board ships and submarines in order to achieve the compression of operating costs. This is also introducing risks because each member of the crew has more tasks than in the past to perform and no redundancy. On the job training and management of emergencies are issues to deal with. More focus over the past years is on modelling & simulation to train crews ashore although any sailor knows that these solutions cannot fully replace experience gained at sea. Some have questioned the extent of manning reduction that was envisioned as acceptable only a few years ago based on lessons learned developed on new constructions. The quality of training is key as days at sea spent each year tend to decrease. Incidents are the expression of this situation. Training concepts and processes have to change and adapt rapidly to this environment. As budget and personnel decrease, this is the challenge of this decade. 

An interesting sidenote about, "Stick close close to your desks and never go to sea, And you all may be rulers of the Queen's Navee!":

The object of Gilbert's satire is not so much the person of publisher and politician W. H. Smith as the system that in essence de-professionalized command positions in the British armed forces, and promoted those with wealth and political connections rather than military ability. Thus, Gilbert was in effect attacking the long-standing aristocratic tradition of purchasing commissions. Instead of "serving a term" as a midshipman (which was the conventional route leading to officer status and ship's command), Sir Joseph has taken a strictly political route to the Admiralty.

Russ Herrold writes:

A former officer (here: identified as JG) from the US Navy who served in submarines inter-lineates replies to the article you linked to:

Sub commanders are under a lot of pressure to keep their sailors from leaving the navy (JG agrees). But the long periods submarine sailors spend away from their families creates pressure to get out and take a civilian job close to home. (JG agrees) The submarine sailors are very capable, and highly trained, people. Getting a better paying civilian job is not a problem. So sub captains try to keep the crews happy. That often leads (JG: Bull Shit!) to lax discipline. (JG continues: just lax discipline with this command)

Interestingly the article's remarks about generally available better substitutions employment were not addressed in the initial comments back to me; in following up privately, JG thinks the author is over-stating the substitution opportunities …

But then that makes for a more urgent article, then, doesn't it?

Chris Tucker adds: 

My whole point is that these people are professionals and should be behaving like professionals. They are in positions of responsibility and need to act as such. There is a tremendous amount of self validation that comes with knowing that you know your business and that you act accordingly. People that understand this arrive at work with their heads held high and don't just talk the talk but actually walk the walk. They don't feel entitled to anything unless they've earned it themselves. This is the kind of behavior and path to self esteem that needs to be engendered. It is not about safety, per se, probably a bad choice of words on my part. It's about being a professional, about being an expert. And about wanting to be those things. It's about knowing what needs to be done and doing it properly, correctly and without fail.



 Orde Wingate, the eccentric British general who made his reputation in the 1930s-1940s by leading unconventional troops in Palestine, Abyssinia (Ethiopia), and Burma:

His pioneering efforts to add guerrilla tactics to the arsenals of conventional armies often met with disdain and disbelief from more conventionally minded officers. Wingate did not care. "Popularity," he believed, "is a sign of weakness." Considered by his peers to be either a "military genius or a mountebank" (opinions differed), he had been locked in an unceasing war against his superiors from his earliest days.

Even as a young cadet at the Royal Military Academy, Woolwich, he "had the power," recalled his best friend, "to create violent antagonisms against himself by his attitude towards authority." Later, as a junior officer, Wingate was known to begin meetings with generals by placing his alarm clock on the table. After it went off, he would leave, announcing, "Well gentlemen, you have talked for one hour and achieved absolutely nothing. I can't spend any more time with you!"

Wingate's first rebellion was against the stifling religious atmosphere in which he was raised. His father was a retired Indian Army colonel with a devotion to a fundamentalist Protestant sect called the Plymouth Brethren. He and his wife brought up their seven children, including "Ordey" (his family nickname), in what one of his brothers called a "temple of gloom," with prayer mandatory, frivolity forbidden, and "fears of eternal damnation" ever present.

By the time he arrived at Woolwich, to train as an artillery officer, he had left the Plymouth Brethren, but he never lost his religious outlook. For the rest of his life he would be deeply influenced by the Bible, on which he had been "suckled" and which a friend said "was his guide in all his ways." Another legacy of his childhood was that he developed a violent aversion to being regimented. At Woolwich he was in constant trouble, and he formed a low opinion of the "military apes" who tried to discipline him.

After graduation he learned Arabic, and in 1928 he joined the British-run Sudan Defense Force as an officer overseeing local enlisted men. Here he battled elusive gangs of slave traders and poachers within Sudan, learning the hit-and-run tactics he would employ throughout his career.

He also developed many of his unconventional habits, such as wearing scruffy clothing ("his socks were very smelly and all in holes," a subordinate later noticed), subjecting himself to great danger and discomfort, and receiving visitors in the nude. (He would become notorious for briefing reporters in his hotel room while "brushing his lower anatomy with his hairbrush.")

Read the full article here



I was skiing in Vermont recently and as is usual for skiing in the northeast, the slopes weren't as deeply covered with snow as one would wish. When one attacks a steep run in these conditions, it is guaranteed that the center of the trail will be bereft of snow — thin cover is the term we use euphemistically to indicate ice and rocks — mostly ice though. When this happens, there can usually be found some snow piled on the edges of the trail, it having been pushed there by previous skiers who made all their turns in the center, their scraping edges clearing it away off of the underlying hardpack and pushing it to the sidelines.

Skiing in such conditions can be done, but not without incurring greater than normal risk. And it is usually not as satisfying as skiing using the entire available path whose deeper, more sweeping turns are somehow more satisfying and which provide greater control. But under these conditions, staying in the center is deadly so advanced skiers will stick to the edges of the trail, making all of their turns in rapid succession on what is in effect a trail only two or three feet wide. This means that turns must be small in degree and therefore must happen very quickly so as not to allow the tips to remain pointed straight down the hill and therefore incurring excessive speed. This kind of skiing requires conditioning, linking extremely rapid turns is exhausting and one must not attempt this when fatigued as the resulting inability to really push hard and dig can be catastrophic. It also requires some nerve, for one, keeping near the edge puts one in dangerous proximity to the treeline (or the edge of the abyss -as the case may be) and one slip at high speed and it's all over. And it means high speed, even while carving one edge after another in succession, the lack of available surface on which to gain traction means keeping the tips pointed perilously close to straight down the fall line. Mistakes at these speeds tend to have greater than normal undesirable consequences.

As I enjoy the speed, I will make one or two runs in these conditions just for the thrill of it, but this kind of tight skiing in a narrow and steep path requires tremendous concentration and loses it's appeal rather quickly. I will spend the majority of my time on tamer runs with more snow, even though they may be more crowded, so I can make the more gratifying, longer, carving turns that I prefer.

Jeff Watons writes:

That's just like surfing big waves vs small waves.I am not comfortable in the brutal conditions Mr Sogi San surfs on an every day basis. In those conditions, I will look for the rip current to get outside, paddle and make a bottom turn, and ride it in. Like typical Sunset. I don't stay out very long as I did when I was younger when it is big. But if the waves are 2-3' overhead, I'm good all day long. I'll still find the rip to make paddling out easier, but I'll attack the wave harder. But some of the very best days are those waist-chest high waves where you cruise on a long board, and catch the glide. However, during calm conditions I have suffered the greatest traumas while surfing. Broken vertebra, herniated discs, tendon and ligament damage, broken nose, etc. Somehow, being relaxed while it's calm is more dangerous then when it's big. Or maybe I'm more careless when the waves are small, and a bit reckless thrown in for good measure. Carelessness happens in the markets also. You start taking your profits for granted. It's humming along nicely with all your positions in the green, then wham, the Mistress gets a little PMS(no sexism intended) and throws the whole system off balance or upsets the cart, and your account suddenly needs a tourniquet. The lesson here is to keep your guard up at all times.

Jim Sogi writes:

 Just back from backcountry skiing in the Eastern Sierras. The conditions were snow that was about a week old, with very cold temperatures, and no wind. The sun made a crust where solar energy hit, so the powder stashes were hidden on north facing aspects where there were old growth trees. The cold had dried out the snow making it sparkle and soft and creamy sugar which was excellent for skiing.. Though it had not snowed for over a week, in the shade, on the north facing slopes shaded by old growth pine where the sun did not affect the snow there was beautiful sugary soft powder. It took some doing finding these niches and some hiking to get there and fighting some pesky brush at lower elevations. No one else seems to have discovered these hidden stashes of nice powder. This reminds me so much of the markets, when even in less than optimal conditions, there are hidden stashes of unridden goods. It takes understanding of the underlying processes that create and destroy snow, the equipment and will to get there, and the ability to ride those conditions. Its surprising in such a huge mountain range that only in such limited conditions would there exist such fine skiing. The last day, new wet snow came and turned everything into the famous Sierra cement.

Laurel Kenner writes:

I took Aubrey to our favorite ski place, Telluride, a couple of weeks ago. A drought was on and the mountain was brown, but the resort's snow-making machines had been at work since November and most runs were open. A few patches of grass were visible in some popular places — enough to send a skier head over heels in the old days. The new equipment was somehow able to ride it out, although caution was still warranted. That strikes me as like the market; if you're well-equipped enough with margin and numbers to ride out the rough patches, you can still do well in adverse conditions.

Steve Ellison writes: 

I ski 10-15 times per year and encounter a wide variety of conditions. Light is an important factor. An overcast sky causes what skiers call "flat light". I slow down in flat light because the lack of shadows makes it hard to spot irregularities on the surface until one is nearly upon them. Dense fog is even worse. I have been in fogs in which I could not see the trees on either side and momentarily lost track of which way was down.

I like fresh snow, but there can be too much of a good thing. One day right after a 2-foot snowstorm, I started down my first run and fell on the very first turn when my outer ski caught some snow. I pushed off my hand to get up, but my arm sank into the snow all the way to my shoulder. It took a few minutes of wiggling and maneuvering to get back on my feet.

Wind is another factor. The Sierras sometimes have very high winds, which blow loose snow off exposed areas. The result is alternating ice and soft powder (in the spots in which blown snow settles). Going too fast at the transition point can result in a fall. On one traverse I often ski, I use moderate wind to my advantage by letting the wind slow me down as I ski into it with no effort on my part.

Duncan Coker writes: 

When backcountry skiing which Mr. Sogi describes another key element is the approach. There are no lifts, so you hike uphill for every turn you will make downhill. It can be exhausting, but also very rewarding and you get to know the terrain including snow pack, the location of rocks, couloirs, tree wells, cliffs and the grade. After enjoying the view at the top you can descend focusing mainly on execution, making some nice turns. Skiing the steeper, untouched terrain has more dangers but is more rewarding.

I love the surfing analogy of "never taking the first wave" alluding to the dangers of being tempted by the first big wave in a set, after a lull. In skiing there are times when it is better to take pass on a run as well. Condition may appear good, but dangers are still there. Ultimately though we all have to "drop in" at some point for whatever activity we are pursuing, and taking some risk is certainly worth it.



 It is nice to hear some bullish sentiment recently and I will jump aboard. Here are 10 reason the market will go up from here in 2013.

1. Incentives do matter. The stock market is a reflections of humanity trying to better their lives via work, production and profit. That won't change and will drive the market up.

2. Despite government figures there is inflation in what people actually spend money on, food, energy, healthcare, education. Stocks, similar to hard assets, rise when there is inflation.

3. Fed dollar policy if for a weak dollar. Since stocks are priced in dollars this will help stocks to rise.

4. Scarcity matters. You cannot have guns and butter, stocks and bonds. You have and to pick and the yields are not even close. They favor stocks by a margin of 5-6%.

5. Bear markets come and go and but are not predictable. On the other side there is a welcome documented upward drift for stocks.

6. Big Al's research shows buy and hold beats every other market timing strategy except waiting for a 50% decline which happens only once or twice in a person's lifetime or maybe not at all.

7. After a real estate/financial crisis is a good time to buy, like after 1990-1 recession, S&L crisis, 1907 crisis to name a few.

8. Politicians come and go and markets rise in liberal and conservative times. The markets does not favor political parties but stability is bullish. The current divided government is stable enough for the market to rally.

9. The market weeds out the least productive. The best idea rise and the worst go bankrupt. Owning a stock index is a proxy for the very best ideas put into action, adjusted every year to get rid of the worst ones.

10. There is no upward bound on stocks. There will always be more work to do no matter how productive we become. This will be reflected in rising capital, equity and stock prices.

Anatoly Veltman writes:

Well, I'll take exception to a few of the ten:

1. Stocks is the last thing (just ahead of bonds) that should be rising with inflation
2. Counting on success of Fed's dollar weakening, just pick your cross of choice - not US stock index
3. I'll be gladly corrected, but isn't index's survivorship bias only important in bear market?

My chief contention is this: the country, as well as other top industrialized nations, have been engaged in anti free-market policies. We haven't seen real benefit (should we have?), and we haven't seen the society's degradation yet (in full swing). If we do, I don't think current multiples will prevail. I'm not calling for the entire S&P to wipe out - but I can see market pricing of, say, 10 or lower P/E; you tell me why is that impossible?

Gary Rogan writes:

There seems to be contradictory evidence about how well stocks serve as inflation hedges. There does seem to be a lot of evidence that they are significantly ahead of bonds, so "just" probably doesn't do them justice. As an explanation, but not as a prediction, the ability of stocks to function as inflation hedges depends on the ability of the underlying companies to pass price increases. It seems that when inflation suddenly accelerates, stocks don't do as well as when there is a stable rate.

There is some evidence that you need to go beyond broad market indexing if you want to use stocks as inflation hedges because not all companies are generically suited to pass price increases in the same way. I have said a long time ago, just when the current political environment first appeared on the scene that I expected large consumer non-durables to be the best hedges for the variety of ills associated with that environment. I fully expect them to continue even if inflation goes up.

The anti-free market policies will likely affect growth rates in a variety of sectors in the future, and likely have in the past. This should favor low-growth, high-certainty companies over the traditional growth superstars. Should things like fracking and 3D printing and whatever other factors compensate for the anti-free market policies, this "likely" will become the wrong guess. It is certainly true that certain large tech companies have allied themselves very deeply with the regime and are therefore likely to be able to exert some influence.

Very little will protect against collapse, inflation-driven or simply debt-driven. Gold is there, but look what has happened to many who had the gold during various once-in-a-lifetime calamities. Stocks may not be a bad choice short of total colla



 When will the drought vibe hit the grains if things continue weatherwise? Drought is a slow creep type of price impetus that suddenly pounces.

Ever since Jeff Watson asked about wheat and what to do with it a few months ago I have been poking around the river scraping bottom articles. With everything else up yesterday, I have to turn a head towards the left behinds and consider them as worthy orphans.

"Mississippi River Nears Historic Lows, Shipping at Risk"

Scott Brooks writes: 

One thing to watch for in a drought is the amount of snow that falls. Snow is very important in agricultural land. A good snow cover will slowly melt and drip into the soil, thus giving the soil water but in a way that allows it to soak deep into the ground without too much run off or evaporation (i.e. the snow cover keeps the water from evaporating thus allowing it to soak deeply into the soil.

Soaking the soil deeply followed by consistent and gentle spring rains helps end a drought.

The problem that these drought stricken area's have is that they are not only dry on the surface and in the rivers, but also deep within in the soil. And since water goes down (or evaporates up), we have to fill up the watershed from the bottom up, thus the need for snow. Otherwise, even gentle consistent spring rain won't help as much as you'd think…..as most of the water is going to go deep into the soil and not be of use to the plants.

Think about it this way. You have a cup that is 12 inches deep, but you only have a straw that is 8 inches long. You gotta fill the cup up 4 inches just to get a taste of the water. And to drink from it on a long term and consistently (i.e. throughout the whole growing season) you need the base amount of water to be closer to 5 inches and then have consistent rains to keep the water at a level where the roots can reach it.

a commenter replies: 

10 inches of snow is equal to 1" of rain. This article speaks to what you say: "Drought in 2013? Major Pains Ahead".




