Jul

20

A Red acid mordant From xxx at 13:45:17: you are rather mordant today

From Vic at 13:46:02: i didn't know it spelled with "a".

From xxx at 13:49:37: M O R D A N T

American Heritage® Dictionary adj. Bitingly sarcastic: mordant satire. Incisive and trenchant: an inquisitor's mordant questioning. Bitingly painful. Serving to fix colors in dyeing. n. A reagent, such as tannic acid, that fixes dyes to cells.

Peter Grieve comments: 

I'm mordant today? Actually I have been feeling quite dormant. Or maybe I'm mordant thinking about the looting of Britain's dormant accounts.

Rocky Humbert explains:

Mordent is a musical term, mordant is a chemical term.

Jul

19

College Board presidentA certain former collaborator just taught me how to spell mordant. I always thought it mordent. And it reminded me that in the old days on the college boards the favorite synonyms were xantippe, harridan, virago. Now you never see those words. The one thing you know about the college boards is that all the politically correct answers to the reading questions are the right ones. Other people know a lot more and have written books about it, but we will not mention that as often the idea that you can game the market the same way you can "Pam" from college boards is a lot easier in theory than practice.

But what are the market questions that they throw at you where the politically correct answer is always correct, or where as the author says the ones that the average smart person would answer is wrong, especially near the end of the test. I would hypothesize that anything that doesn't relate to greater revenues for the service, much needed when 100% of jobs nowadays come therefrom, is correct. What else?

Rocky Humbert comments: 

Mordent is a musical term. Mordant is a chemical term.

From the SAT Exam: "I whistled a mordent while dipping my T-shirt in my
mordant."

Kim Zussman comments: 

What is the SAT word for a game which alternates randomly between cynicism and polemicism?

Jul

19

Spencer GreenbergThe grandson of Hank Greenberg was on CNBC this morning to briefly discuss his machine learning-based hedge fund. He appeared to be a very serious young man (no smiling) and it was interesting to hear that his AI system selects stocks tohold for months and years not microseconds. Sort of counter to what is heard with about algo trading.

I believe Grandpa, however, thought that getting on base was more important than hitting home runs…his baseball career was unfortunately shortened by WWII. Here is how Spencer Greenberg, the slugger's grandson, would describe quant trading to a 5-yr old. (elevator routing a complex problem).

Maybe these "rebellious" youngsters just out of school or still in it will do fairly well in the current environment.

A provocative quote:

"It's pretty clear that humans aren't improving. But computers and algorithms are only getting faster and more robust." - Spencer Greenberg

More on the math-focused, brave new world "toddlers".

Victor Niederhoffer comments:

Yes. The son ruined my squash career with his terrible tennis follow through.

Pitt T. Maner III writes:

Sorry to bring up bad memories. The son seems to be a fairly successful value investor. A yellow pad and pencil sort of grind it out guy. Bad knees and connective tissues evidently from bygone days playing DT with Calvin Hill while studying English at Yale.

Here is a 2010 lecture (using high speed) shows him lecturing at Columbia.Glenn Greenberg of Brave Warrior Advisors, and formerly of Chieftain Capital Management, recently gave a lecture for Bruce Greenwald’s class at Columbia University. Highlights include:

* Asks two questions: 1) Is it a good business? and 2) Is it cheap?

* Marketing is a waste of time for money managers.
* Making an investment is just like making a bet.
* Has a 15% hurdle rate–as low as 13% if not many opportunities.
* Looks at returns in terms of free cash flow yields plus reasonable growth
rates.

 

Jul

18

Fourth Birthday Letter

"You brighten our days, you light up our life".

Let's start at the beginning. You were born 4 years ago in May, with great vigor, after overcoming many challenges, to your loving parents Laurel and Victor and an extended doting family of 6 sisters, Galt, Katie, Rand, Toria, Artie, and Kira and your step mother Susan, your uncle Roy, and your god parents, Ming and Dan, and your caretakers Lorna and Tashi, and mentors Doc, John and Jeff. We got you fresh air outside the hospital on your first day born, (tripping the hospital alarm system in the process), and good food at the Four Seasons and tennis at the town club, and music from Mommy on the piano, on your first day outside the hospital, and you have been proactively enjoying good things like that every day since that time.

I wrote you a letter when you were born emphasizing the importance of choosing the right path and friends in life, listening and learning, giving others the benefit of the doubt, taking care of small things, choosing the right incentives, counting to make sure that you know where you are, reading and surrounding yourself with good books, the importance of music and games, knowing how to handle money, and the value of competition, modeling yourself after heroes.

You have encapped most of those things so far, and amazed me by saying recently "the mouse with one hole is quickly taken" and "the little things you do get the job done". You love good books, music, and sports, machines, races, pretty people. You also said about the importance of eating good food "that's what attracts us to it " and you told me your favorite book is about the 12 heroic deeds of Hercules.

Perhaps you will reread those letters and the comments from the many friends that we have who augmented them with tips and guidance for you in the future.

