Letters to the Editors      September 2006 Write to us at: (not clickable). Please include your full name, and omit attachments

Notice from the Editors: Competition for Contributions

28-Sep-2006
Tech Advice, from Rodger Bastien

I had a nice old broker in my office when I was at Merrill Lynch who was an invaluable resource. He claimed to be a technician, I claimed he read his charts upside down. When he physically entered my office with charts in hand to discuss a stock he was sure was breaking out, I always shorted it. Uncanny! My biggest regret about leaving the firm was leaving this poor guy.

27-Sep-2006
Market Engineering, from Rick Foust

I have observed a simple yet accurate indicator of market tops and bottoms. I happen to work in the midst of semi-retired engineers. Engineers are by nature the worst timers, being the last to join and give up trends. Those near retirement tend to be obsessed with the stock market. Combine these factors and, well, here is the observation. When semi retired engineers are so depressed they shuffle when they walk, can barely hold their heads up, and moan about never being able to retire, then buy everything. When they are walking on their toes, head up, and chirping about how great retirement will be, sell everything. My best indicator still wears a 1980s vintage chrome plated digital LCD watch in mint condition.

26-Sep-2006
A Worthwhile PSA, from Scott Brooks

It is that time of year again. Time to watch the roads and drive a little bit more cautiously.

We are approaching the deer rut in some parts of the country. Here in the MidWest, it starts in late October and goes through to early December, with the peak being around Nov. 5th - 20th. This is the time of year when the bucks, usually cautious and wary creatures (well, at the least the older ones), throw caution to the wind and run around like ... well ... teenage boys, to perform that favorite activity, known as the rut (breeding season) that they only get to do once a year.

In their fervor to spread their seed, they are much more visible. That creates opportunities to not only observe them, but to also increase the odds of putting venison in the freezer (something that I happen to be fond of doing!). But there is also risk involved too.

As they run around like out of control teenage boys, they forget to pay attention to things like your vehicle coming at them at 60 mph.

Deer vehicle collisions happen all year. But there are two main spikes (and I do mean SPIKES) in the number of DVC's. The primary spike occurs during the rut. So it behooves you to find out when the rut is in your area. The second main spike (which is lesser than the rut spike) in DVC' s occurs about 6 months after the rut in your area. This is the birthing season. When the does are ready to give birth they move to prime fawning grounds. The best fawning grounds are taken by the dominant does, and the lesser fawning grounds by less dominant does, in a clear order of hierarchy. Therefore, the does have to move around a lot as the more dominant does chase off the less dominant does in the family group (they are very territorial). They will also run off the bucks too. This time of year, bucks are relegated to the least desirable area's. In Missouri this occurs in May (coinciding with the peak of the rut on a 6 month lag).

A great resource for finding the rut in your area is the Quality Deer Management Association. They can tell you approximately when the rut is in your area.

Wouldn't it be nice if the market was as kind and predictable as the rut/fawning time of year. It would be so nice to know when the likelihood of risk is high and low of hitting a bad spell in the market that was as predictable as the rut/fawning cycle of deer. But then if it were, there would be little or no profit in such a predictable cycle ... so scratch that idea and just remember to drive safe!

Steve Ellison offers:

Bacon had a number of strategies in Secrets of Professional Turf Betting that were based on the annual cycles of horses. For example, he advised against betting on any female during mating season, but also said the females were often overlays when running against males shortly after mating season ended -- the females were again focused on running, and their likely string of recent poor races would repel the public. Similarly, growth combined with weight allowances put three-year-olds at a disadvantage to older horses during some months and an advantage during other months. No, stocks are not quite as straightforward as that, but there should be applicability in the idea that, just when the public becomes disgusted with an entire category because of unrelenting losses, that category is likely to outperform.