 The Iquitos Prison occupies twenty acre surrounded by a 12´concrete wall with four corner turrets that rise like rooks over the denuded jungle within. Eight pavilions house 160 prisoners each for a total of 1300 while forty guards stroll the garden patched complex to keep order. The prison uniform is street clothes but long pants only, while the guards sport tight black T-shirts inscribed INPE in gold on the back. They are armed with .45´s.

On my last day in Peru I visited the prison, first stopping across the street to rent long pants and a dress shirt for $1.00 for admittance. I turned to face the prison entrance, an arched gateway with a short line of visitors.

Inside this walled town inmates are indistinguishable from citizens outside who at any moment may end up right here due to the evil Amazon mothers-in-law and the crooked court system that convicts on bribes and rarely justice. You are put here and kept here depending on your pocketbook, not the crime. The four main convictions in order are sex crimes, drugs, robbery and last fighting. After talking with about one hundred prisoners today I will conclude that half are innocent and nearly all have overextended sentences as the system and their ex-girlfriends slowly squeeze money out of them over the days and years.

Some of the very females in the visitor´s line batting eyes in front and behind me, who lied in the first place to thrust their boyfriends here, and now of legal age, visit each Sunday to draw the curtains before the bunks. Each is paid for sex and, anticlimactically, the boyfriend urges her to retract the original rape charge.

The queue of fifty visitors, lovers, contraband runners and Sunday ministers moves quickly with eight at a time admitted through a ten-foot iron gate in the wall. Then there´s a pause at each of five stations where guards copy identification information, a green chicken imprint is stamped on my right forearm, at the next pause a visitor number is drawn in yellow magic marker below the chicken, at the next another black number 3-16 who is the prisoner I´m fated to visit, at the ensuing a beautifully engraved chit # 43 is traded for my passport photocopy, as I keep my original taped to my side that soon escapes a quick frisk at the final station.

The chit and number penned in red at the bottom of my arm journal prove I´m a visitor rather than convict and I´m told to return in five hours by 2pm or spend the night in the Crossbar Hotel. A pleasant guard in black and gold points me to a plank path across a muddy field to Pavilion 3 to ask for Ruso, the only gringo inmate in the entire complex. I briskly walk the wood plank expecting to find an Italian in for drug smuggling, and a guard politely steps off the one lane into the mud to let me pass, tipping his hat, and pointing ahead for ´Ruso´.

After walking the plank, the guard at Pavilion Gate 3 reads my arm moving his lips, pulls the single skeleton key to unlock the ancient lock, it opens with a creak, and locks behind me. I march a dim aisle like an alley on a moonlit night with open door cells on either side as inmates stare stunned, gape and a few cup their hands to mouths whooping, ´Ruso!´

I turn into Cell 16 and am surprised as a shaggy head pops out from the bed screen, giant bare feet hit the floor, and a huge hand envelops mine with a hardy ´PriVet´ (Hello!) in Russian. This is Ruso, which I quickly learn is Spanish for Russian rather than his name, though he is known throughout the system as Ruso.

A solitary black chess pawn sits on the desk in front of his bed as a clear invitation that I ignore for the moment. Our conversation is in Spanish as he speaks little English.

Ruso exports wood, and has lived in Lima for six years. One year ago he and his brother arrived in the heart of the Amazon at Iquitos to search for wood. His brother got in a fight with three men and bested them, and was subsequently arrested for beating a man to the pulp. Ruso was not at the fight but his crime in Peru is being the brother of the man who fled to avoid trail to Russia. In the perverse Peruvian court system Ruso was put behind bars to serve his brother´s aggravate assault sentence of three years. Before coming to Lima to start the wood business he earned an economy degree, is keen eyed, moves purposely with a royal bearing, twenty-eight, powerfully built, and no worry lines on a square face that begs a shave and haircut.

We make short small talk for he´s anxious to introduce me to the Teacher whom he claims will open every nook of the prison, even places I don’t want to go.

First, we tour his Pavilion, or concrete blockhouse with two flights of stairs and long cement halls connecting about twenty cells with eight beds each that are flung open each morning. Each 30´ square room has one toilet and shower, and each inmate has painted his space with a personal color scheme and hung posters of politicians, scantily clad girls or his own artwork. Ruso´s space is glossy white, tidy like the others, and stacked with non-fiction books on economics, nature and biographies from the block library.

We amble to the Block core that hems a 30´ x 60´ concrete soccer area alive with kicks and shouts over a deflated excuse of a soccer ball. Around the mini-field a dozen inmates run picnic table cafe´s, gambling rings, a crafts shop and barber shop. Prisoners whittle and fashion knickknacks, some paint, and others design or patch clothes to barter or sell to each other to eke a living. A weight lifting area with bars through concrete blocks as dumbbells and barbells gets constant use as many inmates are heavily muscled like Mastiffs. A rousing sermon well attended by forty hand clapping, foot stomping inmates screams through the windows over the soccer field. The scene is a sort of Eden in the Sunday morning sunshine away from the dank cells. It is hardly different from outside the walls except for the thick iron locks.

An 8-foot chain link fence with razor wire hugs the Pavilion with one gate to liberty to roam the twenty acres compound… and enter, if you can afford a ticket at each gate, the other seven Pavilions. It´s a macabre Disneyland. The chief guard at each gate, not his helper screw, has a key, for he has worked the system for years to attain this commanding post to accept or snub bribes to admit or refuse anyone to his Pavilion. So prisoners are free to walk within their own walled blocks in daytime, are locked in their cells from 10pm to 6am, and may leave the same way visitors enter, by bribing the guard chiefs.

´Money talks inside,´ Ruso quips and winks, adding, ´You are my guest,´ and palms the equivalent of $2 with a hand pump to the guard chief at the exit. It is a large sum where outside the minimum wage is $1 an hour. The guard pockets the money, claps Ruso on the back, and opens the gate to exit Pavilion 3 onto the main grounds where the other six pavilions and turrets reach to the sky like War of the Worlds. Few prisoners see this for years because of the price.

We pass Pavilion 2 adjacent to the prison perimeter wall where the last prison escape attempt in 2007 failed when the guards allowed via bribes a 19-inch diameter, 30-meter tunnel to be dug for six months from inside the Block and under the wall to the street, and then swooped in for the capture of 35 escapees. The breakthrough day that Peru´s national soccer team was to play the first qualifying round of the World Cup was smartly timed thinking the guards would be watching the soccer game and not tending to their posts, but someone squealed.

We slip into the carpenter shop within a 20-meter square hut with a log saw to cross-section and cut planks, planer and other equipment. Ruso brushes his hand gently across the wood like a lover´s cheek, explaining that he spends a lot of time here filling orders for civilians for tables, chests and beds. They´re custom crafted and picked up on visitor´s day. It would also be a tight place to hollow a log or furniture leg to store or transport contraband.

On reaching Pavilion 4 that resembles and is minimum security like Ruso´s Block, he pulls the chief guard aside to grease his palm while I chat with the backup screw who informs that the two guards per Pavilion gate work 24 hours straight, and then are off for two days. He avows the turnkeys prefer this arrangement that requires them to work only ten days a month. Each of the dozen guard´s I´ve bumped into is savvy, amicable toward the prisoners and me and, according to my tour guide, on the take. The chief gives him a big bear hug, shakes my hand, and admits us into the Block. We search the bobbing heads on a concrete cafeteria floor that fills the core area instead of soccer. Five cafes and as many pushcart vendors do a bustling business as prisoners chat, play cards and board games as if at Starbucks. This is a more affluent crowd with many seniors, and I´m tipped it is the white color crime Block.

One graying man with twinkling eyes holds an erect posture that stands out so brightly that I inquire of him. He is the former Pevas Mayor, a large jungle town downriver one day by boat, where he was convicted four years ago of accepting money while in office, and for some reason has chosen not to or cannot afford to bribe the court for a get-out-of-jail card. I was told that anyone with a non-violent crime may pay via an attorney to the court about $3000 for quick release, or $10,000 for the worst crime.

The majority of the men are sex criminals, or better termed victims, serving an average ten years for having an affair with an underage (17 years or below) girl; or twenty years for so-called rape. One man I speak to has spent a month short of twenty years inside for having sex with a drunken legal age girl who told police and testified in court that he raped her. He will be released in one month and is anxious for freedom. A few other men tell me, yes, they had sex with a teenage girl like most other Peruvian males, but that the mothers-in-law came at them with claws bribing the police for arrest unless they paid the girl´s family a queenly sum. They cannot afford that game and end up skewered in the penal system.

Ruso spots and yells over the mill to the Teacher. A shout back, and a tall thin man with spectacles above a perpetual smile weaves to draw the Russian´s hand and, on learning that I not only speak but have taught English, clears the floor with a jig. He is respected inside as the official English instructor- the guards address him in English as Teacher- with thirty students in all eight Blocks whom he charges pocket change. He picked up a little English in his youth as a jungle guide, strengthened it inside by reading books, and I am the first person who speaks better whom he has met in three of his six year sentence for having sex with a 16-year-old minor. There was leniency since she was his steady girlfriend that he planned to marry until she brought up the rape charge.

Ruso buys the Teacher a coffee and me lemonade, and on finishing suggests that we walk outside around the yard. Teacher bows his head in shame admitting he cannot afford the standard $1 bribe to leave the Block, but Ruso tells him not to be silly, that Teacher is our guide and the Russian foots the bill.

On swinging gaits with new elbow room we saunter the twenty acre compound, greeting ´Hola´ to the guards and ´Buenas´ to inmate gardeners of little jungle patches outside the Pavilions. Then past a tangle of construction equipment and abandoned bunkers from years gone by to the maximum security Block. .

In maximum men are stripped of their faculties by drugs and time served and so sadly are seen to their core, ragtag and clawing the chain link fence thrusting bubblegum and trinkets at me for coins to support their habits. They beg and alternately roar like lions. ‘You are dangerous!’ the Russian scolds them cheerfully, and then whispers to me, ‘Do you want to go inside?´’

‘Sure,’ I reply, and we turn the fence corner past the frantic men to the Sergeant with the key in to their cage.

It is a din inside. The halls are littered with men sitting sleeping with their foreheads on their knees and gum wrappers. Only six inmates watch TV, hardly any smoke cigarettes due to the cost, many sell candy or dirty girl sketches for change to fill out their emaciated frames or empty minds. The Block houses a younger crowd with strained faces, wild eyed, and doomed to spend decade sentences for crimes of violence, usually robbery or rape.

An atypically rotund middle-aged inmate with accountant eyes seeks out Ruso like a viper, wraps his arms like an anaconda around him and all the while narrows his eyes at me. The alert Russian squeezes him back hard, nods okay at me, and the man releases and smiles warmly. I get the feeling he believes I’m there to buy something, which is fixed when he introduces himself as the prison drug kingpin. Willie Sutton said he went to banks because ´That’s where the money is´, and the kingpin apparently has placed himself in this miserable Block because that’s where the business is. Marijuana and coke for personal use are legal in Peru, but heroin also works through the visitors and guards to the kingpin. ´Anything you want,´ he tells me, ´I can get,´ and then bows out politely that cues a circle of young unkempt inmates to tighten around us.

Yet a man of simian proportions parts them to grin broadly at my guide who nods a second okay that prompts him to utter, ´I am the Block Enforcer, and if you need help just whisper my name Pedro and your fears will go away.` He then steps back through the circle that breaks to allow his graceful exit, and a dozen young convicts approach without touching to beg cigarettes, offer marijuana, and sell candy.

Word echoes along the hard hallways that a gringo is in maximum! and fifty men more shyly than not come up in tactful groups of three to five. Many move directly to the Teacher to show off their new English vocabulary to which he grunts and grins and solicits my corrections. I hold court and teach everyone the words for sky and hope…

Two Mongrel pups prance down the hall sniffing for scraps and accepting tender pats from the inmates. The dogs are in far better flesh than the men in leading a Life of Riley with Carte Blanche to scratch and exit without bribing the guard and, no doubt, to enter another Block where the pickins ain´t so slim.

The dogs pass under a 6×12´ exactingly painted ´Rules and Regulations´ sign in rainbow colors that strictly forbids contraband such as drugs, electronic devices, weapons, fighting, and touching a guard. The punishment is solitary confinement in the Hole for stealing, fighting or breaking most of the other rules. The Hole which a few of the men cringe to recall is 1×2 meters by 2 meters high with only a mattress from which a person may not leave for his stay of one week to two months on bread and water.

I don’t meet the maximum Block Leader but he and the other Leaders seem to run the penal institution. Eight Pavilions with eight Leaders, as outside where chiefs run villages. Their responsibility as mediators is to iron out problems before they would annoy the authority. The guards are loath to enter any of the Blocks for any reason without a SWAT team, and so the Leader keeps them out of the loop. I am told that the guards never taunt or hit a prisoner. Let’s say an inmate infracts the most commonly broken rule of no fighting that if not for the in-house system would result in being sent to the Hole for two weeks and going stir. Instead, the offender is brought by the Enforcer to the Leader who listens patiently, decides on a short counsel, or as often as not doles out harder encouragement. That discipline, as in my school days, is a hit across the hands with a ruler, except in this case the offending prisoner is made to cross his hands and given blows on the palms with a heavy rattan stick. One young guy displayed bruised swollen hands, and attested, ´The stick hurts like heck!,’ but cheerfully accepted it in lieu of the Hole.

In contrast, American prisons host fairer courts, shorter sentences, broken rules, snitches, fighting and gangs, and combative guards. The Iquitos penal complex is more like an American turn of 20th century rural town except no one is at liberty to leave.

The Russian as the sole gringo in the community seems to be the King of all and kept in check only by the guards and his Block Leader who also respect him, if not for his physical prowess and sharp mind, then for his wallet that is always padded for bribes to get nearly anything he wants. He is totally at ease among the Peruvians on both sides of the bars who all seem in awe of his size, wealth, intellect and communication skills.

His parents do not know he’s in prison because it would embarrass them, and the returned brother to Russia has told them their son is walking in the jungle looking for wood. He has served one of a three year sentence and is content to fill in for his brother except that he’s bored to tears. It is more expensive to bribe himself out because of his noteworthy case and large bankroll that may be pinched longer by the court and jail. Yet, he claims that after one year imprisonment the balance has tipped in his favor and he is working with two Lima lawyers on the proper fee to be sprung.

‘How do you communicate with the lawyers all the way in Lima,’ I ask after we drop off the Teacher at the carpenter shop and stroll on to Pavilion 3. He smiles quickly and silently, guiding me by the elbow past the turnkey, down the hall where I first walked in alone and into his cell. The black chess pawn sits lonely on the desk. He asks if I play. I say I used to. He remarks that he started playing at age six, but it is just a hobby. ‘Chess is to Russians as baseball is to Americans.’ He pulls a board from under the mattress, I sit on his bunk and he on a crate with his back to the cell door. He extends fists across the board and I choose the left, that opens to a white pawn and we quickly set up the pieces. The Teacher walks in with something in his hand too, hops surreptitiously into the bunk behind me and draws the curtain.

There is no chess clock except the game must end in one hour to get me out before the end of visiting hours at 2pm, and if the game has no winner in that time we agree in advance to a draw. I have one strong opening, the King’s Gambit, and push the King’s pawn two jumps ahead against the Russian. The Gambit is taken and the game evolves into a wild and wooly middle with hands flying over pieces like a Bruce Lee movie. In thirty minutes of nearly flawless play at one of the most beautiful games of my life, in a King and pawn end game I am a pawn up. He rises and tips his king, shakes my hand, and then draws open the curtain behind me.

The Teacher is reclined on the bunk texting his attorney to get out of jail in three months for $1000 to a judge. He has brought the contraband phone perhaps from the carpenter shop to escape the weekly scrutiny of unannounced Swat Team cell shakedowns. I nod in understanding at them both and turn for a long walk out without looking back.