Artie, my father always said that the happiest day in his life would come when I started to beat him in racket sports (a necessity along with music and books in our family). That day came to me, but I am not sure that you will ever have that pleasure since life is short, and I am still pretty good but at least you will have these letters and the knowledge that is Mom's and my most fervent wish for you to excel us in all things to look back upon. The key attribute you have as you enter your fifth year is that you radiate joy in all about you from the time you wake up to the time you go to sleep. Everyone you come in contact with loves you, from the doormen to the waiters, to the taxi drivers, to your teachers. You wake up singing songs like "those daring young men in their flying machines" and telling us that "the Large Hadron Collider at CERN has 27 kilometers of path", and you go to sleep saying that "you're thinking of silly things like all my friends have friends, and they have friends who have friends also". There's not one minute of the day, where you're not asking questions about how things work, what different words mean, why things are happening as they are, and why and what we're doing, along with your own explanations of the reason for each event you experience.

I am happy to say that somehow, you seem to already show interests and ability in all the things that are key to this family and that we have encouraged you to digest.

Your vocabulary is immense and you use word like "visible", "eventually", "finally", " theory", "familiar", "promising", "recommendation", "privacy" in everyday conversation. Here are some characteristic things you recently said "Let's not fly the kite. It might get lost. Let's just go for a scenic walk". "The three resistors make the fan go up in the air and that is how a street light works." "Practice is what makes you good at things". "I got hit by a rogue wave in S. Hampton but I don't have to worry about that on the Connecticut shore because the land is in the way". You said while we were swimming "You should board the board." Then you added, "that's a palindrome, isn't it?"

You are also good at languages and are beginning to master Chinese and you love to talk and hear Spanish.

You are a shrewd article, knowing how to solve problems and how to influence people. I was particularly impressed when you said to Susan, "do keep records of how much math I am doing now so you can tell Daddy so he'll let me watch the iron man video". Before going to sleep you recently said characteristically. "I'm thinking of something crazy. I was playing golf and then I started flying."

You are quite good at tennis, and can now hit a running backhand when you are incentivized by a banana split. You still have perfect pitch and love to sing all day, and now you have great rhythm also, and can play all the complicated rhythms of mommy's piano stuff on the drums. You've taken an interest in dancing, especially Irish dancing, and ice skating dancing, and love to imitate Michael Flatley and Apollo Ono.

You are good at the back stroke in swimming, and you can read most of the beginning Bob books. You love all machines including those used for building, cooking and sewing. You have incorporated the family's love of competition and are always ready to race anyone in anything and beat them at the finish. You also love to watch horse racing especially as the horses race to the finish. You amazed me recently when we went to the track by saying at the end as we met all the woebegones on the bus, "Daddy bet on the 4 horse in the second race, and it was in the lead but the 7 horse came up very fast at the end and we lost, but we won because daddy bet to place on second".

You love money and nothing gives you greater pleasure than selling lemonade. You dance up to all customers, give them a little kiss when they buy things, and then carefully count the revenues made in your cash register. You like to use credit card and understand what things cost and when you have to be careful about buying them. Sometimes you look at the screen of prices and say things like "oh no, what will make the prices stop going down."

You love going to concerts and have been to more live performances, ( and been escorted to the "front" ) than almost anyone. Your favorites are South Pacific which you've seen 5 times (I hope we can get you through the second act), The Music Man, My Fair Lady, and Annie. The little orchestra society has a few stars that you look for at their concert that make you love the music even more.

You are very good at counting and can add 9 to any number and know how to subtract. You recently gave a taxi driver 20 on a 17 fare and said "3 back" without prompting. You love to read maps, and can give a driver explicit instructions with all routes from West Street in Manhattan to Hillcrest in Weston.

Now that you know what's important in this family, and have already in your activities prepared the way, let's turn to some things for the future.

You will find that almost all the things you do in life come about because of the places and people that you visit and meet. Okay, you have to choose them wisely. Stay around good people who do good things that make you happy. But don't only think of short term happiness like Pinocchio did, but think about the things that will help you over the long run. The people you can always count on to lead you to good things, thinking only of your own welfare are your family and friends, the people mentioned above. You can always count on them, through thick and thin, and you must not expect to rely on others as the world spins on its axis and many a storm and uncertainty envelopes you. I had a friend once, a Palindrome.

Closely related to this is one of my most important things. Stay away from people that seem to have bad luck. People who always end up in trouble, or who seem to be in places where bad things happen to them and their companions, even if no fault of their own. I call these people hoodoos, and you will meet many of them among your friends and acquaintances who you should stay away from. As the dictionary says, "hoodoos are not confined to locomotives that are always involved in accidents through no fault of their own, but to boats, and planes also."

A good place to be is one where you can do the same thing over and over again without excessive danger. If you keep doing dangerous things, in life, play, romance or business, you'll find that eventually one of those dangerous things will cause disaster. I have made that mistake in my speculations, and life and I am afraid that you may be prone to this error also. Be careful. The best things are yet to come.

You have so many talents, so many good things ahead of you, and life is so beautiful that you should never take a chance, even if it's one in 10,000 that would cause you irreparable harm. I found this out too late in life to thoroughly incorporate and if I had, life would have been a lot easier for all of us. I know that your mother agrees with me on this, as we do on most things.