26-Sep-2006
Following the News, from Paul Marino

Since Barron's is so widely discussed and read I would like to share a small but noteworthy bit of information that daytrader friends of mine make use of; that being the Bloomberg radio advertisement that happens at 6:30am on Friday's and highlighting the upcoming weekend's biggest articles. It mentions the exact companies and investment ideas that you will see on Saturday morning. Come Monday, these articles are generally market movers, sometimes achieving ~3-5% moves in the individual stocks. My friends laugh about this "piker" move, as if it is a ludicrous proposition, but seldom are they crying while ringing the cash register Monday afternoon.

News is so critical to capital deployment on all levels, many times I wonder how fortunate Mr. Putin must feel over these past few years with such crises in the Middle East and their effect on oil prices, and Russia's subsequent ability to pay off their bonds and keep their noses above water while keeping at bay a worse social situation than the Middle East itself currently endures.

26-Sep-2006
Ethanol Rack Prices ..., from Henry Gifford

Ethanol is made from corn, which is very heavily subsidized.

Growing corn takes oil to make fertilizer, pump water for irrigation, run farm machinery, etc., with the eventual energy yield perhaps less than what went into the process - still a matter of debate, with numbers varying according to who is on which end of the subsidy equation.

The whole idea of using fuel to make food and then using the food for fuel strikes me as insane, especially when the land, labor, and scarce water are taken into consideration.

The idea that gasoline is not subsidized strikes me as a bit of a stretch, considering the tax advantages to the oil industry, adventures in the middle east to maintain access to "our" oil, etc. The recent drop in gasoline prices to near the price of bottled water leads me to suspect the government is more involved than meets the eye.

22-Sep-2006
How Are You?, from Bart Madden

I assume we might connect in CT. If so, I will keep this in mind when I travel to East coast. I am making a bit of progress on some public policy issues (FDA reform, corporate governance) with proposals rooted in market-based competition.

Check out my monograph. This monograph was meant to help people (especially students) understand that customers, employees, and shareholders share long-term, mutual interests. Although hard copies are available on Amazon, I made it available for free as a downloadable file. I get email comments on the monograph from young people in many different countries.

21-Sep-2006
Pink Panther Quotes, from Michael Andersen

Quotes from the classic Pink Panther movies (Peter Sellers):

Francois: "Do you know what kind of a bomb it was?"
Inspector Clouseau: "It was the exploding kind"

Lady: "... but that is a priceless Steinway piano"
Inspector Clouseau: "Not anymore".

Point taken from this excellent inspector and enemy of crime ... not being prepared and doing your homework can backfire bigtime in your face; and - secondly - some ideas/trades must be cut lose however excellent they may have looked when entering.

18-Sep-2006
Ivy League CEOs, from John De Palma

Related to your August 2003 column on whether Harvard-educated CEOs deliver, the "Wall Street Journal" today has an article that descriptively discusses the college backgrounds of top corporate CEOs.

Some 10% of CEOs currently heading the top 500 companies received undergraduate degrees from Ivy League colleges, according to a survey by executive recruiter Spencer Stuart. But more received their undergraduate degrees from the University of Wisconsin than from Harvard, the most represented Ivy school (with 9 CEOs). [read more]

Also, in Irrational Exuberance Robert Shiller mentions an academic study on how fund managers from better schools generate higher returns:

In this paper we explore cross-sectional differences in the behavior and performance of mutual fund managers. In our simplest regression of a fund's market excess return on characteristics of its manager we find that younger managers earn much higher returns than older managers and that managers who attended colleges with higher average SAT scores earn much higher returns than do managers from less selective institutions ... [read more]

18-Sep-2006
Highs and Lows, from Viv Humbert

If Victor wants to determine if daily highs and lows are non-random: One can estimate the open-to-close (OC) volatility using the standard deviation or average absolute deviation of OC returns. There also exist "range" estimators of volatility using the high and low. If the daily range is on average higher or lower than the standard deviation of OC returns would predict, that could signify non-random behavior.

18-Sep-2006
Spinach Kills, from Prof. Ross Miller

Having found my entire existence vindicated by the killer spinach epidemic, I celebrated by going to Denny's and partaking in an Ultimate Bowl breakfast.