The Iquitos prison visit was an invaluable seminar where I learned that behind walls and wire and bars life goes on not so differently as outside on the streets of Peru. It is the most pleasant Crossbar Hotel of ten I’ve visited around the world, and nearly anyone could bear a year looking through the slats here though I have no desire to return except for a good chess game.



 My girl has escaped to the Galapagos for a pinch hitters holiday. Last minute, she substitutes for a broken off boyfriend on a mother-daughter romantic cruise. I am left to fend alone back home. This provides the opportunity for a swift beer with a friend to turn into an impromptu night out, clubbing in Shoreditch.

One needs a spright female on hand to perfect the nightclub experience. I love to dance, but my beau is far away and tonight I boogie alone. I content myself with being a wannabe insipid Susan Sontag for the evening and see what market lessons can be pried from a meta state of mind.

Shoreditch is now Chelsea mark II. We pile into one of the McNightclubs that have sprung up, impoverished attempts to replicate the Shoreditch of old. But only the immigrant toilet attendant has stayed the same, swallowing his multi-lingual, degree educated pride to beg pound coins from drunks passing through his urinaled office. The rest is all change.

In five years, all the themes of Global Capitalism have sprung through. Asians and Russians. New money. The true roughneck suburbanites have been pushed out to cheaper Dalston, preparing the cultural groundwork for its inevitable rich-bitch colonisation in ten years time. London spreads its tentacles outwards, a multicultural Tokyo in the making.

Everything must bubble up through the ecosystem. Out in Dalston, they're preparing the cool of tomorrow. That's where the real coke and E, life limiting Epicureans can be found. Venture a little further, be the artists and repertoire man for the market, and you might learn something. When Robert Johnson sized up his Asian shorts, he knew the outcome. That the cracking of the currency band would also break the backs of subsistence Thais. He knew the multi-order effects that would ripple through and was prepared. But most have such a vanity of their profession that they don't want to think through the other side of the trade.

The margins must inform the centre always. Innovation is never from the middle out. Here in Shoreditch, they deceive themselves that they have urban cool to themselves. But the beats of Dalston today cannot be offered up to Shoreditch's dance floors. Social permission must be given first. Schwarzman has whip hand. David Swensen tells you to pile into PE. You do so gladly.

 Doorman paid off and inside, I pull off my jumper and roll up my sleeves. I suddenly remember I dressed scruff for a quick beer. Hauling furniture for my father in law has stunk up my shirt. But here's a market lesson: sometimes you can blend into the beta and cover over your current flaws. In the funk of a club, nobody can spot my sub-hygiene; right now I don't need to do better than the crowd. And soon, my own deposit to the toilet attendant wins a spray of Calvin Klein from his collection.

For the youngsters seeking romance, the club is a floor market of old. Position and size is offered in full view of all players. Bargains are transacted; matched orders are paired and moved off to the side. Like the great traders, the great seducers know core principals, but the art can't be reduced to a set of rules.

Look to the DJ. He is a super skilled hauteur, playing all the Mixmag approved material for pop connoisseurs. But he is deeply mistaken. Watch the floor. He has forgotten this is pretend, bought hedonism for urban wealthy. Experian's Mosaic calls them Alpha-As. This crowd wants the cheap, easy beats. The Ibiza classics. They don't know how to dance to this complex, nuanced stuff.

Similarly, to shoot the lights for your clients, you need to pick the right ones. Play in the connoisseur nightclubs only. The right families know to endow the smart boy with his bar mitzvah gift and give him room. But if you're sourcing from the broad crowd, offer 200 over the index only. Play the same tune as everyone else, just execute a handful better.

Switch to later - back home and unwinding briefly in front of the TV as the ringing clears my ears. Bruno Mars shows how the DJ should have worked it. Bruno mixes doo wop and reggae traditions with a sweet voice. He's an ultra-straightforward mix of old time Motown, Jackson, with a hint of Blues Brothers. Nothing he is doing is rocket science; Bruno is just great at it. When suddenly his big band start to dance behind him in syncopation, the crowd goes wild. The moves are so simple, and that's why we instinctively love it. Our need to empathise with the protagonist overwhelms everything else. We could do that! Bruno's reward is scale: best-selling global artist of 2011. Get out of your own way.

The market is alike: it wants to trend to a simple tune and dispose of nuance. Into the election we get a consistent menu from the central bankers, Merkel and Obama. It vibes simply and pleasantly and the market moves accordingly.

 On the club dance floor the same can be seen. As soon as the DJ offers the basic beats, the crowd immediately ratchets up and energy spreads across the room. A range breakout has occurred. What's our leading indicator? Certain attendees got to see the DJ's playlist before hand and know when we are set to change tone. The cool-kids roughing with the bouncers and the bar girls. Watch for when they rush to the floor. Don't want to live that lifestyle ourself: hedonism takes its toll. But we can watch for their moves.

Same for the break-ins. When the DJ falls back to his instinctive complexity, uncertainty starts to spread and the floor slowly clears. But not quickly. By being alert, we can get out in front and hit the bar first.

I shift naturally to rhythm whatever it is. Girls look quizzically as to how, and compliment me on my moves as the rest of the floor jars. Similarly, the good trader sticks to his system, but adapts to the nuance of the current tune. I would readily exchange all rhythmic skill for even an ounce of the same in the market.

A Chelsea girl grabs my ass as she shuffles past on the dance floor. When you want to raise capital you can't and when you've got your fill, everyone's interested to add more. I ignore it and self-indoctrinate, thinking to my girl in the Galapagos. Don't be tempted into the cheap, impulsive trades. Don't go on tilt. Remind yourself of your principals and stick to your proven system. Work your long term plan and you'll profit more.

The light must be catching me favourably or my perennial uniform of old chinos and worn out dress shirt must have accidentally intersected with the current whim of Shoreditch fashion. But any false flag cool on the dance floor belies my cardigan wearing, shoe staring tendencies. Do your diligence in the light of the day, not the setting the vendors or advisors have picked. Don't bid the banker's book for an asset. It's the pork not the rouge that matters on the lipstick wearing pig.

 A drunk in our party rabbits into my ear. I can't make head nor tale of what they're saying, but I'm sure it makes perfect sense to them. They are intoxicated by the market of the moment and convinced of its internal logic. Tomorrow, a hangover.

Back home. After only a few hours sleep, I pay the penalty, rising too early to return a borrowed car on-time to a friend. I peer brain-dead over the steering wheel onto the icy road and hope for the best. Selling out hard-touch front month options on myself, I get to my destination safe and in favour. We all do it, let's hope the vol isn't mispriced.

Victor Niederhoffer writes: 

Mr. Owen's fine soliloquy is wonderfully poignant and is as good as the soliloquy from Carousel and should be made into a ballet or set piece of a musical.



 I have often thought that the lyrics of Oscar Hammerstein contained tremendous deep truths of the human spirit, and I always encourage those new to the American song book to listen to Hammerstein rather than Sondheim. Here's how his nephew, eminent author of An Empire of Wealth, put it: "Like all artists whose work endures, Oscar Hammerstein used aspects of his own life to provide a window through which less-gifted people might see more deeply into the human soul and learn better what it is that makes us human". I believe the Hammerstein lyrics are good for market people and we listen to them every day here.

Jeff Watson writes: 

You're right about Hammerstein's lyrics 100%. I listen to Hammerstein once a week, maybe twice (usually a favorite from South Pacific). I play a wide variety of music here. It can be very pleasing to the ear as well to the soul to successfully fit the music to the tone of the market, and it's harder than it looks. A wine steward pairs wines with courses, a successful speculator pairs the markets with music. Sometimes it's Chopin, sometimes it's Tony Bennett, maybe The Brian Jonestown Massacre, could be Frank Zappa, Celtic music, Cajun waltzes, East Texas Swing, and on and on. The grains alone sing a greater variety and styles of songs than all the musicians and songwriters in the world combined. Admittedly, this speculator finds it very hard to match the music with the market, and when I can't get it right, nothing beats the Overture from William Tell or March of the Valkyries to wake things up. 



 Umberto Eco, in his studies of mass media and culture, has an essay on popular new devices. His thesis is that they start out by being used by the wealthy and then get used by the common man, and lose much of their value from the law of diminishing marginal returns.

He uses the railroad and cell phones as examples. I have found that many new things like the smart phone have decreased their marginal productivity. Studies show that 30% of users sleep with their smart phone next to their bed. I have not had the displeasure of being interrupted in romance by a smart phone ringing yet and answered, but I am told it is common.

What are the implications of this for market analysis, especially of individual stocks.  I find that my past research which did not use "as is" files and was heavily dependent on compustat is deeply flawed. Indeed my approach seems flawed. I am trying to improve for the future. My kids seem to make money with their stock purchases based strictly on the future growth of popular products among the younger generation. I wonder how to improve.

Thomas Miller writes:

Maybe Peter Lynch was on to something although I don't see how his "method" can be quantified.



 Cold reading has much in common with market charlatans:

"There seem to be three common factors in these kinds of readings. One factor involves fishing for details. The psychic says something at once vague and suggestive, e.g., "I'm getting a strong feeling about January here." If the subject responds, positively or negatively, the psychic's next move is to play off the response. E.g., if the subject says, "I was born in January" or my mother died in January" then the psychic says something like "Yes, I can see that," anything to reinforce the idea that the psychic was more precise that he or she really was. If the subject responds negatively, e.g., "I can't think of anything particularly special about January," the psychic might reply, "Yes, I see that you've suppressed a memory about it. You don't want to be reminded of it. Something painful in January. Yes, I feel it. It's in the lower back [fishing]…oh, now it's in the heart [fishing]…umm, there seems to be a sharp pain in the head [fishing]…or the neck [fishing]." If the subject gives no response, the psychic can leave the area, having firmly implanted in everybody's mind that the psychic really did 'see' something but the subject's suppression of the event hinders both the psychic and the subject from realizing the specifics of it. If the subject gives a positive response to any of the fishing expeditions, the psychic follows up with more of "I see that very clearly, now. Yes, the feeling in the heart is getting stronger."

Jeff Watson writes:

Here's a great how-to" book on cold reading.

Bill Egan writes:

A complementary resource I recommend is "The Definitive Book of Body Language" by Allan and Barbara Pease. Always watch peoples' body language and compare it to their words, and watch how both change over time. For example, when the fraud thinks he has you, there is often a split second where he will shift his body position and display a chilling facial expression like a fox looking at a chicken. That half-a-second is real important to you.

Jim Sogi writes:

Trial lawyers look for cues in the jury's race, clothes, hair styles, books or magazines, shoes, apparent class, education, prior experiences who they speak with, their background information on their questionnaires to get a read on how they might decide a case. Trial consultants use broader data on how similar groups might react to similar situation. During Voir Dire, a short question and answer period, the lawyer can ask the prospective juror some questions that might shed light on the juror's prejudices that would justify being removed from the panel or dispose the juror against the lawyer's client. Again, all forms of cold reading.

A fun game I like to play while people watching in restaurants, or on the street is to look at people and try to figure out without anything more than watching from a distance, where they are from, what they do, what the relationships are between members of the group, what they might be like. Family groups on vacation are a pretty easy read as well as their internal family dynamic. Old couples are straight forward. Groups of young people tend to send strong signals. Groups of business men, groups of tourists, newlyweds all have characteristic mannerisms. The next level to try discern their relationship, what they are like and get an idea about them from only external signals.



 Talking about morals, there seems to be no shorting of those without. Note the Secondary Scam. Wow, is this another reason why some in the market keep on getting clipped and have a lack of versatility. "Consistently more are likely to show renewed interest in contact from fraudsters". The magnetic attraction …of what? Excitement, revenge, thrill seeking–it smells of lack of due diligence at a minimum.

From "Nigeria With Love":

"Meanwhile, ''The Psychology of Scams'', a study commissioned by the UK Office of Fair Trading, shows people who have already been a victim of a scam are consistently more likely to show renewed interest in contact from fraudsters. One trick of conmen is the ''secondary scam'' in which they contact a victim some time after they realise they have been scammed and pretend to be lawyers, government officials or police from the scammer's country. This happened to Munro. ''Sean King'', whom she chatted with on another site, told her he had also been the victim of a scammer. He said the Economic and Financial Crimes Commission, a Nigerian law enforcement agency that investigates 419 scams, had helped him and a friend to recover their money. Her local police had already suggested she get in touch with the EFCC, but ''I emailed them and never got a reply,'' she says. Sean told her he would get the employee who had helped him to contact her. ''So he [the EFCC employee] emailed me and then it was all on again,'' Munro says. The emails had the same EFCC logo as she had seen on the site to which the Australian police had directed her. ''They said because such a large amount of money was due to me, I had to get anti-money-laundering and insurance certificates from the bank. All the documents that came to me looked totally believable,'' she says. ''They named the guy who scammed me and said they had his IP address. It was very clever. I was sucked in.'' Thousands of dollars later for a variety of ''fees'' and ''certificates'', Munro realised she was being scammed again.

An interesting article on The Psychology of Scams



 U.S. earnings seem to be humming along fairly well. Why is unemployment staying so high? What are thoughts on the "why" of continued high unemployment. Also, what would change that inducing hiring?

Steve Ellison writes:

Eric Falkenstein posits a correlation between bank stock declines and the unemployment rate which I find very interesting.

Gary Rogan writes:

"Confidence" (or lack thereof) is the stock answer from the right, and "corporate greed" on the left: those two are quite common these days in many documented discussions.

There is not specific reason why corporate profits have to lead to decreasing unemployment, although under normal circumstances they are positively correlated. They haven't been for a few years as the graph in this NY Times article demonstrates [link may require registration].

The key determinant of making the decision to employ someone is the answer to this question: do I need someone right now, in the geographical locale, to address current or future demand? And given that getting rid of people is expensive and unpleasant, there is a hurdle attached to the "need", and of course being able to afford the employee in the first place is another hurdle.

Corporate profits do help with macro demand and being able to afford new employees, but profits only translate into demand if employers have enough confidence to invest in new equipment/building, etc. or hire someone based on the future estimate of "need". So the lack of confidence does freeze the whole process in its tracks. High unemployment itself leads to lower macro demand on the part of the consumers due to the lack of incomes, so the only real way to break the deadlock is for the businesses to have enough confidence in the future to invest or hire. Of course the Keynesians believe in a totally different way to break the deadlock, but as I have mentioned multiple times I consider that nonsense.

High levels of unemployment compensation only slow down employment recoveries instead of doing the opposite as those on the left believe. On the macro level, they lead to mild consumer demand destruction as opposed to the supposed increased demands as they spend their transfer payments.

The geographical question is of course very big and complicated. There are a lot of alternatives to hiring locally and due to the tax-related lack of of foreign income repatriation as well as foreign political pressures, it's hard to correlate global profits with local employment anyway.

I personally believe that until Obama is out of office and the fate of the health bill is undecided (which may or may not be resolved in a few days) the employment picture will not improve. What seems like a slow-motion collapse in global demand may matter even more depending on the magnitude, but is hard to forecast. The recently documented household wealth destruction in the last few years doesn't portent a good story for local demand either.

Rocky Humbert writes:


In lieu of a titillating academic paper to share, I will reprise my typical rant: There are only two things on which ALL economists can agree: (1) Resources are limited; (2) Incentives matter. So, let's pull out the old Supply and Demand curve which derives from both (1) and (2) and repeat out loud: Ceteris paribus, if the supply exceeds the demand, the price must fall to achieve equilibrium. (A) If there is excess labor (aka unemployment,) the price of labor must decline to clear the excess from the market. or (B) The demand (hiring) must increase dramatically from the status quo. All of the political squawking focuses on the demand side. I don't hear anyone on the left OR the right talking about pay cuts as a way to clear the labor market. Maybe I should run for President on the platform that, EVERYONE should cut their wage rate by 30%. I promise you that unemployment will be below 4% before the end of my first year. Any volunteers to be my campaign manager? (It's an unpaid position — which is a first step towards reducing the unemployment rate.)