While you should stay away from Hoodoos, you should stay around heroes. I have come in contact with lots of heroes who do great things overcoming tremendous obstacles to do them in my day to day life as well as in books. Heroes I have known include Jack Barnaby, the greatest squash coach, Jim Lorie, the man who created the data base for all of finance, and most of all, your grandfather and my father Artie. He was like you. Everyone who knew him loved him and thought of him as a second father or second brother. He never did a bad thing in life and always tried to do good. He loved all of life, including not only the things above I said were so important, but writing, teaching, dancing, ice skating, games, checkers, sports of all kinds, parties, words, books, libraries, food, friends, music. His favorite expression was "this is living", which he was likely to say when eating a good tomato or watermelon. The picture of him we have showing his books, his violin, his tennis racket, football, checker board, type writer says it all. Most important of all was that he always knew and tried to do the right thing. He was a master of form and knew how to do anything just so.  His second favorite expression was "So what of it" which he liked to say whenever one of his kids was sad and depressed and worrying unduly about things. It's always good to let "the bygones be bygones" as no sense letting bad things hurt you in the past and future. And often what happens bad in past turns out to be good for the future. For example, a miserable boss helped to get Mommy fired from her job, even though she was excellent at it. But if she hadn't been fired, she and I wouldn't have met, and you wouldn't have been born.

Such an approach to life led Artie to often say "I'm the happiest man in the world". I believe Uncle Roy often says that, and I hope you can also. If there was one characteristic that marked Artie above others, and made him like a second father or older brother to almost everyone he met, it was that he was a "formist". He knew the right way of doing every thing.

Doing the right thing means doing things the proper way. Without wasting any motion, and effectively going from beginning to end. It means doing things properly regardless of whether you have to, but because it's part of your nature, and no one can take it or tell you what to do. It includes taking risk and overcoming obstacles to make your family better, protecting women, helping the weak, and being courageous when something important is at stake. It also means doing good things that will make you and others happy even when you don't have to do it. You are lucky these days in that you don't have to rely on heroes in your family and books only for guidance in doing the right thing. But you can look things up on the internet to see the right way of doing it. Thankfully you are already good at using google and wiki, and you should continue to look things up there as well as the dictionaries that you love when you want to know the right way.

I have two groups of people that have been very helpful in showing me the right things to do, the junta, and the spec list. Many of them are like family and you will be able to draw strength and nurturing from them in the future. They all agreed with me that it's important to surround yourself with good people and when I asked them for heroes besides Artie to model yourself after from books they came up with the following list. General Petraeus (smart, effective, loyal), Jack Aubrey (knew everything about his field, gusto, generous, well versed in deception, musician, big, competence), Cal Ripken (perseverance, expansive, excellence at game, sharing his love of game with others for profit), Thomas Jefferson (scholarly, omniscient, doing the right thing) Benjamin Franklin (practical, down to earth, self effacing, romantic, scientific), Morihei Ueshiba (self reliance, self defence, physical training, achieving your goals) coack K and Coach Wooden, and Coach Pete Newell, (dedication to teaching, completely knowledgeable) Bruce Lee (strategy, physical training), Richard Feynman (curiosity, ingenuity, happiness, loyalty), Michael Waltari (independence, resourceful, world as oyster), Ted Mack (not petty, serving as example, creative), Faraday (humble, able to popularize, neat, experimenting, dedicated), Thomas Edison (inventive, practical, seeing the big picture, diligent), Lord Rama (ideal son, husband, friend, and king), King Leonidas (for bravery, tenacity) Galton (ingenuity, generosity, diversity of interests, counting, visualization, diplomacy).

A boy, a man has many roles to play as he grows: to be a good son, a good husband, a good friend, a good brother, a good teacher, a good leader. Fortunately, the foundation, the qualities for dispatching those roles are rather simple. The heroes mentioned all seem to have that foundation. Strength, bigness, courage, diligence, organization, practical, knowledge, self awareness, sense of happiness, loyalty. You are fortunate to have been born with many abilities. If you try to weld the above qualities of success onto those abilities you are sure to lead a happy and productive life.

Some day you'll look back on these letters and realize that the lessons I tried to teach you come from the wisdom and good experiences of my parents and their parents before them, and that they can live forever in you, and yours.

Just one more thing. Tom Wiswell, the greatest American free style checker player, and my checker teacher for 20 years always said, "make sure you have a good foundation in Checkers and life." Try to fill in the holes before you start something. Have a strong base with checkers and resources supporting where you're coming from. Read the story of the three pigs and learn from it to use strong materials, for example strong people and products when starting a business. Dig deep and wide and strong at the beginning. Make sure there are strong posts of brick or concrete or metal all round to hold up what you're doing. And make sure there's lots of volume underneath to distribute your project over. The worst mistake you can make in business or life is to get in over your head. That mistake always starts with not building a proper foundation.

One more thing. Think big. Have great dreams. Try to make them come true. Don't worry about little things. As Galton says, "let the bygones be bygones". Or as Artie would say "so what of it" about little things that go wrong.

As the song goes, "the days grow short. I haven't time for a waiting game. These precious days dwindle down to a precious few, and these few precious days I'd spend with you." Hopefully the ideas, heroes, books, and love that make up this letter will help steer you on the path to a happy and productive life.

Love, dad

Kim Zussman comments:

I hope and believe you will live beyond the day when Aubrey beats you at tennis, and everything else. It is part of nature's plan.