For a mere $5.99 one gets a bowl filled with all sorts of high-cholesterol goodies that include a massive lump of scrambled eggs, ham, fried potatoes, grated cheese-like stuff and token vegetables, all doused in a cheese-like sauce. To round out the meal one also receives two strips of bacon, two sausages, and three pancakes liberally gobbed with butter and with a side of pseudosyrup with which to douse them.

While waiting for trained chefs to prepare this feast, I joyfully read about the antics of a man called Stevie whose visage graced a publication that could only be invented in the U.S., the weekend edition of the Wall Street Journal. (Five days a week of biased and corrupt financial journalism is not enough, here, have a sixth day.)

My fellow patrons mostly appeared to be the friends and family of those incarcerated further upstate who were taking a break from the long drive. None of them were reading any edition of the Wall Street Journal.

After the meal, I joked with the waitress about what a suitable dessert would be.

This breakfast is so lethal that Denny's does not provide "nutritional" information about it on their website. The info provided about various less-than-ultimate meals is frightening. Nearly ten hours later I am still alive and so is my digestive system, which may well be more than I could say if I had had spinach instead.

In case you are wondering, the Ultimate Bowl was actually pretty good, though the sauce really did not add anything other than cholesterol, fat, and calories. It also serves as first-rate aversion therapy -- I may never step in a Denny's again and I am considering becoming a vegetarian. Just do not expect me to eat spinach. Ever.

15-Sep-2006
It's Over, from Tim Melvin

As I sit here at the close of a business day with long coal stocks and short puts on same running out of my ears and splashing red all over the p&l (this of course gives me great confidence in the trade. When you buy the beat up stuff I do it always starts this way), I gaze out the window through the dreary rainy afternoon and contemplate the fast approaching end of the summer. Sunday ends the season and we move into fall. Now, I know the astronomy buffs, physicists and scientists here will attempt to patiently explain to me that summer ends with the equinox on the 21st. To which I reply firmly and with great vigor, balderdash. Any true n'er do well adventurous sort here in the mid Atlantic knows that summer ends the third Friday of September at around 5:00 when Kirk from 98rock hip hops on to the stage and the bikini contest finals kick off at redeye's dock bar. It will be packed as always with the bikers, the locals, the tourists and of course we dedicated locals, the few, the proud, the intoxicated.

We'll raft up the go fasts off the gas dock unless you're one of the lucky ones with a slip at the marina, we'll have one last summer time Sunday afternoon to laugh, joke, tell stories of go fast boat trips to Reckless Rics, nicks in Baltimore, Jellyfish Joel's, the crab claw, Pussers in Annapolis. The smoke from the beef pit will swirl through the crowd and all afternoon the sounds of the band and the crowd will be punctuated by the roar of Harleys on the ground and cigarettes, Sonics and power plays on the water. As the bevy of barely dressed beauties dances and gyrates for the crowd and the winner is announced, summer will have officially come to a close. The sun will be setting over the narrows in a bright orange defiant manner, casting the pink orange hues across the fast moving water of the narrows and fall will be upon us.

It's been one hell of a summer I must say. In addition to the local crowd here, a great assortment of folks, all successful at what they do and all firm believers in the work hard play hard approach to life, I have spent a lot of time with other folks from the spec list this summer. Starting all the way back in April with the Lexington trip, through the Chicago air show I've spent a lot of time sitting around tables with luminaries such as Crossman, Jason Thompson, Ed Gross, Ryan Carlson, Tom Marks, Pam, Dr Brett, Tom Ryan, Tim Hewson, the voodoo prof. and too many others to recall at the moment. Ed was able to get here to Maryland for a weekend of boating and over consumption including a trip to the legendary Tilghman island party on Labor Day weekend. Of course there was the spec party, one of the true highlights of the year for me, a chance to make new friends and catch up with the old ones. There was the special treat in chi-town of catching up with the great Cheesehead himself David Hillman to tell trading and drinking stories. We used to tell girl chasing stories as well but as the smile on his face is from wedded bliss these days, he is no long allowed to engage in such activates. These conversations greatly expanded my base of trading and market knowledge and improved my life with new skills and new friends to a degree that I would not have thought possible back in the early days of newly budding trees and warming spring breezes that originally heralded winters end. One can learn more about markets in one good argument with Fred than years of reading books, and throw Jason, Ryan and Omid in the mix and information flows like wine at a wedding in Cana.