Andrei Kotlov writes: 

This is a reply specifically to Rocky's [witty and entertaining] latest post (as it has little to do with the original question); an economics post to follow in a couple of hours.

(1) There are no incentives in physics; only cause and effect. Incentives imply free will. An agent's behavior *tends* to be affected by incentives—but it does not have to be. (Do not get me wrong: I do fully agree with your original "incentives matter.")

(2) The second law of thermodynamics implies increase in entropy, but I am afraid only when no agents [of free will] are involved. The latter can [and do] decrease chaos.

(The main objection to your statement "resources are limited" should have been not an objection but a modification: "agents can use [albeit limited] resources with varying efficiency." Of course, you agree with such a restatement yourself.)

(3) Perhaps most importantly, "experiments" in economics are, in principle, not replicable because (as Mises has explained) agents are capable of modifying their behavior based on the outcomes of previous "experiments."

Andre Clapp writes:

As a former physicist, I'm not sure I agree with the statement that "There are no incentives in physics". As previously pointed out, objects and systems have a natural tendency to seek potential energy minimums (a ball is "incentivized" to roll down the hill, and requires intervention to prevent it from doing so). Similarly, there is a natural tendency towards greater disorder (castles turn into piles of stones naturally, but a great deal of "intervention" is required to turn a pile of stones into a castle.)

I find the analogy to be quite good. The natural tendencies of physics can be harnessed to create rocket fuel that makes a rocket fly. The natural tendency of humans to enrich themselves and make a better life for themselves and their families can be harnessed to make a better and more productive economic system. I agree that the ball rolling down the hill has no "free will", but incentive is just a word… I'm not sure if it implies free will or not. I'm not sure it matters.

As an aside, the question of whether humans have "free will" is actively debated in the relevant community. In thinking of how to design an experiment to demonstrate the concept of "free will", I find the concept to be poorly defined, if not undefined, and therefore meaningless (to a physicist!)

A pleasure to be part of the discussion group.

Respectfully yours,

Andre Clapp (The rocket scientist)

Andrei Kotlov writes: 

 To Andre Clapp: one indeed needs to start with the concept of free will—but, may I hide behind the statement that it is too big of a topic for me to cover here? I have spent long time thinking on the nature of free will, and still do not know how to summarize it in a few sentences. To me, it is a combination of randomly-fired processes (e.g., discharges in the neural net) with a deterministic ability to select. Ol' good dialectical "quantitative becoming qualitative."

If one accepts the notion of free will (not as an article of faith, but scientifically) then the word incentive is only meaningful in the presence of a choice. If you want to equate 'incentive' with 'cause,' well, you have just redefined the word meaning "a thing that motivates or encourages one to do something." Once again, in physics, one speaks of cause and effect. When agents [of free will] are involved, the relation between the causes and effect may not be traceable [because of the complexity and multitude of the randomly-fired prior events in the brain over the course of each agent' life]. Thus, it makes sense to separate 'incentives' (for agents) from 'causes' for 'inevitable' effects, in particular on inanimate objects.

Andre Clapp writes:

Hi Andrei,

First point: In the world of quantum mechanics the future is not completely predictable, even for inanimate objects (particles) in the absence of agents. The world is not deterministic, it is probabilistic, a point that N. T*leb seemed to understand well when he wrote "The Black Sw@n". It is not just humans that are to some extent unpredictable. The ball rolling down the hill is (to some extent) unpredictable. Does that mean the ball has free will?

I think it is better to simply think in terms of "causes" and "effects". "Free will" to me is an article of faith or religion, not science or reason. The fact that you cannot define it, yet ask one "to accept it", points very much in that direction.

Not that theology is a bad thing, but these are questions without right or wrong answers. "How many angels can fit on the head of a pin?" Tell me what (define) an angel is, and I'd be willing to discuss it, otherwise it belongs in the realm of religious leaders, artists, and traumatized children and families. In other words, in the realm of emotion. As I'm sure you know, centuries were spent (wasted?) discussing this very question. (And no, "people with wings that come from heaven" is not a definition of angel.)

(I think) I know how you feel. This concept is so deep in our culture, like "the soul", that it is difficult to reject. We feel like something fundamental is being ripped out of us. And yet, it doesn't bear up well under scrutiny, or the light of reason. Even something as fundamental as a definition is missing! Surely that tells us something…. In the end, is it really so (emotionally) different to say that human actions are a result of cause and effect, than to say that everything happens because it is a deity's will (an idea that many people find comforting, not threatening.)

All the best,

Andre - The rocket scientist



 "Try to keep your pawns coordinated. Think of them as the foundation of your house. Every crack and every hole can eventually lead to disastrous consequences for the whole house."

- Jonathan Edwards, US Correspondence champ.

Tom Wiswell couldn't have said it much better. How does it apply to markets?

P.S It is interesting to note that in checkers the traps and gems are every bit as complex, hidden, and far removed as in chess. During the 25 years I took lessons from Wiswell, and he played against people like Leopold who was as good across the board, and his thousands of games with me, I never saw once that a good player fell into a trap in go as you please. Perhaps the Checker Pres will correct me but the main point is true. To play a good player and set a trap is the seeds of death or as Wiswell would say, "beware the spider". 

Alan Millhone, the Checker Pres, replies: 

Dear Chair

I moved myself into the Masters. I like playing the best. When you lose to the best rated players like Luba or Suki etc you never have to make an excuse for the loss. I also learn from every loss as the astute Market player should.

I never play for traps. Usually setting a trap will weaken your position if your opponent does not make the move you had hoped he would. I make my move assuming my opponent will always make the best reply.

"Come into my parlor said the spider to the fly "

In Checkers as the Market , research is critical before moving or execution of a trade.



Anatoly Veltman writes: 

There is difference between checker tactics and speculation, in that checker outcome is near binary (win, lose or draw) - while one sets up its market position based on a multi-dimensional scale of odds/size of risk VS reward. Thus, your checker inclination against playing for trap - doesn't profoundly manifest in speculation. My recollection of Silver Monday April 28th, 1987 is perfect example: because a record number of speculators fell into a limit-up trap, the TRADE OF THE LIFETIME proved to be SHORTING, if only for minutes! And multiple cases of not hearing about "that local" ever again.

Reminded me another war story: Tuesday October 20th, 1987 Eurodollar futures pit. That contract normally moved 10 points on a good day. But in the wake of Black Monday, the contract was called to gap in Chicago pit "much higher". How much? Well, speechless clerks and brokers speculated 100 higher!! So seconds before the opening bell, the Salomon Brothers runner fights his way to the pit broker with a ticket sporting conspicuously much ink on the left side. It turned out to be 3000-lot to buy at the market!

So instead of opening between 94.50 and 94.75 (a usual monthly range), the broker tells the offers to shut up and announces 97.00 bid for 3000. Everyone freezes up - except for one regular local, who leaps at him over multiple pit steps with a samurai grunt "Sold!" Price traded back down below 95.00 by the end of the opening sequence, the local covered and was never heard from again in continental United States

Michael Chuprin writes: 

As the game begins, lets say within the first 5 or 10 moves, the players inform each other the kind of game that is going to be played by the way that they develop their pawns, whether it be a defensive or offensive or deceiving (luring into a trap) type of structure. After the "mood" is set, the rest of the game proceeds with the development of the heavy pieces and the pawns now act as a buffer between the two armies. Highly ranked players know that the pawns set the terrain as the heavy pieces approach each other, and this is why the accidental loss of a single pawn can shift the entire scaffolding the entire structure, much like a puncture in the hull of a battleship may incapacitate all of the ships cannons. It is no wonder why in many situations strong players give up after miscalculating a position and losing a single pawn. It may be like two martial artists fighting and one breaking a finger, the damage is relatively small, but its effects are conclusive.

Anatoly Veltman writes: 

I can easily think of market analogy: personally, it was a memorable first loss of a million dollars on a single commodity position I had. The day was Monday April 28th, 1987. Silver futures were locked limit-up for third straight day, and the freely traded spot contract rushed up yet again to an $11.25 pinnacle. It may not sound high today - but it was a multi-year high back then, and more than double the price in one month! Why - a huge squeeze was put on Mexican and Chilean producers, biggest mines were stricken by labor woes, etc.

Lo'n'behold, Japan Finance Minister is a scheduled White House guest that day - what does that do to getting any more Silver out of the ground? Suddenly, as Silver, Gold and Platinum slowly edge off their intraday peaks - the financial wires begin spitting out lightly co-operative language of the bi-lateral Forex co-operation between the two economic powers, totally periferal to Silver production. Normally quiet lunch-time turns into history's never-before seen massacre, with Silver futures flipping from limit-up to limit-down lock across the board in the time space between the salad and the main course! Physical Silver plunges $4 (more than a third of its morning value), and next day brings further depreciation due to margin call liquidation… But of course nothing changed in the mines - and following the two down days, Silver rose every day for the next three months to achieve the same valuation. Only some Silver Bugs remained buried deep in the April 28th ruins. That day's volume stayed the Exchange's record for decades, although some locals' trading cards have been never found in the aftermath…



 BIG MIRACLE aka Everybody Loves Whales

Directed by Ken Kwapis Reviewed by Marion D.S. Dreyfus

Cast: Drew Barrymore, Kristen Bell, John Krasinski, Dermot Mulroney, Vinessa Shaw, Ted Danson, Stephen Root, James LeGros, Rob Riggle, Bruce Altman

Drew Barrymore is the very dictionary pic of a bleeding-heart liberal, and naturally, her character is a Barbra Streisand-style loudmouth (in “The Way We Were” and a dozen other irritating stereotyped Jewish campus radicals)(albeit cute) called Rachel Kramer.

We are up in Barrow, Alaska: whale country. It’s 1988. A newsie reporter (Krasinski) import recruits his ex-gal pal (Barrymore) to rescue the family of gray whales trapped under the ice up near the Arctic Circle. This event really happened. It was apparently all over the papers and on every news program for weeks. (Were you aware of this ubiquitous unfolding drama when it was playing out? What were you doing then that you could have missed this 24/7 rescue story in the far north?) Three whales caught amid a vast unbroken swath of ice, with winter closing in, intuit it is almost impossible for the family to escape into the open seas without asphyxiating.

The open space they keep surfacing in is fast icing in as the temperatures plummet to 20, 30 and 40 below. Forced to come up for breath every few moments at the only opening in the frozen waterway, and whether the whales in the film are real or animated synthesized creatures, the heart goes out to them.

They know they can’t make the miles-long swim to the open water without breathing. How the news media alerted the listening and watching public—especially school kids, but not confined to them alone—to their predicament makes for a cheering tale. Along with the good-natured indigenous Alaskans are the charming, mild-mannered talents of John Krasinski, a latter-day Jimmy Stewart, we think, for cowlicky, grinning Aw shucks-ism; the beauteous Kristen Bell (almost too pretty to believe, even as a newscaster, even in the almost total immersion cold-weather protective swaddling everyone sports) and sturdy Dermot Mulroney as a chopper rescue and haul pilot for incoming color and opposing viewpoints.

Ted Danson is a standout as a dim but PR-savvy oil magnate. (No matter how adorably such films are premised, it’s always appropriate to point a finger at the big bad oil companies and sigh with delight at the radical noisemakers at the company proxy meets. What’s redeeming here is that the Richie Rich’es realize it’s in their interest to help these magnificent creatures survive, even if it costs millions, and does not figure on the company books.) There is lots of joshing nudge-nudges from 20:20 hindsight.

The Ken Kwapis fluke-tailed nature story is refreshing, wrenching, full of icy, snowy vistas and wise Inupiak elders. It is also (Holy blubber, Batman!) full of the fattest-looking cast this side of a Goodyear blimp-assembly warehouse. Everyone is hugger-muggered in down and bulk, puffy scarves and fur-lined everything else. Faces are scraggly with ice-particled beards, and pens stick fast to the absent-minded tongue.

Among the film’s charms are the interpolations of actual news clips of Tom Brokaw, Dan Rather and Peter Jennings, lovely Connie Chung, “President Reagan” and a flotilla of much-fresher-looking TV stars of today’s vintage (Larry King’s suspenders are some 23 years younger). A Russian ice-breaker and its tough crew feature prominently, as do the inklings of a Cold War thaw. Near the end, the camera cuts to a surprise talking-head TV appearance of a well-known personality, catching alert audience members by surprise, though it is perfectly reasonable to see this person in that setting at that time. Another excellent aspect is that the Inupiak are shown as deeply moral, ethical people with a great deal of dignity and thoughtfulness about their millennial ways.

No nudity. No Anglo-Saxonisms. A small cache of extraneous subplots as the predictable people find their predictable liplocks. A film for children (even if they don’t know a soul in the cast and clips of the original incident) and their parents, singles or teams of sled dogs, immigrants and fishermen.

A big hand to “Big Miracle.”



 Market implications?

If the enemy is in range, so are you. -Infantry Journal

It is generally inadvisable to eject directly over the area you just bombed. -US.Air Force Manual

Whoever said the pen is mightier than the sword, obviously never encountered automatic weapons. - General MacArthur

You, you, and you … Panic. The rest of you, come with me. Infantry Sgt.

Tracers work both ways. -Army Ordnance Manual

Five second fuses last about three seconds. - Infantry Journal

The three most useless things in aviation are:Fuel in the bowser; Runway behind you; and Air above you. -Basic Flight Training Manual

Any ship can be a minesweeper. Once. - Naval Ops Manual

Never tell the Platoon Sergeant you have nothing to do. -Unknown Infantry Recruit -and if he asks who knows how to drive a Cadilac…….keep your mouth shut !

If you see a bomb technician running, try to keep up to him. - Infantry Journal

Yea, Though I Fly Through the Valley of the Shadow of Death, I Shall Fear No Evil. For I am at 50,000 Feet and Climbing. - Sign over SR71 Wing Ops

You've never been lost until you've been lost at Mach 3. -Paul F. Crickmore (SR71 test pilot)

The only time you have too much fuel is when you're on fire. -Unknown Author

If the wings are traveling faster than the fuselage it has to be a helicopter — and therefore, unsafe. -Fixed Wing Pilot

When one engine fails on a twin-engine airplane,you always have enough power left to get you to the scene of the crash. -Multi-Engine Training Manual

Without ammunition, the Air Force is just an expensive flying club. -Unknown Author

If you hear me yell; "Eject, Eject, Eject!", the last two will be echos. If you stop to ask "Why?", you'll be talking to yourself, because by then you'll be the pilot. -Pre-flight Briefing from a Canadian F104 Pilot

What is the similarity between air traffic controllers and pilots? If a pilot screws up, the pilot dies; but if ATC screws up, …. the pilot dies. -Sign over Control Tower Door

Never trade luck for skill. -Author Unknown

The three most common expressions (or famous last words)in military aviation are: "Did you feel that?'' "What's that noise?" and "Oh S…!" -Authors Unknown

Airspeed, altitude and brains. Two are always needed to successfully complete the flight. -Basic Flight Training Manual

Flying the airplane is more important than radioing your plightto a person on the ground incapable of understanding or doing anything about it. -Emergency Checklist

The Piper Cub is the safest airplane in the world; it can just barely kill you. - Attributed to Max Stanley (Northrop test pilot)

There is no reason to fly through a thunderstorm in peacetime. -Sign over Squadron Ops Desk at Davis-Montham AFB, AZ

You know that your landing gear is up and locked when it takes full power to taxi to the terminal. - Lead-in Fighter Training Manual

As the test pilot climbs out of the experimental aircraft, having torn off the wings and tail in the crash landing, the crash truck arrives.