Chris Tucker comments:

Spent the afternoon at the beach yesterday. There is something special about having your child run to you and reach for your hand, about holding your child's hands and helping them jump over the waves and squeal with delight, again and again. It makes all the other stuff just disappear.

Jul

17

There is something about all the resolutions of tension that occurred at the end of week– the settlement of the flexionic self dealing for 1/100 of the benefits devolved from the flexions in charge, the news that the metals company down 80% from its high had beat earnings forecasts along with the 19th century dow standard with the silos also beating, the 10 year bond yields well below 3%. And the 30 year bond at a high, the reversing from peak to trough of bonds and stocks each week, the emphasis on lines other than earnings in the income statements, like expenses for Google and revenues for GE, the likely passage of the financial regulation book (certainly without the ability of the customer to take recourse beyond the exchange appointed arbiters or members themselves), the random numbers relating to consumer confidence which always follow the stock market move the previous month– that's sort of like the revulsion after romance that they say one experiences, or post partum depression that is deeply unsettling for the period before the service rates jump 100 % at the beginning of the next year, I think.

Jul

15

On this day, with Mr. Humbert boarding a plane and Mr. Jovocroft Holmes not overly concerned with minutiae of frequency distributions, one points out an interesting anomaly in the frequency distribution of daily occurrence in S&P for the last 5 years.

©Manchester Trading 2010

The  distribution shown is an example of negative skew combined with platykurtosis. One has a number of other interesting facts about the hypotenuse up the sleeve during this brief moment also.

vic

Jul

15

The professor's wifeOne wonders if anyone out there saw any activities that bore the badges and emblems of inappropriate behavior out there today so that one can maintain my side of the discourse with Mr. Humbert. One noted a strong weakness in the last minute. Could that be the interference with the advantages of the closing prices of JPM and GOOG announcements from the flexes? Or was it more likely yet another wife (or significant other) of a professor from an ivy league university just using her knowingness for her hedge fund as in the free market reform expenditures they conduited, monopolized and discharged their debts in court thereto? Any help you can give me in this continuing discussion so that I can hold my own with my friendly adversary who apparently sees the best in all his former bosses and their colleagues would be appreciated.

Rocky Humbert states his position:

I am not an adversary of The Chair (friendly or otherwise). I simply question why, if the game is as rigged as he suggests, does he continue to participate– especially when more than 70% of the daily volume is attributable to high-frequency computer-generated algorithmic activity– which by its very nature must be a zero sum game. 

Nigel Davies writes:

I think someone will continue professional participation in a game as long as one believes that money can be made. Now there was always cheating in chess tournaments via the throwing of games for prize money and/or title norms, but this didn't stop the better players making money, especially because tournaments had external sponsorship.

But what happened after the Berlin Wall came down is that the bus loads of former Soviets both flooded the market and simultaneously increased the amount of cheating. All but 'elite', non bus-loaded chess events lost their prestige (and thus their external sponsorship) and forced the early retirement of 'professionals' starting with the relatively unsuccessful and gradually working upwards.

Could such a phenomena happen with markets? Very possibly, as once the game starts to get rigged and randomised the weaker pros plus passing wannabes will get driven out, reducing liquidity and making it harder for those who are left to remain. They might not feel the effect at first but the game would become increasingly unplayable.

In this light some early protestations about rigging are sensible as they just might help stop the rot. The creaking gate tends to get oiled and all that.

Nick White responds:

Re: "why bother?"

For myself at least, I would argue that it's a bit like in football.

A running back tries to get through the line and the secondary to make the play and score….most of the time he will get flattened or maybe gain small yardage. Every now and then he'll get creamed, or worse, fumble it to concede a TD to the other side. But - the opportunity to score comes from trying to find that little crease in the D to break into daylight. And so it is with us.

To know where those creases may open up on a given play, the player needs to study the film, know the schemes, know the players they're up against and the tells those players give out ( I recently watched an "America's Game" NFL film about the Patriots; on the other side of the ball, one of the coaches remarked how much they were looking forward to defending against a particular OL because this linesman gave up, without fail, whether their play was going to be a run or a pass by the stance he took at the line: if he was in a two-point, i think it was for the run, and three-point stance for the pass.)

So, there it is….it can be a tough game to play against the ebb and flow of noise; no one doubts that. But the key seems to be (no matter your trading stripe) to put yourself in the best position to find a crease, know the circumstances under which they are likely to occur– and then nail it for all it's worth.

Rocky Humbert adds:

But extending the metaphor, The Chair seems to be suggesting that (1) the referee is corrupt; (2) the other team's blockers are carrying brass knuckles; (3) the clock runs faster when you have ball possession; and worst of all, the Professor's Wife paid off the laundry guy to not-wash-out the bleach from your jock strap. Shall we still play a game?

(It didn't end so well for Mathew Broderick.)

Nick White writes:

I'm no conspiracy theorist. Maybe there's collusion and coercement. Maybe there isn't. I'll never know. I console myself that if I stick to my plans, I hopefully won't have much reason to care. I can only play my game, and (like you, Chair and others) play it staunchly by the rules.