Sad to say but its over. All too soon, the rumble of boats will fade into the gray Chesapeake sky, flashy paint jobs covered in plain white shrink wrap, the docks will rock no more, oysters will take the place of crabs, the color of the day is no longer from the blazing summer sun sinking into the west filling the sky with streaks of orange, purple and pink but is now the many colored foliage that will soon line the byways and paths along the bay. A romantic evening will no longer being dining and dancing while the soft evening bay breezes and softer jazz fill the Chesapeake evening, but a roaring fire and classical music somewhere safe from the encroaching chill and harsh winds. It's been a good one. Lots of boating, some baseball, a lot of complaining about just how bad the orioles have become, crab feasts, horse racing, a beach front wedding in of all places Naples Florida in July, dancing in a tux with my best friends new bride and full bridal party in attendance at an out of the way dive bar at 2am, Ocean city days and Seacret nights, everything that makes up a mid Atlantic summer. But as markets change (anyone else recall that a few short weeks ago energy ,especially oil, was the absolute darling and would never go below 70?) so do seasons.

So be it. Break out the sweaters and windbreakers. Put away the beer and Gin and tonics. Step away from the chardonnay. Break out the brandy and the scotch and lay in a case of cabernet. It is fall. The regular season is over and all of New York hits the cathedrals, the churches and synagogues and prays for a subway series. So does every network executive ever born and one looks at buying a little NYT in the low 20s as such an event will surely spark readership and ad space sales. It is possible this year as the Mets and yanks are two of the best teams in baseball this year. The Yankees most serious threat, the tigers of Detroit seem to have lost their fierce fangs as September approached and are in danger of falling out of their lofty perch as the winningest team in the American league. The Mets may have a little tougher time of it but if Glavine and Pedro can reach deep down and pull out some post season pitching splendor, the Bronx shall duel the boys from queens for fall glory once again. No longer shall Saturdays be the roar of go fats boats, but a different roar will fill the land.

In South bend, Knoxville, Austin and all over the country the roar will be the student body and alumni welcoming college football back to the land. Here in Annapolis and in West Point the roar is the flyover of military jets as the brigade of midshipman and corps of cadets enter the stadium marching in military precision, taking in their schools game along the way to leadership of the military and the nation itself. It has started already of course and there have already been some great games and stories. Notre Dame, beloved of an Irish Catholic boy like me self, is back with Charlie Weiss and Brady Quinn leading the way back to glory. Ohio State proved that they are the beastly Buckeyes this year going into Austin and breaking the heart of an entire state in a few short hours. The Volunteers of Rocky Top chastised both Cal and the coaches for not ranking them higher, Blasting the 9th ranked bears back into obscurity. There's more to come. Notre dame Michigan this Saturday, USC takes on a resurgent Nebraska. The Horned frogs and the Red raiders. The band plays. The tailgate rocks. Football of a college variety is back just in time to fill the Saturday void.

On Sundays the half dressed women won't be on the red eye stage anymore but on the fed ex field and ravens stadium as the games begin again. Emperor Tagliabue has stepped down but a new monarch emerges and the circus maximus that is the NFL returns. My Ravens were king of the gladiators the first weekend, slaughtering the Bucs of Tampa, Lord Manning of Indy vanquished the Earl Manning of ny that first night but the earl served noticed that there will be few Giant slayers this year. The high speed high impact world of the National Football league returns with high drama and much passionate and carefully directed violence.