The rescuer sees the bloodied pilot and asks,'What happened?' The pilot's reply: "I don't know, I just got here myself!".

Tom Blackwood replies:

 Market implications? How is this:

‘If the enemy is in range, so are you.’ -Infantry Journal

-When a ‘trend’ is obvious, there are few people left to join it, and there is probably more profit in going the other way.

‘It is generally inadvisable to eject directly over the area you just bombed.’ -US.Air Force Manual

-If you need to get out of a big position quickly, don’t let the dealer read you and preferably execute where they don’t know your exposure. You can net it off later.

‘Whoever said the pen is mightier than the sword, obviously never encountered automatic weapons.’ - General MacArthur

-Don’t think you can compete against the smartest minds using the best technology with a little trend line, moving average, and textbook cliche.

‘You, you, and you … Panic. The rest of you, come with me.’ - Infantry Sgt.

-Do not do what everyone else is fond of doing. Let them do it far away from you and profit from their mistakes.

‘Tracers work both ways.’ -Army Ordnance Manual

-This relates to prudent safeguards when putting on size, especially not leaving stops with brokers. Having a hard stop gets you out, but also gets you seen.

‘Five second fuses last about three seconds.’ - Infantry Journal

-Never try for the first or last eighth which are the two most expensive ticks in trading. (paraphrased)

‘Any ship can be a minesweeper. Once.’ - Naval Ops Manual

-Importance of position sizing. Not placing any career defining / ending trades in volatile conditions.

‘Never tell the Platoon Sergeant you have nothing to do.’ -Unknown Infantry Recruit

-and if he'd asks who knows how to drive a Cadilac…….keep your mouth shut ! Traders who always need action and do not understand that the odds do not always favour their participation will end up being given something unpleasant to do - tending to bad trades.

‘If you see a bomb technician running, try to keep up to him.’ - Infantry Journal

-When flight to quality / risk off, buy bonds.

‘Yea, Though I Fly Through the Valley of the Shadow of Death, I Shall Fear No Evil. For I am at 50,000 Feet and Climbing.’ - Sign over SR71 Wing Ops

-Once you intimately understand yourself, your abilities, and trust in your risk management there is nothing to fear from trading.

‘You’ve never been lost until you’ve been lost at Mach 3.’ -Paul F. Crickmore (SR71 test pilot)

-Have a plan for every eventuality and follow it. If something unexpected happens, get flat. If you have made a fat finger, don’t think about the loss or the exposure just get flat. If you’re on the wrong side of a flash crash, get flat now not 60 points lower.

Perhaps lessons for the trader rather than lessons about the market. The rest don’t seem to “fit” for me or I lack the creativity, so not going to force. Got the old brain doing something different though, thanks….



 This one is Eddy's fault. She wanted to know about the gold standard.

The authors of the Constitution had two concerns about money - first, they wanted the Federal government to be able to collect taxes to pay veterans' benefits and the cost of future wars; and, second, they wanted no one - the states, private individuals, the Federal government itself - to be able to deal in funny money. They thought they could solve both problems by giving the Federal government a monopoly on legal tender and then requiring Congress to limit the Money used in payment in the United States to Coin - i.e. precious metal. What is fraudulent about our present system is that the Federal government still has its legal tender monopoly but it no longer follows the rules laid out in the Constitution. Instead of using gold coin, the Federal government uses its own bank-created Credit as Money and requires all of us to accept it as the sole legal tender for all debts public and private.

The authors of the Constitution were so suspicious of what Congress might do that they did not even allow it to have a monopoly on Money. They required Congress to allow Foreign Coin to used as equivalents for the United States' own Coin. The authors of the Constitution knew from bitter experience that Congress was capable of being a fraud about money; country had seen the Continental Congress during the Revolution issue IOUs and then require people to take them in payment of the government's own debts. By allowing Foreign Coin to be Money, the authors of the Constitution were assuring that people could refuse to take any funny money that Congress tried to pass off in the future. This is why the Constitution has its specific provisions requiring Congress to "regulate" the Weight and Measure of both U.S. and Foreign Coin. "Regulate" does not mean "make up whatever rules we like" as it does now; it meant "make regular" - i.e. make equal.

Where the authors and the first Congresses made a mistake was in thinking that they could regulate more than 1 kind of precious metal as Money, that they could set by law the ratios of the prices of gold and silver and copper could be fixed, by law. They made this mistake because everyone in the world believed that Money had to have an official Price; it could not be left to the market to decide what Money was worth. (A few oddballs - the Frenchman Cantillon, the Englishman Gresham - knew better. They both observed that Money has to be unitary; otherwise, the smart people will always be swapping the cheaper metals for the more expensive ones.)

Even with this mistake of multi-metalism, the authors of the Constitution succeeded in achieving their aims for U.S. money. Congress was able to be extravagant - to start wars when they did not have the money to pay for them - without permanently destroying the value of the country's savings because no one could be forced to accept anything other than Coin as Money. If Money became short because people and/or the government had used too much credit, the people who had saved Money would find bargains. If people and/or the government became too cautious and hoarded Money, then the rewards for lending and granting Credit would go up. The interchange between Money and Credit would be the fundamental check and balance against future Congresses overreaching their financial authority. Under the Constitution Congress would be free to borrow on Credit like everyone else but it would only be allowed to coin Money or have Coin accepted as legal tender.

What the authors of the Constitution could not imagine is that future Congresses would allow the Federal government to use its own bank-created Credit as Money. That would have seemed to them against all common sense. Everyone in the country had known, from direct experience, that allowing Credit to become Money produced ruin. Savings became worthless, people abandoned work for speculation, and enterprise was destroyed. If the government's Credit was required to be accepted as legal tender, then everyone could go to the government to get their free Money. "Cash" would have no meaning because people could never be required to pay up in Coin. The authors of the Constitution knew that Credit was wonderful stuff. It was easier to use than specie and was flexible; people's ability to promise to pay was not limited by the coins in their pockets. But there had to a limit to how much people could promise and borrow, and that limit was Money; and Money had to be actual stuff that people could demand when they did not want paper, when they doubted that other people's Credit was good. Almost all of the time people would use Credit for trade; they would buy and sell things using Notes because it was the better way to do business. But, in the background of everyone's mind there still had to be the understanding that people could decline further exchange of credit and demand actual payment instead. With Credit there was always going to be the risk that one was getting a devious, suspect instrument of exchange. If people were free, they would trade; and, in trading, they would be certain to deal in all kinds of promises - some of which will be completely ludicrous. These rules would apply equally to the government and to private business. The Constitutional gold standard would not prevent people or Congress itself from committing fraud and folly; but it would assure that they were punished and not rewarded if Money was the stuff that was impossible to counterfeit and impossible to multiply with the stroke of a pen or the turn of a printing press (or, today, the click of a keyboard).

We now live in a very different world of Money and Credit. Foreign Coin is no longer a check and balance on Congress' monopoly authority over legal tender; every government in the world now uses its own IOUs as Money. That leaves only the Constitutional gold standard as a restraint on the government and people's ability to expand Credit without limit. The country has been here before. During and after the Civil War, the Federal government's IOUs - its Greenbacks - were made legal tender, by law. Many people thought this was fine and wanted Congress to keep printing Greenbacks to pay for rebuilding the country after the war. What Ulysses Grant understood was that if Congress kept spending Money as it had during the war, it would turn the country into a nation of monetary alcoholics. The demand for Credit would never be restrained. Almost single-handedly Grant forced the Congress to commit itself to restoring the gold standard, to promising to redeem all paper money in gold Coin. Many people were horrified by the idea; the New York Times (surprise!) predicted that there would be complete panic. Speculators tried to buy up all the country's gold. But, on the actual day when the Federal government resumed the convertibility of all U.S. Bank Notes into gold coin, the world did not rush to the Treasury to swap its paper for specie. The monetary day of judgment failed to appear and was, in fact, a big yawn. The very act of committing the U.S. to restoration of the Gold Standard had sufficiently re-established the credit of the U.S. government that people were content to continue to deal in the credit notes as if they were as good as gold - which they were.

The same result would happen today if Congress adopted a new Specie Act. I know this is a fantasy; but imagine that Congress enacted and the President signed a Specie Act that legisltated that, after January 1, 2013, U.S. Money would be a Liberty Coin of a fixed Weight and Measure of gold and all government Credit Notes - the paper currency called Federal Reserve Notes printed by the U.S. Treasury - would be convertible into Liberty Coin at the value set by the market . The market would instantly value our current Greenbacks at their worth would be in gold. A dollar whose fluctuating value would be fixed by the market's dealings would not, by itself, save the credit of the United States; but it would instantly end the further abuse of that credit by the Congress and the Federal Reserve. That might, by itself, be enough.

 A promise to pay can, as the original J. P. Morgan said, only be valued by the character of the borrower. As long as Money itself is solid, people can accept the risks of Credit as the price of its convenience and opportunity for gain. The very argument used against the gold standard - its inflexibility - is true; when one is well established, the price of gold itself becomes monotonously steady. It is the price of Credit that fluctuates. After President Grant's demand for resumption was enacted into law, the infamous Gold Room closed; and stock and bond markets and bank clearings in the United States exploded with a boom that was so real that it produced enough wealth that the country could, for the first time in its history, afford broad "higher" education.

It will not surprise you and it would not have surprised the authors of the Constitution that the first thing the new generation of professors and well-educated (sic) students did was decide that the archaic system of the gold standard had to be improved. The result was the funding of two World Wars and other systematic tortures that the world is still living under in the name of Progress.

Leo Jia comments:

 Thanks Stefan. Here are my thoughts on what you wrote.

From economic point of view, the functions of money are: 1) medium of exchange, 2) unit of account, and 3) store of value.

The biggest problem with fiat money (as we experienced) is its obvious inability to store value. On the other hand, commodity money is hard to transport. Recognizing these, many are inclined to accepting some kind of representative money, such as the gold standard.

It is understandable that people put more trust in things such as gold for a better store of value than in fiat money, simply because they are more real and can't be created from thin-air. This might be very true in simple or primitive economies. But is there any false reasoning here for modern economies? It is true that they can not be as easily created, but this in no way could necessarily lead to a conclusion of their better ability to store value or perform other money functions. My observations are as follows.

1) Any real thing (such as gold) changes value vis-a-vis other real things as economy develops through time. This is determined by the varying needs of human activities. In this sense, a lumber producer for instance may have good reasons not to trust gold to reserve his value of work (as gold could get cheaper while lumber gets dearer during some period of time).

2) The economic developments, following technological advancements or wars for instance, come in steps, which at many times are interruptions to old developments. After each step of development, the values of many thingsare largely re-adjusts. With the automobile invented for instance, the horse wagons lost substantial value. On the other hand, with a large gold mine discovered, gold's value vs. other things dive.

3) In the case of a step-up of the economy (due to an important technology break through, for instance), the requirement for capital jumps up. If the money is based on some real thing (such as gold), the money supply seriously lags in a way to hinder the economy development. Gold's supply has its own course of development. Except for a few large discoveries in history, gold's supply has been largely a gradually growing process, and this contrasts the nature of economic development, which often jumps, particularly in the modern age.

4) In the case of gold being a money base, the real question is why people would always treasure gold. Could the attitude change? From the nature that gold is of little real use, this is very likely somewhere down the road. All it needs is one country's abandoning the gold standard to wreck the whole world's economy. Before that happens, is people's pursuit of gold quite similar to a fool's game, where everyone owning gold is just hoping to sell it to a bigger fool?

In the modern world, when we have various developments in fast gears, we don't really have a money that meets the functions we want. It is very unfortunate. Perhaps the desire to have a store of value in something is generally a fallacy. Sure, the modern finance provides some possibilities for that desire, but modern finance is not for everybody.

Question: is it feasible to form a money based on some financially structured instruments?

Stefan Jovanovich replies: 

Leo, Thanks for the reply. I don't think you can support the notion that Money is a primary "medium of exchange" any more; it is, for the limited population of drug dealers and others wanting to hide their wealth from "the law", but the volume of credit transactions so completely dwarfs cash dealings now that I am afraid the standard textbook definition of money has to be retired from our discussions, even if it will always remain the correct answer for an Econ 1 class. The "store of value" notion has always been a canard. The notion of "value" itself is one of those Platonic ideas that it is impossible to abolish, precisely because it is never defined well enough to be tested or disproven. It is part of the equally bizarre idea of Capital - the notion that certain stuff and paper (in our age, digital entries) represent a "store of value". Once you accept the circularity of these terms, you never find the exit door into what people are actually doing. (Yes, yes I know about marginal utility, etc. but all of those wonderful theories can be reduced to something the money changers sitting outside the Temple knew - price is always a matter of quantity and time.)

Having endured the interminable sermons of their era (and decided, like Washington, that God existed outside of church as well as in), the authors of the Constitution were well acquainted with the theological approach to discussions about the economy. But, being practical men of business (even the lawyers among them were traders), they knew enough of the world to know that commerce would always rest on the foundation of credit. When counter-parties began to worry, "the economy" was in trouble, no matter how much gold was in the vault. They also knew that Money - specie - would always be the measure of the fundamental economic fact of life - scarcity. They counted on the fact that Money is always in short supply to be the principal limitation on the size of government itself. As the Founders knew, money is the spoil sport - the stuff that is unalterably real and cannot be talked into existence. Americans used to know this instinctively. There is the classic remark of t he real estate speculator in San Diego in the 1880s who got caught long and telegraphed to his partner back East: "Lost $100,000; still worse, $800 was in cash".

What the Founders and a majority of Americans in the 19th century did not think was that the government could somehow protect people from the vagaries of the market itself. They certainly did not think that gold - i.e. Money - could do that. The claims made for gold by the Paulistas - Don Ron made it again last night in the Republican primary debate in South Carolina - are specious. Gold is not a "store of value" and it has never protected people from the fluctuation of prices. As you noted, gold's exchange value fluctuates dramatically even under a Constitutional gold standard. Gold as Money is no more immune to market variation than Credit; both are subject to the vagaries of trade. What Gold as Money is not subject to are the manipulations of the government as ruled by faction. When George Washington warned against "faction", he was not cautioning people about political parties; he was cautioning them about the ability of people to use the government's monopoly au thority over legal tender to create credit in their particular favor. All gold offers is the assurance to the holder of Money that he/she has only one financial risk - the fluctuations of the market - and that he/she is safe from the cheats of government action in the name of the common good.

P.S. Your history about gold mining needs revision. The great discoveries - California in the 1840s, South Africa and Alaska in the 1890s - did not see "gold's value vs. other things dive"; on the contrary, the gold discoveries led to credit booms that saw general prices rise and specie become inexplicably tight. The Panic of 1907 arose because the London insurance companies were unable to pay their American claims from the San Francisco Fire; gold - within a decade of the greatest discovery in history - became so incredibly short that JP Morgan - for the first time in its history - agreed to join the New York Clearing House so that the banks would stop pulling each other down to ruin by acting like lobsters trying to climb over each other out of a barrel.

P.P.S. The notion of a Monetary base is beyond my capacity to argue with. If you accept the illusion that IOUs are Money, that the entries on the ledgers at the Federal Reserve and the Notes printed by the U.S. Treasury are somehow more "high-powered" than other forms of Credit, then the Ptolemaic system of modern academic economics seems to work fine - until, of course, it doesn't. The modern world has no problems with its system of Credit; its difficulties are with the absurd notion that the Unit of Account can be multiplied at will by central banks in the name of stability.