I'm just pragmatic about the potential for shenanigans where there is a competition and money is the prize. To build in some redundancy into my bold assertions I'll try and give some allowance for 1-3. Four is more problematic…that's just going to hurt.

With the current running of the Tour de France, I'm sure there is much we can learn about systematic cheating and cover-ups.

Bill Rafter adds:

The fix or edge was always so, and is so now, but the markets and players have changed.

Many moons ago when my partner and I were active commodities traders (before they were called futures) we made a lot of money in certain markets. Our favorite venues were eggs, cocoa, bean oil and meal. For some strange reason we had the ability to ascertain the fix, but only in those markets. What interested us what that the egg market was clearly a rigged game, but the bean products seemed to be the essence of fair markets. Also of interest was that we could not get any edge in other obviously fixed markets such as bellies (and a tip of the hat to a certain former and future flexions cattle broker and her signiflexiant other). In the case of eggs we had strong evidence that it was the delivery particulars, and delivery also seemed to have an effect on the other markets we could play favorably. Delivery is very much the bailiwick of those in the know.

Fast-forwarding to today's equity markets we suspect that HFT is having a strong effect. Overall share volume had dropped precipitously from the highs of several years ago. It has recently returned to a decent level. But how much of that recent volume increase/recovery is HFT? If it is, then some part of the activity beyond 1-minute bars (or 5-minute bars) is going to be inefficient. For HFT should make the market more efficient in the shortest run, but ignores the forest for the trees.

We ourselves like the presence of HFT as it tends to give us better executions. And we prefer that the giants (e.g. Giant Squid) play in that shortest time frame. Someone has to take over the specialist functions, and better it be the well-capitalized firms. But anyone trying to compete in that time slot is going to have a lot of competition. And should one of the giants discover an opportunity in which THEY had limited, if any, big player competition, watch out. That is, a giant with the room to run a table most certainly will. And if the giant has a dealer at every table, sooner or later one is going to present such an opportunity. That in theory could have happened under the specialist system, but the specialists were constrained from doing so. No such constraint is in place now. The bailiwick of those in the know at this time is the HFT universe. Expect to be taxed by the bailiff.

Jul

14

A wigwamThe bonds auctions reminds one of the passage from Superfluous Man:

"I was at the wigwam. And a poor sinner was singing marching through Georgia. He could never get past the first stanza without lapsing into somnolence. His idea of political duty was the finest I have seen before or after".

They go up with such impunity before the auction. Then lapse into somnolence. "It was a bad auction… wait. There's buying. Hold all tickets".

Jul

14

How would one interpret a chart like this? In terms of numbers, a certain beginning harmony with DAX above 6200 and SPU lobogaling toward 1100 has been achieved with 6 up days in a row after 11 down in a row. How can chart swings be quantified to advantage and harmonies?

Pitt T. Maner III writes:

From February to April a nice Moldau from Smetena ever building in its 3-4 month cycle and then from May to July a bimonthly Waltz of highs and lows.

Now impresarios, big band leaders, conductors, choreographers, tenors, alto sopranos, glee club members, and assorted cheerleaders lining up in Fellini-esque fashion to lead the choir toward the November subscription drive.

See the song: "We're in the money".

Allen Gillespie comments:

Think of the circle of fifths. If 11 is too high an octave, then divide by 2, yields 5 1/2. And the point drop was nearly 1/2 of the Hz of middle C. 

Kenneth Sadofsky comments:

This video seems askance, but it shows a sumo wrestler and a monkey in a game of tug of war. It seems that most of the time isometric strength was used. Then the wrestler stood up, losing his leg strength and ended up on top of the see saw, here losing some contact with the ground and center of gravity compared to the monkey. Then the monkey fed the wrestler rope where the wrestler would fall down and come undone. This probably doesn't answer the question necessarily, but my mind wandered into this area. Of course the monkey could just be stronger , but they were equal for a few seconds.

Here is a biomechanics paper taken without permission that describes force, etc. I stumbled into it while doing a search. Probably not much for those that already know the material, and of negligible value to those like me. It did stir my curiosity.

Jul

14

It is  interesting that the flexions in Japan did not get the Intel earnings before hand and that no frequent conversations between current and former heads of banks, who were then secretaries of interior took place on the record as they did so frequently during the crisis of Sep and Oct 2008. 3 or 4 times a day.

Rocky Humbert writes:

I interpret The Chair's comment that either Intel leaks its earnings to the Japanese, or that the Nikkei has been a good predictor of Intel earnings since 2008. A very crude event study shows that this has not been the case for the past two years.

Below are the Intel earnings release date(s) since 2008. The first +/- is the market's reaction to the Intel earnings release. The second +/- is the net change of the Nikkei on the day of the Intel announcement. Due to time zone difference, the Nikkei closes about 10 hours before the Intel announcement.

In four of the eight instances, the Nikkei was not predictive, and based on this small and statistically insignificant sample size, this relationship was not tradeable. I would further suggest that any data which suggests otherwise can be attributed to chance — despite any statistical illusions to the contrary.

Looking at this from the perspective of an investor (as opposed to a speculator,) I purchased a small amount of Intel recently because (1) it remains a market-leader in its sector with limited competition and huge barriers to entry; (2) based on reasonable assumptions, its valuation became attractive again; (3) its yield was greater than the 10 year treasury, and it was a high probability that owning Intel with a reasonable time horizon would achieve a return in excess of the "riskless" ten-year treasury. With the move from 19 to 22, this may no longer be true.