There are I think many lessons to contemplating the changing seasons and environments. First is the obvious that change is constant and one must adapt to the changes as they occur and not as one wishes they would occur. I may wish it was summer forever and I could boat year round but should I try I will learn what wind chill factor really is and freeze off some of my very favorite parts, Instead I shall turn to other activities and wait until the summer sun returns, In the market we may wish that gold, and energy are going to the moon forever and ever amen or that big tech is ready for am imminent rally, but like the fast approaching chill of autumn, the market doesn't give a good damn what we want.

Winning, in the market and in life is an attitude. There is a reason the Yankees are a winner. My team plays in the AL east but I am not going to fall into the "it's the money" trap. It is what they do with the money that makes the Yankees great. They do what they need to win, keep what works even at a high cost and get what they need to complete the puzzle. Other teams have the money but spend it poorly and think one high price player is all they need. Study the game, know the game, and invest the money wisely to get the things you need to win.

Setbacks can be overcome. It has taken the Mets several years of painful rebuilding to get back to this level. Rather than go for a one trick pony, they got what they needed over the long term to re-achieve a high level and stay there.

No matter how much you study something there will be surprises. College football pundits spend hours poring over data to set the rankings. They wrote the Vols off and rated cal very highly. Tennessee killed them. No one thought Ohio State could beat Texas in Austin. They didn't beat them. They manhandled them. No matter how much you study it or how specialized your knowledge base is, you will be wrong at times.

In the end it is the friends that make the experience. There was a flurry of friend posts on the list the other day but I didn't have time to jump in and add anything meaningful. Rather out on the water or gathered around the TV watching the ravens slay a hapless foe, it is an altogether different experience when alone as opposed to the company of good friends. A good friend makes the ups and the downs smoother, the wins more enjoyable and the losses more bearable. A caveat here relevant to one of the posts the other day. Never confuse stocks with a friend. A stock will never love you back and doesn't care if you own it or not. Never lose a good friend. Make new ones as often as possible. Never hesitate to sell a bad stock. Never chase a growth stock too high. They don't care if you own them and if they miss earnings and plummet your losses mean nothing to a stock. It is a piece of paper, an electronic blip. It will never love you back. Treasure your friends. Trade your stocks based on the conditions and circumstances that exist.

And in closing, as always, whether its red eyes dock bar, the football field or the comfortable confines of home, life is always better with half naked women in attendance.

14-Sep-2006
A book recommendation for Wolf Niederhoffer

Maybe you want to pick up again Sea Wolf by jack London. chapter 1 is a dramatic portrayal of the San Francisco bay shipwreck that land's the author aboard the Japanese sealer steamer Ghost, captained by Wolf. As the waves wash over the author in chapter 1 before Wolf plucks him from the sea with the women 'predictably screaming', it reminded me of when I was thrown into Carnegie Hall two decades ago. I arrived to visit you in NYC but stopped to tour the great Hall. the elevator got stuck on the top floor and I stood with five others trapped in the shaft. What to do next (per mental rehearsal a hundred times over) ran through my mind, but before I could move the screams began and I watched the men turn to marble. I enjoyed this scenario for five minutes before weaving through the statues to the elevator phone, then hidden by moving tarps draped around the walls. a dial 'O' brought speedy rescue.

14-Sep-2006
Masters of American Art, an article by Marion Dreyfus

15 Sept. 2006 -- 28 Jan. 2007

The great privilege of experiencing a fabulous New York kind of day. Went to a splendid split-museum exhibit of the great comics creators of the 20th century -- going first to the Jewish, having a look-see at the fabulous and near-priceless full-page and often full-color comic strips that formed the Sunday excitement for so many millions in the 40's, 50's, and 60's -- before newsprint and inks became too expensive, papers became unwilling to spend the space and money, and comic books took off into the stratosphere of enjoyment du jour. For kids at first, then for soldiers at the front, and adults in general, comics were eagerly sought and read by close to 40 million people.