The questions of money and credit were not intellectual novelties for the founders or their contemporaries. They were - literally - the common coin of civil discourse. Hume's Essays - which were in the library of everyone who attended the Constitutional Convention - raised the issue directly:

"It is very tempting to a minister to employ such an expedient, as enables him to make a great figure during his administration, without overburthening the people with taxes, or exciting any immediate clamours against himself. The practice, therefore, of contracting debt will almost infallibly be abused, in every government. It would scarcely be more imprudent to give a prodigal son a credit in every banker's shop in London, than to impower a statesman to draw bills, in this manner, upon posterity. What then shall we say to the new paradox, that public incumbrances, are, of themselves, advantageous, independent of the necessity of contracting them; and that any state, even though it were not pressed by a foreign enemy, could not possibly have embraced a wiser expedient for promoting commerce and riches, than to create funds, and debts, and taxes, without limitation? Reasonings, such as these, might naturally have passed for trials of wit among rhetoricians, like the panegyrics on folly and a fever, on BUSIRIS and NERO, had we not seen such absurd maxims patronized by great ministers,(Robert Walpole) and by a whole party among us (the Whigs)."

Peter Saint-Andre comments:

 And hence there runs, from the first essays of reflective contemplation of a social phenomena down to our own times, an uninterrupted chain of disquisitions upon the nature and specific qualities of money in its relation to all that constitutes traffic. Philosophers, jurists, and historians, as well as economists, and even naturalists and mathematicians, have dealt with this notable problem, and there is no civilized people that has not furnished its quota to the abundant literature thereon. What is the nature of those little disks or documents, which in themselves seem to serve no useful purpose, and which nevertheless, in contradiction to the rest of experience, pass from one hand to another in exchange for the most useful commodities, nay, for which every one is so eagerly bent on surrendering his wares? Is money an organic member in the world of commodities, or is it an economic anomaly? Are we to refer its commercial currency and its value in trade to the same causes conditioning those of other goods, or are they the distinct product of convention and authority?

From On the Origin of Money by Carl Menger

Stefan Jovanovich writes: 

 Menger was the leading figure in the Austrian "Währungs-Enquete-Commission, the Monetary Commission called to deal with the problem of the Austrian currency. (Hayek: "Towards the end of the 'eighties the perennial Austrian currency problem had assumed a form where a drastic final reform seemed to become both possible and necessary. In 1878 and 1879 the fall of the price of silver had first brought the depreciated paper currency back to its silver parity and soon afterwards made it necessary to discontinue the free coinage of silver; since then the Austrian paper money had gradually appreciated in terms of silver and fluctuated in terms of gold. The situation during that period — in many respects one of the most interesting in monetary history — was more and more regarded as unsatisfactory, and as the financial position of Austria seemed for the first time for a long period strong enough to promise a period of stability, the Government was generally expected to take matters in hand. Moreover, the treaty concluded with Hungary in 1887 actually provided that a commission should immediately be appointed to discuss the preparatory measures necessary to make the resumption of specie payments possible. After considerable delay, due to the usual political difficulties between the two parts of the dual monarchy, the commission, or rather commissions, one for Austria and one for Hungary, were appointed and met in March 1892, in Vienna and Budapest respectively.)

According to Hayek, "Menger agreed with practically all the members of the commission that the adoption of the Gold Standard was the only practical course." What the Commission did not do was adopt the approach taken by the Americans a decades earlier. Instead of simply setting the weight and measure for Austrian Coin at an equivalence to the British pound - the reference point for all international transactions, the Commission debated "the practical problems of the exact parity to be chosen and the moment of time to be selected for the transition". That, by itself, did no great harm; but it established the principle - now universal - that the state, not the market, would be the ultimate arbiter of the content of Money. It is foolish of me to expect them to have done otherwise. Even though (or perhaps because) Menger was the author of utility theory, his political economy had an unshakeable belief in "essences", in the notion that political economy could be reduced to laws of motion, just like physics. The result was the Franco-Germanic idea of the "universal bank" - the Creditanstalt that would literally "manage" the economy and do away with the need for those messy people - the brokers and the dealers in stock - and their volatile exchanges.

For Menger there could be no difference between "the disks (and) documents" because all money was a creation of the state's authority. The American idea that you could bring bullion to the Mint and demand that they reduce it to legal tender - for free - was anathema.



 In Dec 2010, Daily Spec announced a contest for best investment ideas for 2011 at this link .  Several volunteered to judge the contest. And this seems necessary as there were many intricacies in judging. As a start to declare the winner, would those who feel they are in the running for the winner's prize, please alert me to their recommendations, the results, and why they feel they may be near the top. Thank you. Vic

Dan Grossman writes:

Vic, below is my contest-entry email, with the results indicated in italics. It should perhaps count in my entry's favor that my percentage gains were achieved without the use of derivatives or other form of leverage, and that they were very specific stock predictions, easy for anyone to implement and make money from.

As indicated, if I am lucky enough to win, I will donate my prize to a free market or libertarian nonprofit organization.

Trying to comply with and adapt the complex contest rules (which most others don't seem to be following in any event) to my areas of stock market interest:

1. The S&P will be down in the 1st qtr, and at some point in the qtr will fall at least 5%. S&P wasn't down for the quarter but second part of prediction was accurate in that S&P fell 6.4% from Feb 18 to Mar 16.

2. For takeover investors: GENZ will (finally) make a deal to be acquired in the 1st qtr for a value of at least $80; and AMRN after completion of its ANCHOR trial will make a deal to be acquired for a price of at least [corrected in followup email to $16]. GENZ (50.93 at contest date) was acquired early in the year for a then-current value of $74, but including a contingent right which could still bring total value to $80. AMRN (8.20 at contest date) was not acquired, but soon traded above 16 for some two months.

3. For conservative investors: Low multiple small caps HELE and DFG will be up a combined average of 20% by the end of the year. HELE and DFG had a combined price at contest date of 58.58, and a combined price at year-end of 75.00, for a combined average gain of 28%.

For my single stock pick, I am something of a johnny-one-note: MNTA will be up lots during the year — if I have to pick a specific amount, I'd say at least 70%. (My prior legal predictions on this stock have proved correct but the stock price has not appropriately reflected same.) MNTA was 14.97 at contest date and 17.39 at year-end, for a gain of 16.17%.

Finally, if I win the contest (which I think is fairly likely), I will donate the prize to a free market or libertarian charity. I don't see why Victor should have to subsidize this distinguished group that could all well afford an contest entrance fee to more equitably finance the prize.

Best to all for the New Year,


Yanki Onen writes: 

Dear Vic,

Once again I would like to thank all of the contributors to the daily spec word press for sharing their insight and wisdom. It is a never ending journey. Below were my ideas but to be quite frank I don't know if they were eligible for the contest. But if they were results should be alright

1) Going long csco and long put lost $2,18
2) Sell contango buy backwardation trade for cotton buy selling spreads
made a lot of money but I don't know how to quantify that cause it is trading call 3) Leveraged ETFs suckers play. This strategy was right in the money and made quite a sum.

Our lively hood depends on what we make of the beloved mistress, if you get a long she is quite charming. Thanks for the challenge. Also would like to use this opportunity to wish you all a great prosperous new year.

Phil McDonnell writes: 

My trade on the Silver ETF SLV was closed out when the ETF hit its target price of 40 as stated in the original instruction (at the bottom). On April 11, 2011 the trade was exited with the following post to the list in reply to a suggestion from Big Al:

Yes, they are short puts. Yes, you are right. In my original contest entry I said close out the 'entire position' if and when slv hits 40. So I think I need to go with that. I don't think we were allowed to change our original entries beyond fixed original. instructions.

So taking the SLV at this morning's open when silver broke 40 it went out for .12. The net on the calendar spread was 2.50 less .12 is 2.38 credit. On a cash investment of .50 this is a return of 376%. After a dismal January the Phoenix rises from the ashes.

Originally I wrote:

If 40 is not reached then exit on 2/31/2011 at the close.

Correction it should have been: 12/30/2011 instead of the nonsensical

And here is my corrected submission:

When investing one should consider a diversified portfolio. But in a contest the best strategy is just to go for it. After all you have to be number one.

With that thought in mind I am going to bet it all on Silver using derivatives on the ETF SLV.

SLV closed at 30.18 on Friday.

Buy Jan 2013 40 call for 3.45. Sell Jan 2012 40 call at 1.80. Sell Jul 25 put at 1.15.

Net debit is .50.

Exit strategy: close out entire position if SLV ETF reaches a price of 40 or better. If 40 is not reached then exit on 12/30/2011 at the close.

Brendan Dornan writes: 


Thank you very much for putting on the contest. The reason I started to write a blog is to document some picks, and hopefully build a reputation after a decade of being in isolation behind the screens. The contest enabled this goal. Thank you for the opportunity.

The contest entry updates earlier this year did not include my entries, probably because the access to quotes for the instruments added an extra degree of difficulty, so allow me:

1. Credit Default Swaps on:
· +99.44% : French Gov CDS
· +70.80% : German Gov CDS
· +99.88% : Italian Gov CDS :

2. Short the Euro + Far OTM put options near parity · +% : 1.3224 - 1.30469, not great: learned spot FX poor for tail event trades. 3. Long Put X-Warrants or CDS on any Hong Kong or Chinese Property Developer · +103.20% (20.64% X 5 for warrant use) Shanghai Property Index,

3a. or Credit Default Swaps Chinese 5 year Government Debt · +118.26%: China Gov CDS

Extra Credit: · + 214.25% : Short Copper:
o 4.4455-3.4695 NYMEX Copper HG
o ($111,375 - $86,725) = $24,650.00
· Short Iron Ore, Cement, similar declines (SWAPs would have done well) · + 52% : Short Japanese Industrials via CDS o Hugh Hendry's fund is up and can be a proxy · +32.96% peak, but plunged -60.80% below open : Cleveland Biosciences (CBLI) o Although unsuccessful, CBLI spiked higher amid the Japanese Nuclear Meltdown, serving its purpose as a hedge

Quotes :

Stanley Rowen writes: 

And the winners are…? I fortunately did not participate in last year's contest (my guesses turned out to be non-winners. But, I am indeed curious if there will be a major article posted to Daily Speculations dot Com with the winners? I'm looking forward to it.

Victor Niederhoffer comments: 

These entries from the contest for 2011 investments. These are the ones so far in the running. Would any like to add their selections to this list for judging.



 At the first, long take of the film, as it opens, we stare at the naked chest of Michael Fassbender, the person whose grim life of privilege and addiction we are forced to endure for several hours. The unsmiling protagonist stays so still, for so long, that we begin to look for signs that he is still in life. Is he breathing? Will he eventually blink?

The too-long take is repeated in scenes that are of his sister, played by a gamey Carey Mulligan—a part that decisively removes her from the ingénue of "An Education" (2009)—and scenes that involve a mulligatawny of sexual couplings of protagonist with the paid and unpaid; with duos; alone; in stalls, at home, in public/private spaces, even at work. The overlong takes do not serve for much other than to remind us of what Peggy Noonan inveighs against in the Wall Street Journal in mid-December about the pervasive "flatness" of "movie depictions of our sexuality." My escort joked that men seemed to be leaving to go to the restroom far more often than for other films; but the sex was squalid, painful, not in the least joyous. Unsexy, in the end. Death is not defied by these matings, but somehow beckoned by their dullness and decayed solipsism. Embarrassing, for the most part. (It was probably prostate, not projection, that shook these men from their seats.)

In a current, curiously shadowy NYC, Brandon's carefully compartmentalized private life, which gives him unfettered indulgence for his addiction, is suddenly invaded and compromised when his sad, ungovernable sibling, Cissy, arrives for an unannounced drop-in and stay-over. Their odd familial interaction raises a few eyebrows.

Not one line of humor in the film. Not a minute of erotic enjoyment, for all the naked real estate and fleshly writhing. It reminds one of the Dustin Hoffman/Jon Voight dark-street, bankrupt-old New York icky icon, "Midnight Cowboy" (1969) for pre-Giuliani no-tourist Manhattan griminess. Or of the bleak ice-cold vision of Christian Bale's gloved metrosexual automaton, mid-Gordon Gekko financial scrimshaw, a feral murderer in the unwholesome, relentless "American Psycho" (2000).

In the linear and episodic unspooling of the obsessive captive of sexual encounters, SHAME does not feature much dialogue. Under the entire film is a dirge-like melancholic musical frieze that serves instead of missing dialogue. As much as there is a dearth of talk for the most part, save for bursts of unconnected fits and sibling spats, the scenes are cool, blue, icy surfaces: unfaceted silhouettes and vistas of Manhattan from different vantage-points than those Woody Allen devotees are accustomed to, the glistening City postcards of cinematographer Gordon Willis. Not here.

Brandon's apartment, in the low 30s, Midtown West, is scrupulously neat and featureless, as opposed to his squint-eyed undiscriminating prowl for new sexual partners for do 'em/forget 'em pairings. His wordless exchanges leave no aftertaste, like cheap wine, gasps and gulps that get no revisiting by the affectless addict. His life is clean to the outward glance. He appears to be a decent man, not skeevy as our mind's eye would predict, despite his panther-like visits to late-night dungeons, lonely subways and clubby brothels. His workmates have no idea what he does, where he goes, or with whom, when away from his desk. Events and world news have no purchase here. He is absorbed in his next barren assignation or, more likely, non-nutritive rut.

Brandon's compulsiveness is so blatant for anyone with half an eye that it is only his male comradeship at some unnamed but upper-middle job that convince us that men are not looking to ID each other's foibles. They don't wonder about his liaisons or solitary entertainments. But women are drawn. He flirts with the faintest flicker of a come-hither intensity. Moments later, they are silently heaving—again, for scenes with too much unclothed flesh, too much writhing.

The extended graphic orchestration of grimaces and groaning proves nothing, teaches us nothing more than we already know. McQueen could easily have chopped half an hour sure to have its NC-17 (was X) rating plastered on its official public window, the way restaurants proudly post their A ratings. Scenes without dialog run too long, making sure we get the poke-poke of this emotional battle. But the resonance is not epic. We all battle some sort of addiction, perhaps, though ours are probably less dangerous and time-consuming. And probably less lifeless. The film seems an orphanage for our lust.

Fassbender is a lock for an Oscar nom, and his face and body, while not memorable for the most part, are handsome and indeed attractive. Especially nude. A woman being pushed out of the theatre by her granddaughter, a wheelchair commuter looking to be in her 90s, was delighted to be asked her opinion of the film. Her 30-something granddaughter quickly interpolated she had been "bored" by it. (Yes. It is no Brad Bird "Impossible" action adventure.) Grandma, grinning broadly, slyly exulted, "He was gorgeous! I'm going to see this in 3D!"

Whatever would make a woman of 30 take her swee'pea elder to such a deeply unhumorous, profoundly graphic film with such a title, even were she unacquainted with the unrelieved, tawdry subject matter?

And in the end, the director plays games with the viewer, which may or may not make you even more antsy and uncomfortable than you've been throughout. Not quite a holiday movie. What is saddest is that this is the film everyone will continue to talk up, a daring Euro-approx that is pretending to a soul it does not evince. A 12-stepper would take the heart out of the thing. But then the film would have no excuse for making us squirm with discomfort.

Not a date movie. Even with Grandma's excited post-mount-'em.



 Hello everyone,

I'm at my local lumber yard and a salesman for various materials is here and stated that on the first of next year all drywall manufacturers are increasing their prices 35 per cent!

That should really help new homes built and all remodeling… and all commercial jobs.



Rocky Humbert writes: 

Firstly, I'd like to thank Alan for bringing this to my attention. This sort of anecdote can have some important market significance. However, in order to analyze it, one needs to ask the following the questions:

1. What is the marginal cost to produce drywall? How does the current (and proposed) price compare to the marginal cost of production?

2. What is the price history of drywall? If the price has previously dropped steeply (due to the economy), then a 35% price hike (although eye popping) might be reasonable.

3. What are manufacturer and lumber yard inventory levels? Could the announcement of a 35% price hike be an attempt to front-load orders/purchases before year-end? … to clear out inventory?

4. At what % of utilization are drywall plants currently running? Has capacity left the system over the past few years? And if so, at what price will that mothballed capacity come back online?