Yet, with respect to The Chair's comment, it's logically impossible to disprove a conspiracy theory.
Earnings Date / Intel +/- / Nikkei Day Before +/-

7/13/10 + -

4/13/10 + -

1/14/10 - -

10/13/09 + holiday

7/14/09 + +

4/14/09 - -

1/15/09 + -

10/14/08 - +

7/15/08 - -
 

Jul

10

We all have an interest in not suffering through another day like May 6. And without violating our rule of never disseminating anything that is a meal for a day, i.e. a recurring regularity, perhaps you will forgive me if I attempt to open a discussion of how a day like May 6 where the market was at a minimum to start, open down and then went up and then dropped 110 points or more, a nice 10% to wipe out point– how such could have been predicted.

Ralph Vince comments:

What cost? If someone has stop orders in (fear of loss or missing a move to the downside), there is cost. If someone was, say, buying on a limit, it was a boon. If someone got shaken out of a position (fear) because they couldn't ride it to 0, I posit they were in too heavily. They were clearly people who were trading with money they could not afford to lose. (In my book, that makes them losers before they even put on the trade!)

Jonathan Bower writes:

I saw many parallels to "that" day on Wednesday. I'm curious if you all enjoyed Wednesday too…

Larry Williams replies:

I have enjoyed my luck which is soon to fade I suspect.

Jul

10

Anna Chapman, Russian SpyWhat can we learn from the catch and release program of the current administration to spies caught. The statistics of catch and release give insights into the extent of rises after big declines. What % of them eventually go down for example after a 10 point decline followed by a 10 point rise? One finds 49% of them are up the next day. Would the ones that are subsequently captured tell us about the prevalance in the population as in bird releases? On a Nockian front, the catch release program shows our compassion and commonality with the former other side of the agrarian central activity.

Jul

6

"Every ice cream cone will not be uneaten." Harvey Sellers, 1970, one of the finest gentlemen I ever met. Owner of Hi-Flier Kite company.

Jul

6

A million events coalesced this week to put the market in a highly precipitous state with the expected standard deviation for Tuesday, based on pre holiday lows of 32 being a good twice the normal 15 for any day. Without minimizing the seriousness of a loss of 50 points in a week, perhaps 3 trillion or more in wealth, perhaps one can find some order beneath the random happenings.

First , some quantitative things. Big minima before holidays occurred only 6 times in last 15 years, one on Labor Day 2001, and one 10 calendar days later, two on July 3, 2002 and 2008, and two on Martin Luther King day 2005, and 2009. Changes to the close of -60, -60, 35, 14, -13, and -46 followed those days with a stand deviation of 32.The situation a week later was even more dour, although in an interesting anomaly so typical of markets, the standard deviation of the 5 day change is 28 versus the naive expectation of 70 from the one day change.

On the other hand after big declines in a week, of 5% or so, a event that regrettably has visited us on 1 in 20 weeks that last 10 years, the market is quite bullish with a standard deviation of 35 the next day and a more expected but gargantuan standard deviation of 60 for the following week.

One also notes a string of exactly 5 consecutive losses in the S & P, an event which has occurred on about 1 in 25 days, as compared to its expectation of 1 in 64 days. Fortuitously, the standard deviation the next day is a mere 18, and the expectation is zero.

The situation with the Nasdaq is similar on a weekly basis. With its 120 point decline for the week, the expectations are not much different from random. However, with 11 consecutive days without a rise, that's never happened before. The highest run of consecutive declines was 10 on October 12, 2000, when the adjusted Nasdaq was about twice the current level.

More interesting is the failure of the market to rise a reasonable level in 13 consecutive days, an event that is a true rarity only having transpired on 4 occasions before. That event has again led to an expectation of 0 to negative in the next following days.

Turning to the always fascinating changing web between stocks and bonds, one notes that while the stocks declined 5% this week, the bonds went up about 4 1/2 points from 123 1/2 to 128 1/2, with 5 consecutive rises to Thursday, July 1, close… One would expect contrary to the upside-down sponsor's constant refrain that would lead to some reallocation to the stocks. And indeed to a reasonable extent that is true, albeit the expectation is only 1/10 of its standard deviation going out 1 week in future.

The variability of all these things is so great relative to its expectation that even if the future moves were drawn from the same distributions as the past, nothing here would be of any great regularity.

Thus, we turn to the qualitative. Everyone from the President to the upside down sponsor was on TV talking about the significance of the employment number, all from their own corner of self interest. I like the emphasis now that is placed on private sector jobs, the 63000 increase, a number that is becoming so much less relevant as government jobs gradually become more numerous, more attractive, and crowd out the jobs in the private sector. Along those lines, everything came together with Barton Biggs reporting that he sold his technology holdings. The news came out rite at the close, putting it in the pitching in the pinch category. It was the one thing that determined the market move for the day as just before the market had been up a 1/2 % on the day and the news caused it to decline 1% in the last 10 minutes.