After we partook of refreshment at the Jewish, and toured the show on East 92nd and 5th, we boarded a van for the traffic-clogged but crisp pre-Autumn rumble to the Newark Museum, which lovely diadem in the refurbished Newark downtown area this reporter had never before had the pleasure of visiting. There we recovered from the herky-jerky van ride, ate a sumptuous luncheon provided for the news people (some 14 or so of us) by the joint museum PR office, and raved about the balance of the handful of famed artists who have finally been recognized as both great draftsmen but also great plotters and inkers of their strips, graphic novels and comic books.

For the umpteenth time I rued the unfortunate 'misdirection' of my dear Mother who, without warning, one day junked my hundreds of now-invaluable comic books -- I always credit the start of my luxuriant vocabulary to my very early attachment to staking out the candy store shelves, buying and wolfing down these juicy and fantastic treats. My allowance was a pittance, but I spent it reliably, every week, on Action Comics and Superman and Wonder Woman and (embarrassed blush) even Archie & Veronica. Mostly it was the Action heroes, of course. And some MAD.

The panels amassed by the superb curatorial staff revealed more about the evolution of the culture -- in particular the metaphorical subsuming of the Jewish immigrant experience into secret saviors of society -- into the complicated ironic distancing (Charles Schulz and Jules Pfeiffer) of today's quite idiosyncratic versions (the influential and innovative Gary Panter and Chris Ware, and the more traditional but 'way cool R. Crumb, 'father' of underground comics) than did the run-of-the-mill TV sitcoms or regular newspaper columns. The artwork itself is astonishing, done by hand, with nary a computer anywhere in sight for 30 or 40 more years into the future. Their line work was extravagantly gorgeous and gifted, and it is gratifying to know that the editors paid them well. So many of them were unassuming-looking Jewish immigrants, but one great, George Herriman, was a Louisiana-born fellow who always wore a hat: No one knew until well after his death that he had been, in fact, a black, not just a talented guy [passing as white]. Oddly, Art Spiegelman, who richly merits inclusion in this show, refused to be placed next to a gallery of Superheroes, though his reasoning escapes me, since these heroes were in no way lesser than their splendid confreres in all other walks of talented manifestation.

Visiting the Superheroes hall, I could not help remarking on the oft-noted appearance in every segment of Seinfeld of some bit of palaver or visual reference to Superman. In this vein, how many readers and fans realized that Superman has been soberly compared to Moses: Both set out in a small craft (reed boat: tiny rocket) from a people being destroyed (Krypton civilization: Jews in Egypt), and grew up unaware of their great powers and heritage to save their people many times from the evil that lurks and shows up in men (Metropolis/Earth: Egypt, the Holy Land). Since the character was created by two Jewish immigrants, with the flames and terrors of Europe not far in the past and yet to come, the subsuming of the rescue motif so dear to the hearts of repressed but brilliant people was given full throttle in this tidy myth of the unassuming Clark Kent who converted into the dashing and colorful hero of the day. What a fantasy, fulfilled, for so many struggling, upwardly mobile émigrés.

Many points along the trajectory of the exhibit evoked noisy appreciation from many mouths. Krazy Kat (George Herriman) and priceless panels enraptured one current-day cartoonist, Karen Leon, who made the trek just to drink in these remarkably preserved fragments of our cultural past. "I can't get over how fantastic those Krazy Kat pages are," commented Leon. Milt Caniff was represented, with his "Terry & the Pirates" exemplars of bravery in WWII and following. "Dick Tracy" and his techno-wizardry inventions have proved prescient, as we all now sport tiny chip-powered devices that Chester Gould envisioned 40 and 50 years ago. (Along with Bizarro figures and a menagerie of crazy felons and baddies.) Gould's work debuted in 1931and ran for 46 years. Peanuts still runs in over 2,000 international and stateside papers. Readership: Over 90 million. Not bad for a guy who first saw newsprint back in 1937.