I think an ambitious spec could call US Gypsum's investor relations office with these questions; get the answer; and have a better understanding of both the drywall market; the state of the housing market; and the state of the economy. I think there is also some risk that this 35% price hike could stick — not because the economy is healing, but because productive capacity has left the system ….and will not return until growth is considerably higher. This is the stagflationary outcome that some people fear….

The bottom line is — a few well placed questions and answers will turn Alan's anecdote from dinner party chatter to an economic/market insight.

Henry Gifford writes:

1. Energy is a significant part of the cost, as is shipping the materials and shipping the finished product.

2. I dunno the price history.

3. In urban areas, there is no significant inventory - the stuff just takes up way too much space. For jobs involving multiple apartments, or one large house, the lumber yard is not really a dealer, but more of a broker, as the boards are "drop shipped" from someone else to the job site, only the money goes through the local lumber yard. Maybe in Alan's neighborhood they can build up significant stock, though.

4. Someone in the business told me all plants generally run at full capacity all the time, including through downturns, because during a downturn they take their slowest plant and shut it down and revamp it with the newest electronics to become their fastest plant, restarting in time for the next boom. He said with a smile that they never worry, the timing is always reliable - boom and then bust. They haven't added any new plants in decades, they just speed up the old ones, like the paper industry has done to keep up with the "paperless" office.

There is really no substitute for gypsum board on the market - no boards means no new houses or other buildings.

The industry is now shifting to "paperless" gypsum boards - fiberglass instead of paper - because of increasing mold problems with paper-faced boards. Buildings are starting to get significantly insulated, which means walls have a cold side in the winter, and a cold side in the summer, and cold means damp, which can mean mold. Also, backup materials used to be masonry which absorbed a lot of water from leaks, then were wood, and are now metal, which absorbs zero, meaning a small leak gets to the paper and causes problems. Combine cold and no absorption/storage with no attention to stopping air leaks in construction, you build a recipe for disaster, not all just insurance or hysteria driven rumors. If anyone invented paper faced gypsum boards now, the lawyers would never let them sell it. I expect it to all be gone soon, the changeover will be "interesting" somehow.



 I have noticed that Europe has an additional dimension compared to the States.

When you travel the USA, all you see is a 3-dimensionnal landscape. In the Old World, there is a fourth dimension that is the history behind the landscape.

In Europe, when you look at a street, a village or a hill, you do not see only a street, a village or a hill. You see 2000 years of history for this street, this village or this hill. There is always a little ruin nearby.

How can I say this? There is extra depth in the Old World. It makes everything more full and life richer.

Same thing when you are marrying true blue blood. You are not marrying merely one guy or one girl. You are marrying history, a line going back centuries. You are becoming part of that line. I am talking true blue blood. Not recent ones like the fake nobles made by Napoleon and the likes.

Maybe the best way to explain it to American people, is to explain it to the ones who are independently wealthy. So if you are wealthy, have you ever tried explaining to poorer people what it felt like to have enough money not to worry about the future? Did they understand you? Or did they just looked at you as if you were a freak? Same problem with explaining the Old World additional dimension.

Stefan Jovanovich responds: 

Dear Bruno,

1. The "Old World" of Europe is not nearly as ancient as the travel brochures like to pretend. The governments of all but the most recently admitted states in the American Federal Union have longer established histories (and older unchanged borders) than any of the nation-states in Europe.

2. The "ruins" in America are there and some of them are almost as old as the catacombs; but they are not on display because what Americans have always sold Europeans is the idea of the United States as this wild, unsettled country. You can find railway posters of the Union Pacific advertising the untamed country of Yosemite to potential German and English tourists when the Ahwahnee was offering 10-course meals. Europeans have always come to the U.S. to see the "new"; that is why they still like California - it always photographs like something just unwrapped for Christmas (the best time to take the picture because the smog is being blown away from the coasts) even though it now has an industrial history as old as the English Midlands was in the 1950s.

3. There is a great deal of blue blood here, but it has one fatal defect - there are no titles to identify the "line going back centuries". There had better not be; it is against our Constitution and, if you are going to claim ancestral superiority based on Plymouth Rock and Valley Forge, you can't at the same time be spending all your time bragging about being descended from European nobility. Those claims of ancient European lineage are the very ones being made by the people whose genealogy is - shall we say - questionable. That was just as true in the 19th century as it is now. The Astors and others who were eager to acquire British class did not have family histories that could trace back to the American Revolution, let alone the founding of the Massachusetts Bay Colony and New Amsterdam. Since there were enough people around like the Roosevelts, they had no choice but to go looking for an Anglo or Franco merger.

4. I can't speak for "poorer people" in the rest of the world, but I can assure Bruno that Americans have no difficulty imagining what it felt like to have enough money not to worry about the future. The turning point in John Kennedy's campaign for the Presidential nomination came in West Virginia. A coal miner asked Kennedy if he had ever had to work for a living. Instead of offering the standard nonsense (Daniel Patrick Moynihan's "I grew up in a poor family", John Edwards' "my Dad was a mill worker" (his father ran the factory), Warren Buffett's "I had a paper route", etc.), Kennedy had the balls to say "No, I never have." The miner's reply was "Good for you." That brought down the house and ended Hubert Humphrey's ridiculous attempt to portray himself as a man of the people.

Most of foreigners' difficulty in understanding America comes from another long-established fact about the United States: the recently-arrived (usually the scholarship children of the immigrants) do almost all the public talking about the country. The oldest tradition in America is to have the A-students lecture the rest of us and tell the world at large about how we are not living up to the traditions of the Republic. (Benjamin Franklin was doing it - and worrying about the Pennsylvania Dutch, er Deutsch when the Penn family was keeping quiet and making certain their land title was secure and paying Franklin to fix it.)

It takes at least one or two more generations for the newly-arrived Americans to discover what Richard Jennings, California blue-blood member of E Clampus Vitas and author of the revised California Corporations Code, once said to our law school class at Berkeley: "Remember someone in this University is going to drop out of school or leave with a "C" average and end up making more money than the rest of us combined." What he did not add was that, while that person might be the child of recent immigrants (see Steve Jobs), the odds were much greater that he would come from a family like that of Mr. Buffett's bridge partner - one old enough that the possibility that great great grandmother may have been one of the "seamstresses" who set up shop above the water table in Seattle can be safely ignored. What I would have added is that it is far more than an even money bet that the same family will be "progressive" enough to be in favor of raising the estate tax. Preventing the newly-arrived from doing what grandfather did to escape the ravages of the tax code is perhaps the most well-established of all the traditions of the better classes of 4-dimensional Americans.

Have a wonderful holiday.




How to quantify similarities between such "mountains" [i.e. price charts] ?

1) Decide trailing periods and criteria to be used - YTD performance > X, last 5 year performance > Y, etc
2) Build universe/database of similar companies for each year
3) Build correlation table to confirm
4) Build composite model
5) Look at forward if-then test

In my experience, the bearish case on high momentum names, frankly any name, is best fundamentally analyzed as a move from Blue Oceans to Red Oceans and along with general market trends. Blue oceans situations tend to be P/E unconstrained, consistent growers, etc http://www.blueoceanstrategy.com/ but once we move into the Porter world of Competitive Strategy then P/E becomes constrained which leads to compression. Generally, there are subtle clues - RIMM announced a move into consumer markets where AAPL played- so the business market was saturated - NFLX CFO left when the stock was below $200 on its way to $300. They started focusing on cost strategies, changing the story from new subscriber adds. I haven't followed GMCR that closely - but is there a competitive threat that is changing the marketplace - are they experiencing a strategy change - that's the key question.

Solar existed on subsidies granted by bankrupt governments, so it has to compete with more economic alternatives. Hence, the president's loan issue.

Stocks have to compete with bonds, so stocks crashed in 1929, 1987, 2000, 2008, etc

EK lost to digital photography.

My worst mistake ever came from Able Labs - a generic drug maker - had 26 NDAs pending, huge margins and a new lab in NJ - problem: small reference to litigation in the SEC filings that later turned out to be because they were getting their margins by diluting the drugs - stock went from new high list to opening down something like 86%, where I sold before watching it go to $0 in 30 days. Subtle clues. They are really important if one is making the bearish case.

in reply to Victor Niederhoffer's comment:

Strange similarity  between those two [NFLX and GMCR] to a person who looks at it as
two mountains of different heights with similarly looking crests
relative to the peak.

Query. How would one quantify similarities between such mountains?
And once quantified, what is best way to see the predictive value of
such similarities. I am reminded of the cotton traders most famous
trade. He noted that 1987 looked similar to 1929. then he knew it was
going to have a crash. The drunk man saw the same similarity and started
out long that Monday, and then sold. Between the two of them, they were
enough to trip the portfolio insurance to sell.

Query. How ridiculous can you get without quantifying the two
questions I asked? I say it wasn't that similar to 1929 as compared to
other years. and also that the ones most similar to a given few years of
bearishness, in the past, the less is the relation between past and
present. i.e. no predictive value to start.

Gibbons Burke comments:

There is another model which incorporates a similar gradual buildup with no appreciable change, then catastrophic breakdown, like the straw breaking the camel's back. A simple model is dropping grains of sand onto a surface. A pile builds up. With each grain the pile gets higher and higher, in an orderly fashion and is stable, until the angle of repose gets to a critical point, at which the next grain of sand sets off an avalache. Similar but subtly different. The concept is known as "self-organized criticality", and I suppose it may have some relevance to how bubbles build up and then collapse:


Christopher Tucker writes: 

See also Slope Stability Analysis Methods:


A similar criticality phenomenon is Flashover:

(quoting the wiki - http://en.wikipedia.org/wiki/Flashover )

A flashover is the near simultaneous ignition of all combustible material in an enclosed area. When certain materials are heated they undergo thermal decomposition and release flammable gases. Flashover occurs when the majority of surfaces in a space are heated to the autoignition temperature of the flammable gases (see also flash point). Flashover normally occurs at 500 °C (930 °F) or 1,100 °F for ordinary combustibles, and an incident heat flux at floor level of 1.8 Btu/ft²*s (20 kW/m²).[1]

another is Phase Transition: (from http://en.wikipedia.org/wiki/Phase_transition )

A phase transition is the transformation of a thermodynamic system from one phase or state of matter to another.

see also Crystallization: http://en.wikipedia.org/wiki/Crystallization

see also Nucleation http://en.wikipedia.org/wiki/Nucleation

see also Vitrification http://en.wikipedia.org/wiki/Vitrification

Gibbons Burke responds: 

I was lucky to be in the right place at the right time to capture a flashover in a fire near my home (in 2006) in New Orleans:


 Stefan Jovanovich comments:

The sad fact is that the firefighter community still has no agreement on how to deal with flashover risk. They have not even settled on the question of whether to use a wide fog or straight stream!!!!!


The best teacher I ever had (an instructor at the Navy's Damage Control School in Philadelphia), said that the Navy were the only firefighters who had figured out how to do something besides spray and pray - i.e. use foam to suffocate fires and inert gases to secure the fuel lines - and even so there was a fatal tendency to believe that all you needed to do was get a big enough bucket. He pointed out to the class that the greatest risk of the Forrestal fire turned out to be the water from the firefighting itself, which almost capsized the ship and washed away the retardant foam.




 One has always wondered why the banks according to their regulators are being prohibited from investing in this and that thing, derivatives, mortgages, stocks et al, but never have I seen a mandate that they don't invest in sovereign debt of the solid as a rock countries such as those they invested in as did Rome after the Trojan war. Could it be that instead of being prohibited from such investments, the opposite is true, and that is why whenever a country is about to go bust, the banks are in danger of falling. Could it be that they are that foolish as to always hold the short straw?

Gary Rogan writes:

Based on multiple occurrences of coming close to the short end of the stick but somehow being saved by the US or the IMF it has not been a bad strategy. How many times has it happened in Latin America? The IMF resolved the early 80's crisis and Brady bonds were used in '89. So it wasn't just crazy people who would loan to Latin America that is guaranteed to blow up sooner or later. There was clearly an implicit understanding that French and German banks would be bailed out from their losses to the various PI**GS, and the way everyone behaved towards Iceland and Ireland, this was clearly expected that they would be the slaves to the big brothers, and the banks would be helped to be made whole by the taxpayers of the less-important countries, and when the bigger countries are involved the big brother taxpayers would have to chip in.

To the banks this was the frog in the boiled pot situation, except in stages: you warm the pot up a little bit, and then some savior helps you jump out, so you learn that the pot is safe. Then the frog jumps back in, and the pot is warmed up a little more, and the savior helps again, and so on. But now he can't help, but who cares? The old bank CEO's are enjoying margaritas some place where they used to lend to or even nicer and safer, or are dead, so on the average this was worth is to the banking flexion leaders. 

Bill Rafter writes:

Several of the 15th and 16th Century Florentine banks including that of the Medicis had problems with their sovereign loans. Despite problems the banks continued to lend for political/military reasons.

George Parkanyi writes:

Banks are large institutions and, like large institutions at the senior levels, don't pay attention to detail beyond a certain point. (I see that in government a lot for example.) Behind every major transaction is some mid-to-senior manager trying to close a deal, land a big client, or in the aggregate hit some number to make a bonus or whatever. I would think that to win a sovereign account would be a big deal, so of course you would trade or perhaps make a market in a client's debt in that situation. Smart sovereign clients, because of their size, can easily play one bank off against another depending on how hungry and competitive the players are at each. Sure institutions have systems, but ultimately deals are made by people, and the culture in investment banking is typically to do whatever it takes to make the deal, even if it means being "creative" and circumventing part or all of your controls, not digging too deeply in case you find something that might compromise the deal, and/or simply treating widely-accepted assumptions as fact (AAA credit, too big to fail etc…). There are many paths to these untenable outcomes, and they are all rooted in human nature. Nicholas Leeson never set out to bankrupt Barings, he started out by just trying to keep a big client happy.

Gary Rogan adds:

Still, moral hazard is what makes all of this possible (having some implicit savior). You don't see Procter and Gamble negotiating a deal with Walmart or some little dictatorship where they will sell them detergent at what winds up being a big loss, and least not very often. The suppliers who are foolish enough to do that disappear without anyone hearing about them, other than in some CNBC special about Walmart. Socialism in any form will ultimately destroy itself: when people have a right (or the idea that they have a right) to other people's resources, eventually they will consume/destroy enough of them to sink everyone involved.

Stefan Jovanovich writes:

The Bardi and the Peruzzi had two enormous technical advantages. Their staffs had fully mastered the science of double-entry book keeping and taken Pacioli 's discovery (probably lifted from the Byzantines) and improved it to the point that they could easily do present value discounting. This was a very big deal at a time when Italian banks were under the same prohibitions that banks in the Muslim world still operate under - charging interest was a sin. Their skill in double-entry was complimented by their shrewdness in dealing with the intricacies of canon law. The Bardi and Peruzzi were the first to figure out that they could get round the problem of usury by issuing loans at a discount and balancing their books by showing the difference between the cash paid out and the loan amount as a gift from the borrower. In a Christian world gifts were perfectly acceptable and (I love this part) the ability to receive them a proof of worthiness. Most of the discounting was not on loans but on relatively short-term bills of exchange. Many of them were remittances to the Papacy. You can see this in the list of the Bardi branches in 1300 - Barcelona, Seville, Majorca, Paris, Avignon, Nice, Marseilles, London, Bruges, Constantinople, Rhodes, Cyprus and Jerusalem. What is supposed to have killed both banks was, as Bill notes, their difficulty with sovereign debt. But it was only one sovereign - Edward III of England. According to the Peruzzis, Edward borrowed 600,000 gold florins from them and another 900,000 from the Bardi and then, in 1345, told them he would not be able to pay on the agreed upon schedule. The Italians had no choice but to agree to a workout, and they ended up taking much of their eventual repayment in wool rather than specie. The problem for them was that the combination of the Black Death and the exhaustion of the German silver mines had produced a monetary deflation that made the repayments worth far less than the nominal loan amounts. But, it is risky to take even this story at face value. The author of the Wikipedia article on the Hundred Years War (where Edward pissed away all the money) has his doubts. He writes that "the Peruzzis' records show that they never had that much capital to lend Edward III….. Further, at the same time Florence was going through a period of internal disputes and the third largest financial company, the Acciaiuoli , also went bankrupt, and they did not lend any money to Edward. What loans Edward III did default on are likely only to have contributed to the financial problems in Florence, not caused them."