It was the perfect thing as Zeus sat there at 350 deciding which of the Goddeses to favor with his kind attentions over the weekend, with the balance of the market on his scale. And then came the perfect announcement. Biggs is bearish because the intervention and the stimuluses mite stop. And it's particularly newsworthy because he made money in 2009 by being bullish on the stimuluses as if being rite one year has anything to do with being rite the next year. But it's the idea that has the world in its grip. And it provided the perfect backdrop for more interventions coming in the future. And of course the reason that the market is down so much is exactly that the interventions have caused all incentives and all desires to make investments with the increase in service rates of 100 % coming up , totally vanish. Thus, the news followed the price, and led to what is guaranteed to happen, a call for more jobs, more jobs especially for those organized in special groups that can provide votes and funding — but most important of all, a clarion call for taking from the common man to provide a greater need for intervention by those of superior knowledge and tastes.

I believe one gets the picture.

Paolo Pezzutti comments:

I already see those who will benefit for a second round of stimulus counting the big money they will make when borrowing at 0%… A nice and unfair advantage is about to come again for those on the right side. Especially for those whose risk in this "trade" is practically zero! Few, damned and now (!) seems to be logic (although for some it will be another windfall of earnings and bonuses). Politically this is very much convenient and powerful lobbies may already be at work to support similar moves. Someone else will take care of the next generations. We will not be here anyway, so why worry. However, the greedy ones who think that the game will unfold the same way, at least for equities and currencies, this time might be wrong. Mainly because few governments will afford this kind of move. The US could still do it and China. Europe not for sure…Different variables are at play. I was not clever enough last year to understand the magnitude of the implications related to the huge injection of money in the system made by governments. However, my skepticism that this is the right way to solve a problem that is structural in nature increases.

Ken Drees writes:

One item left out of the soup, the China market had a big drop that was partially erased–this drop happened after the recent won float plus labor issues arising. Also hundred year floods are still raging in the southern provinces as well as growth estimates being revised downward. There are some big possible trend changes in place in China right now that are not being looked at for the most part by the west.

I spied some interesting fin tv that was a little bit different from the norm–a la the new paradigm–China catches a sniffle and USA catches a cold. This concept ignored by most financial media and blogs all week. China chart looks likes SPY only a bit tighter.

I think we should look east short term for possible dislocation in the west.

Jul

1

Sitting on the plane yesterday on my arrival into Singapore, I was trying to work out why everyone stands with no where to go as they wait for the doors to open (happens all the time as everyone clearly knows). It occurred to me that cabin fever has probably got something to do with it–the need to escape. In comparing this phenomenon to the markets and cycles, maybe the same can be said, and maybe the reason for short coverers coming in, about a clear downtrend. Anxiety, the need for air, itchiness… all these things conspire to limit profits instead of sitting comfortably and waiting for larger gains.

Victor Niederhoffer writes:

Mr. Mee, this interesting idea has many hidden and untested assumptions in it, and I would think such a test would indicate a trade opposite from the one you seem to think would work.

George Parkanyi comments:

Holding a short position for the bigger move looks really obvious in retrospect when you look at any chart of a failed market. But markets, like all living things, do not like to die easily, and fight vigorously, at least until the latter stages when despondency sets in. Bear market rallies can be quite powerful. As you can tell from the ride from the top in this particular decline, the moves have been violent. Depending on where you enter, because of the volatility, profits– long or short– can vaporize right before your eyes. So you'll have to excuse the shorts for being a little paranoid. 

Craig Mee writes:

Sure George, no doubt that's why entry levels on moves are so important and most indicators lag so much that you come in too late. Most of these weak shorts are probably following the latter and their hands are forced with high volatility reactionary bounces, but for the ones positioned well … how many take their foot off the gas too early when they should be adding on the bounce, not liquidating, and what can help us, fundamentally or otherwise, establish this?

It was interesting that the high on the last bounce in equities was established during Asia and sold off during the U.S session. It appears the flight was landing in New York and everyone was up in the isle ready to run off the plane…what scared them so much that they ran and kept running? Maybe turbulence on the way, or they saw something scary in the mid flight sleep.

Jeff Sasmor writes:

money burning a hole in the pocketAnd you often see people lining up at the gate, even though they know they they can't board in the order of their line. They look annoyed as others board ahead of them. Personally I stay seated upon arrival till I can see some of the standees move. Drives everyone else in my family crazy though.

My dad used to call it "the money is burning a hole in your pocket" — the monkey urge to "do something". Explains to me why some days I have trouble sitting on my hands when my logical minds says no no no.

Bill Rafter writes:

For 13 years I commuted from my home in NJ to NYC, almost all of it by train. One thing that was always of interest is the way human traffic flowed down the staircases at Penn Station to the trains. Wind and water flow is almost always strongest in the middle of the stream. Not so with people. If you want to get to the train faster you are much better off by coming in from the periphery.

Somewhat the same happens in automobile traffic. A lane will be closed a click ahead and there will be signs to that effect. Many people immediately get out of the soon-to-be-closed lane, where the obvious choice is to remain in that lane as long as possible.

I am certain that both of these (the steps to the train and the closed auto lane) are the result of behavioral instincts, but so too is the market.

But my question for the list (particularly the international members) is if the human flow in different countries is different from that in the U.S. Is this behavioral tendency human or merely American?