In a side conversation early in the day, I learnt from one of the curator/artists that until very recently, many cartoonists worked, if called for, six or even seven days a week. They never dreamt of a vacation, never even had a day off. It is only very recently that has seen the welcome advent of a week or fortnight's vacation for these hard-working men. The creators of Beetle Bailey, for instance, have to drum up fresh ideas 24/7. As a matter of expediency and smarts, they avoid placing Beetle in anything too topical or dangerous (no Iraq or Afghanistan duty for Beetle and his slackers). Captain America, by Jack Kirby and Joe Simon, had their patriotic superhero doing battle with Hitler, and evoked mythic comparisons to both biblical narratives and Greek mythology. The American, as well as the British, media came notably late to realization of the true dimensions of that pernicious monster.

Next door to the Newark, through a connecting vestibule, is the Ballantine House, one of the most dazzling reconstructions of the staggering wealth of the Ballantine Family, their wealth stemming from the beer of the same name, as well as the eponymous publishing company. The home has 27 rooms, with exquisite furnishings and appointments, stained glass and original décor, pressed-tin walls, solid oak banisters and ornate stairways. Servants' quarters were at the top of the house. One observation: Though this formidably wealthy family -- with many homes stashed around the country of apparently similar bling -- had many wine glasses and champagne snifters on the commode, there were no beer stein. Here was a family that beer built, yet they, of European stock, did not themselves quaff their own malt beverage.

This show is another brick in the gorgeous wall of thoughtfully presented and unexpected though inevitable exhibits that has become a hallmark of the Jewish Museum. Curatorially speaking, this is a show the curators can be immensely proud of. It is a show moderns should not miss.

11-Sep-2006
Payroll Tax Model Methodology, from Bill Rafter

Instead of looking at job survey data, you can actually measure the amount of employment by looking at one of its surrogates: payroll taxes. Unless you are underground, you have payroll taxes deducted, like it or not. Furthermore these taxes are part of the U.S. Treasury's income statement and are released monthly and daily. Thus you have a daily window on how much was paid in payroll taxes. You do not know the number of jobs, but you get the same data "cap-weighted". The politicians (and media) emphasize the number of jobs, but we are looking for the overall economic impact. And since the U.S. is a majority service economy, the payroll tax data (particularly as it is cap-weighted) becomes a surrogate for the overall economy.

An interesting note about this data: not many people watch it. The Treasury Department reveals how many times its archives were downloaded, and frequently those numbers are single-digits. Payroll tax data is highly seasonal, and the data is "NSA", so you will have to do the adjustment yourself. The goal of the seasonal adjustment is to remove everything but the growth rate.

All we then have to do is know where the tax data is at a particular point in time and multiply by our seasonal growth factors. That tells us where we should be now. Of course we are going to be higher than that value (assuming no depression), and the difference is the compounded growth rate. That is the payroll tax growth rate, which should mirror the employment numbers growth rate and the overall economy's growth rate. But if it does not, would you rather believe survey data or real data?

But let us just calculate daily a moving quarterly (i.e. 63-day)* compounded growth rate of our (now seasonally adjusted) payroll tax data, and compare it to equities prices [see graphs].

There are not that many crossovers between payroll tax growth or decline. Thus testing those big events does not provide enough observations for statistical validity. However if you test subsequent market performance after each daily observation of whether we have positive or negative payroll tax growth, you find the S&P is positive a week later about 58% of the time, and the median return is 0.21%. Looking at the dark side, the median return a week later if payroll tax growth is declining is a negative 0.41%. [equities v. taxes] (Beware of the dark side!)

*Note that by keeping our focus short-term (less than yearly), we can ignore wage inflation.

05-Sep-2006
Opinion Polls and the Fall Election, from Stefan Janovich

The current likely voter surveys show very little actual erosion in the numbers for Republican Congressional candidates; adjusting for the =/- 4% margin of error, the GOP numbers are where they were at this time of year in 2002 and 2004. The broad public opinion surveys, on the other hand, show numbers that should make every Republican give up now. That divergence is the result of a trend that began in the 1980s and accelerated over the past decade: conservative voters do not respond to broad opinion surveys because they see such polling itself as part of the "liberal" media. This is confirmed by the drop in the approval ratings for journalists, who were once ranked with firefighters as among the most admired Americans but now have only middling approval at best. Those of us on the dark side have become dark matter as far as voting predictions by the usual expert observers are concerned -- David Broder et. al. -- but we are still part of the mass of the actual electorate.