What is not in dispute is that it took another half century for banking in Florence to revive on even a regional scale, and in scale and international reach, the Pazzi and Medici were secondary players compared to their 13th and early 14th century predecessors. The Medici are famous because of their adventures in Italian politics, their family stories and their art patronage; but, in terms of finance, it would be like comparing the current House of Baring with the one active during the Napoleonic Wars.



 This is an article about a chronic problem I have noticed in most not-for-profit orgs. When we trade we create nothing but liquidity, no matter what you think of yourself, we are just vultures, exploiting many inefficiencies in the financial markets. Instead of curing diseases or engineering new products or even creating a work of art, we just trade. Call it what you want, but at the end of the day, if your mathematical formula didn't make a trade you didn't make anything. But in our free time however, some of us donate large amounts of money or seed interesting projects that most of the time are intellectually interesting, but hardly ever profitable. You work very hard for your money so I think you should demand from those companies that your money is spent wisely and not in a wasteful manner. I think Dell was one of the first guys  and Mike Milken before him, who successfully asked and got results for his money.

Stefan Jovanovich comments: 

Arthur's premise - "when we trade we create nothing but liquidity" - is certainly accurate; but his conclusion is shocking. Markets are the only successful means human beings have developed to define their state of knowledge about the fundamental fact of existence for all life on the planet - scarcity. Medical research, engineering and dramatic production (my favorite "art") are all wonderful gifts; but none of them can exist without the seemingly useless activity of the people who define prices. (If you have any serious doubt about that, examine the art, engineering and science being produced right now in Zimbabwe and North Korea.)

The difficulty with non-profit and for-profit salaries in organizations is that they are not set by any open bid-ask market; instead, they are the product of politics. That they tend towards being corrupt and ugly should hardly be surprising. The proposed solution - "demand that your money is spent wisely" - is the same fantasy of "reform" that keeps money flowing for "rehab" and has people believing that sick organizations can somehow be saved. It is no accident that the best example of sustained corporate benevolence - HP - is now turning to the solution of hiring a purely political "name".

Gary Rogan writes:

Well the bigger beautiful things are invariably created either involuntarily (the Colosseum built mainly by recently captured slaves, the original St. Petersburg which was built by serfs with a short life expectancy), through donations, like say the Vatican, most of the cathedrals and churches of Europe, or taxes and exploitation of peasant labor for money, like most of the other attractions in the old world. I wouldn't call the funds supplied by the Soviets and especially North Koreans "donations" though. It's also hard to say the grandeur of the results is a justification for subjecting people to the "donation process", in fact I would say just the opposite based on general moral principles and the net migration vectors involving the Soviet Union, Eastern Europe, and (when there is an opportunity) North Korea.

Stefan Jovanovich writes:

My dad was choleric by nature, but he did a good job of restraining his temper in business. The only time I ever saw him entirely lose it in public was when someone asked at a shareholders meeting why his company was not doing as good a job as ETS - the non-profit monopolist that literally owns the college and graduate school application testing market. His reply was: "If you allow me to run at a loss so I have no nasty profits and tax liabilities and persuade colleges and graduate schools that there should be competition in the test market, it will not be a problem. Until then, we have no hope of competing with those saints of American education in Princeton."

Kim Zussman adds: 

For want of a bailout Lehman was lost.
For want of Lehman the market was lost.
For want of the market the economy was lost.
For want of the economy the election was lost.
For want of the election the kingdom was lost.
And all for the want of a bail

Ken Drees adds:

For want of another backdoor USA bailout Germany is pissed..
For want of a German handout the PIIGS are pissed.
For want of more austerity Germany stays pissed.
For want of continued power all the politicos are pissed.
For want of a viable solution the markets are pissed.
And all for the lack of a Euro Debt Bond

Alston Mabry adds:

What if the €uro experiment, instead of introducing the new currency, had simply been the proposition that all EU countries issue their sovereign bonds denominated in DMarks? Wouldn't it have been clear immediately that certain problems with such a scheme were unavoidable? And isn't that essentially where we are now?



 September 11, 2001

It really was a remarkable day. I remember stopping on the sidewalk on the way into work to just look at the sky, it was crystalline and incredibly blue. Beautiful. I stepped into my place of business, a large room about the size of a football field, very dark with the constant hum of electronics and various sections filled with radar scopes. I work at the New York Air Route Traffic Control Center, NYARTCC or New York Center as we say. I had no idea that this day would turn out to be the most terrible and memorable day of my career. I had been lucky so far, dodging bullets by not being on duty when Avianca 52 went down in Great Neck, Long Island or the explosion of TWA 800 or the suicide/mass murder of EgyptAir 990. But not today. The pilots were particularly chatty that day, constantly commenting on how nice the city looked, how clear it was. It was a CAVU day. Ceilings And Visibility Unlimited.

I was plugged in and working sector 55, a radar departure sector that encompasses airspace to the southwest of New York City from 14,000 feet to 28,000 feet and I was working quite a few JFK departures westbound, several NY Metro departures southwest-bound and some arrivals into DCA and BWI that had to be descended through the climbing departures. I was getting a bit busy and asked the controller working with me to "point out" an aircraft to the sector above us (sector 42) so I could climb the flight into his airspace and basically get him out of the way. My coworker called and then hung up, incredulous, saying sarcastically "He won't take the point out, he says he has a hijack". As the controller working the sector above us had a flair for drama we didn't take him seriously and I remarked "Get a real controller over there".

But it was true. American 11 had turned off its transponder and had turned south over the Hudson River toward New York. The transponder transmits a 4 digit code along with altitude and position information so our computers can track the flight and we can see its altitude and speed. Although the flight had turned off the transponder we still had a very solid "primary" (radar reflection) target visible on the scope. So we could still see what we believed was AAL11 heading south toward New York, but we had no idea what its altitude was.

At some point I remember calling Huntress, the Northeast Air Defense Sector to give the position of the target that we believed was AAL 11. "Where is he?" the military controller asked. "About ten miles west of LaGuardia, right over the Hudson, heading south, its a strong primary target". "I'm sorry, where? I don't see him". I gave up and hung up the line. The target was gone. We did not know then that AAL 11 had crashed into the World Trade Center. A few moments later some aircraft on my frequency that had just departed JFK asked me if I knew the south tower was on fire. There was a huge column of smoke they said. Later, after listening to the tapes, we discovered that one of the pilots on my frequency had said "Maybe its that American you guys are looking for" but I hadn't heard what he said. All we knew for sure was that he was no longer on the radar and that simply meant that he was very, very low. We assumed (for some reason) that they were flying low and down the coast and headed god knows where. Someone said that a small twin engine aircraft had hit the World Trade Center, but it never occurred to us that it could possibly have been American 11. No way. Not in your dreams bud.

As this was beginning, UAL175 checked on with the controller working sector 42 and told him that they had heard a suspicious transmission on the prior frequency in Boston Center's airspace. But all eyes were on the target that we believed was AAL11. As we focused on the target, trying to figure out what was going on, the facility chief entered the room with a phone in each ear and his deputy beside him. They stood behind sector 42 and talked quietly but I was too busy to hear any of their conversation. While everyone in the room was staring at this target tracking toward New York, I heard a voice behind me say "Hey, there's an intruder over Allentown" This meant that there was a target that we call a "Mode C Intruder" that the computer wasn't tracking. Then we noticed that the computer track for United 175 had separated from its target so we assumed the intruder was UAL175 and he was showing up as an intruder because someone on the flight deck had changed the transponder code to a code that the computer couldn't identify. The intruder climbed briefly from 36,000 feet or as we say Flight Level Three Six Zero (if I recall correctly) and then as it passed over Allentown, PA it began descending and turning left to the south.

Someone said "watch this guy" to me but I was already watching, I had entered the 3321 code that the aircraft was now squawking on its transponder into to make its target appear brighter on my scope. As the target continued turning and descending I became increasingly concerned about two aircraft that I had under my control, both heading southwest and climbing. If the intruder continued the left turn and descending at the same rate it looked like they would get very close. But it was impossible to tell which way to move the traffic to get them out of the way. If the intruder turned rather tightly than he would come north of my traffic, if the turn was wide he would come south of them. As it was he turned head on into both of them.

Before the intruder had finished the turn I had issued a traffic call to both of my climbing aircraft: "Delta 2315 and USAir 542, traffic, one o'clock, one five miles turning southeast and descending, we believe it is a hijack and we don't know his intentions" (please keep in mind that these are my recollections ten years after the event and I don't have transcripts of my tapes available, but the essence is exactly as it was that day). Still, I had no idea what the intruder was going to do. Would he continue turning? Continue descending? I had to assume yes to both of these questions and it began to look as if he was heading for New York City, but for what purpose? Was he an emergency we speculated? If so it must be a dire one. No pilot would turn off course or descend without informing us first. This was crazy. We were thinking hijack but just weren't sure. Delta 2315 was level now at FL 280 (28,000 feet) and USAir 542 was about five miles behind him and leveling off at FL 260. I called the traffic again, "Delta 2315 that traffic is now one o'clock, ten miles, turning opposite direction and descending rapidly. It looks like he will be directly in your face. Take any evasive action you deem necessary." "Roger" came the reply. I called the traffic to USAir 542 again and he asked me a question that I didn't hear correctly. I thought he said "Is that the guy at our one o'clock?" and I responded "affirmative", but we later determined that what he actually said was "Is that the Delta we are following at our one o'clock?" which was not the case, I wanted him to look for the intruder that was turning head on.

By now I was becoming extremely concerned. The tension in the room was palpable. Several people were staring in disbelief at my scope as the events began to unfold. When the intruder was about 7 miles from Delta 2315 and pointed directly at him and about 1,500 feet above him, I turned both aircraft, shooting off the clearances as quickly and as clearly as I could: "Delta 2315 turned left IMMEDIATELY heading two zero zero" The pilot responded with a "roger" that sounded just a bit too nonchalant for my current state. "USAir 542 turn left IMMEDIATELY heading two zero zero". The intruders target was now about five miles from Delta 2315 and closing at right around 1,000 miles per hour. I again called the traffic to the Delta and waited to see the turns. I watched in horror as the two aircraft converged at 28,000 feet. "GOD F#&KING DAMNIT" I shouted as I jumped out of my chair, screaming at the scope. Dead silence. I could hear people breathing across the room. Shit. This was it. It takes twelve seconds for the radar to update. That was the longest twelve seconds of my life. I was focused so intensely on the radar that I thought my eyes might pop out of their sockets. Finally the targets both appeared after having passed each other by about 2 miles. But at that time it seemed like you couldn't fit a sheet of paper between them.

"USAir 542 is responding to an R.A." said the USAir pilot as he began descending, responding to an onboard collision avoidance device called TCAS. Sh*t. "Christ I'm sorry about that sir, I really thought he was going to hit the Delta", I said apologizing to the USAir flight that had come almost as close as the Delta. As it turns out, we suspect that the hijackers aboard United 175 must have heard the TCAS alerts as well because they briefly stopped descending and actually climbed to about 28,300 feet, 300 feet above the Delta. But as soon as they passed they began descending again and rapidly. This is when USAir 542 began descending as well to avoid the conflict, but the turns I had given earlier ended up doing the job, but much, much too close for comfort.

By now I was a nervous wreck and we all watched United 175 descending toward New York City. We wondered, clutching to hope, if he really might be an emergency and not a hijack and was just trying to get the aircraft down on a runway, any runway. We wondered aloud if he was trying for Newark as he was pointed right at it. "Maybe he's shooting for the 4's at Newark??" (Newark has two runways called 4, a left and a right) "No", Jimmy B. said, "He's too high and too fast". We watched as the target clipped off the miles, twelve seconds a hit. (We call each subsequent target presentation a "hit"). He was descending at five thousand feet a minute. Then six. Then seven. Unbelievable. Things were beginning to feel surreal. This wasn't actually happening was it? Yes. "Maybe he's trying for runway 4 at LaGuardia?", someone said. "No", again from Jim. "This guy is going in" And we knew. They were going to crash the plane into the city. They were pointed right at lower Manhattan and we knew it. "Two more hits" said Jimmy. "One more" And then he was gone. We had just watched a commercial airliner deliberately crashed into New York City. It didn't take long for the tears to come. There was confusion, fear, wild emotion. But we still had work to do.

I vectored aircraft on course, climbed some, descended others, I don't remember really. I remember choking back tears as I issued instructions to several pilots and talked with some about what had just happened. At some point the supervisor asked me if I needed to get up. I nodded emphatically and was relieved by another controller.

As I walked out of the area and passed the watch desk I heard the Operational Manager in Charge screaming into the phone: "I don't give a shit what they do, just get them in the air NOW!!" Must be scrambling fighters I pondered, feeling distant and disconnected. I reached over his multiple CRT's and grabbed the cigarettes out of his shirt pocket. He never noticed.

The rest is history. The controllers in my area, area B, were sequestered with a priest and a psychologist in a conference room for a while, and someone would pop in occasionally with the latest news. "The south tower just collapsed" No f#$king way I thought. They kept popping in with more bad news, bomb threats, more hijackings. I couldn't take it and got up and walked out to smoke one cigarette after another. The controller sitting next to me had just lost his best friend who was working at Windows On the World. People were in tears, everyone was afraid and angry. Unbelievably angry.

At one point they gathered us up, the controllers from Area B and we made written statements and a recording. They brought this big old reel to reel recorder in and passed around a microphone asking us to give our version of what we saw. Four or five people had already spoken when they discovered it wasn't recording and we had to start over. Later, a Quality Assurance Manager destroyed this tape and there was a bit of conspiracy theory going on about it. But this is nonsense. The tape was destroyed because the manager knew it was counterproductive and embarrassing. Not embarrassing to the FAA, but to us personally. Many people were crying, several facts were stated incorrectly, it was just a mess. And they had all the data they could possibly need with the voice recordings of all the transmissions and all of the radar data. Not only was he within his rights to destroy the tape, it was actually in his job description. Was it right? I'll leave that to you to decide. But I can tell you from first hand experience that the contents of the tape that caused such a flap were totally innocuous.

So that is what I experienced on 9/11. I hope it gives some insight, it is definitely a harrowing tale. Below are some statements from my coworkers that I retrieved from the national archives. I was unable to locate mine on the website, although I have a hard copy of it myself. I would really liked to have been able to provide a transcript of my voice recordings from that day, but I was told I have to go through a Freedom of Information procedure and just didn't want to bother. More government red tape is all I need.

Several weeks (months? who knows) after the event I spoke with a reporter over the phone about that day and he wrote a story for the Hartford Courant. A few days after it was printed he called me again with a strange request. A reader had contacted him and wanted to speak with me, could he share my number with him? I said sure and the gentleman called. Apparently he had been a passenger aboard Delta 2315, a circuit court judge for either the U.S. or Connecticut, I don't remember. But he had called to thank me. "For what?" I asked. "For saving my life that day", "for doing your job" and we talked for hours. I think he saved my life that day.

This is dedicated to all those who lost their lives that day, especially the pilots, crew and passengers aboard American 11 and United 175.

Also, please note that much of the information on wikipedia about these two flights is incorrect, but only mildly so.

Christopher Tucker

September 9th, 2011

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