This election may be much closer to 1948 than 1994.

05-Sep-2006
A Bit Confused, from Hugh Rodgers

After reading Education of a Speculator I was a bit confused. After visiting the website it is becoming perfectly transparent. The philosophy will work for the small investor or the big player. Ridding myself of primary brokers three years ago, I am very comfortable with my annual returns which are a little better than 35%. I just discovered my successes were from things I already knew, just utilizing the information I already possessed. It is eerie victor.

05-Sep-2006
A Line of Thinking, from Jeff Rollert

Pakistan's president just survived a vote of no confidence. This got me thinking about how politics are controlled there by the urban population, with the military controlling (somewhat) the rural areas.

Stepping back from the Islam vs. other religions debate, is this the most recent urban/rural battle of economics/politics since the 1930's on a global scale?

How could one count/test this to see its value? Does the ratio coincide with government/military spending in other countries? Could it help forecast world market/commodity correlations?

05-Sep-2006
WWII Hero Gabaldon Dies, from Craig Mee

I was just wondering if there are any ramifications between this story and the markets. Maybe  beware of how your enemy/ markets operate? It is pretty hard to fool the markets though, and the market does not often pay off idiots (his words). Maybe is a great example of the RIO trade when you get all or nothing ... if it comes off you are a hero (and multi millionaire), if not your court martialled (and the accounts wiped out).

WWII hero Gabaldon dies By MATT SEDENSKY, Associated Press Writer 12 minutes ago

MIAMI - Guy Gabaldon, who as an 18-year-old Marine private single-handedly persuaded more than 1,000 Japanese soldiers to surrender in the World War II battle for Saipan, has died. He was 80.

Gabaldon died of a heart attack Thursday at his home in Old Town, his son, Tech. Sgt. Jeffrey Hunter Gabaldon, said Monday. Using an elementary knowledge of Japanese, bribes of cigarettes and candy, and trickery with tales of encampments surrounded by American troops, Gabaldon was able to persuade soldiers to abandon their posts and surrender. The scheme was so brazen - and so amazingly successful - it won the young Marine the Navy Cross, and fame when his story was told on television's "This Is Your Life" and the 1960 movie "Hell to Eternity."

"My plan, as impossible as it seemed, was to get near a Japanese emplacement, bunker, or cave, and tell them that I had a bunch of Marines with me and we were ready to kill them if they did not surrender," he wrote in his 1990 memoir "Saipan: Suicide Island."

"I promised that they would be treated with dignity, and that we would make sure that they were taken back to Japan after the war," he wrote.

The 5-foot-4-inch Gabaldon used piecemeal Japanese he picked up from a childhood friend to earn the trust of the enemy, who believed his story of hundreds of looming troops. In a single day in July 1944, Gabaldon was said to have gotten about 800 Japanese soldiers to follow him back to the American camp.

His exploits earned him the nickname the Pied Piper of Saipan.

The private acknowledged his plan was foolish and, had it not been pulled off, could have resulted in a court-martial. His family suspected his initial disobedience - though they say officers later approved - might have kept him from receiving the Medal of Honor.

"My actions prove that God takes care of idiots," he wrote.

Born March 22, 1926, in Los Angeles, Gabaldon signed up for the service on his 17th birthday and arrived on Saipan on D-Day. His military career was cut short after two-and-a-half years by injuries from machine gun fire. He spent the years that followed running a variety of businesses, including a furniture store, a fishing operation and an import-export firm, and the unsuccessful pursuit of a California congressional seat in 1964.

Services for Gabaldon were to be held Tuesday in Cross City, Fla.

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