Paolo Pezzutti replies;

Bill, I would say that in Italy is pretty different and I find the pattern of traffic different in every country I visited. And I have visited many over the past 3 years. It seems that the culture of the peoples influences their behavior although on paper they have to follow rules on the road that are very much the same in the various countries across Europe and America at least. Similarly for markets, different cultures may give life to different types of herd behaviors. And I much believe it. In Italy, however, we tend to stay in the soon-to-be- closed lane as long as possible…

Did you have any doubt? I wonder what kind of herd behavior Italians would develop on the market and how this would be different from the Germans' way of managing the same situation for example.

Rudy Hauser writes:

herdlike behaviorMy experience on the LIRR at Penn and Jamaica stations in that a left flank approach works almost every time. When it comes to crowds most people seem to behave like a herd of sheep.

George Parkanyi adds:

Holding a short position for the bigger move looks really obvious in retrospect when you look at any chart of a failed market. But markets, like any living thing, do not like to die easily, and fight vigorously, at least until the latter stages when despondency sets in. Bear market rallies can be quite powerful. As you can tell from the ride from the top in this particular decline, the moves have been violent. Depending on where you enter, because of the volatility, profits - long or short - can vaporize right before your eyes. So you'll have to excuse the shorts for being a little paranoid.

Nick White writes:

Personally, off the plane, I just want to get to customs as soon as possible - and every little advantage in this quest helps. I think this is especially pronounced on the international flights I take, as they always tend to arrive at dawn - along with about 2 dozen other 747 / A380 flights full of punters. Nothing worse than sitting in that endless, spiraling queue at Heathrow. On this point, one of the best airport strategy expositions I've seen is the "Airport Security" scene in the brilliant George Clooney film, "Up in the Air".

I also fully agree with Paolo on the regional variations. I suppose, as everything, it depends on the incentive offered to "be first" - and whether such incentives weigh heavier from observance of social "rules of thumb" or conventions, versus a true, rational expectation and "doing what works".

Rocky– i HATE the tailgating thing. I always try to drive behind other cars with a good error margin relative to the speed of the traffic. Yet, in morning traffic, this safety margin ends up causing me deep and abiding road rage because opportunistic scum bags (*ahem*) keep plugging into my safety gap….this then makes me want to tailgate like crazy.

driving over the sydney harbour bridgeDriving over the Sydney Harbour Bridge in the morning presents some classic herding examples. There is one lane on the north-side approach toll gates that everyone considers "quickest". Yet, because so many people flock to this lane, one of the peripheral lanes often ends up being relatively traffic free and presents a much speedier option. This is probably a good analogy to the ever-changing cycles and market participants flocking to tired old relationship trades that may only be effectual because they believe it to be (I'm thinking Gold here) rather than any empirical reality behind the herd belief.

In the UK, you can count on people loving a queue and not trying to exploit the fast route. Trying to enter the tube doors from the periphery during rush-hour is usually a sure winner to come first in the seat-quest….however, it may earn you some opprobrium, too.

Universally though, I think in all instances we can count on the majority following convention and herding. The rest will be trying to game this instinct….sometimes successfully, other times getting slotted.

The markets are just an extension of regular life. The empirical, quant approach works in both, with the same limitations. I guess, ultimately, they are the same game of expectation - where those who best measure potential outcomes most likely end up with the shekels - or at least through the queue quickest!

Stefan Jovanovich comments:

The old (1970) NYC solution to Nick's dilemma in rush hour was to respond to any "challenge" — i.e. someone began pulling up on either side of your lane with the clear intention of cutting in– by acting like a cat with her food bowl. You simply lurched forward and closed up the space without showing any indication that you knew the other driver was there. Stupid indifference was a far more effective deterrent than any amount of threatening eye contact. (Of course, it helped to be driving a Checker Cab with fenders that already had multiple dents and scrapes. Even the Road Warriors behind the wheels of the Chevelle 454s owners didn't want to kiss metal with a road tank whose price at auction– less the medallion– would not have covered the cost of their engines.) 

Rocky Humbert writes:

Bill: A highway toll both model might also be one approach for understanding the Cabin Fever phenomenon. Traffic engineers have written extensively about the behavior of drivers as highways merge into toll booths.

One common observation is that drivers hate to have other cars cut-in in front of them, hence they tailgate — even if it's not productive and reduces the opportunity for more-productive lane switching. Might standing in the aisle be an airplane equivalent of tailgating?

Spann, et al: Lane changes and Close Following, UMAP Jrl (2005) [14 page pdf]

Personally, I stand in the aisle because it's a pleasure to stretch my legs and spine after sitting for hours in an uncomfortable airplane seat. Entirely rational.There's probably a cultural aspect too. While in Frankfurt, I was caught in a downpour and crossed a busy street against the light in a futile attempt to save my suit from ruin. Two residents started yelling at me in hostile German for this infraction. Perhaps I would be rotting in prison right now if I had jay-walked too! 

Tim Hewson writes:

One thing I have read is people do most unusual things in aircraft emergencies, such as try to secure their belongings to take with them even though their lives may be in danger and the priority should be to get out pronto.
So irrationality in transport situations is not any more unusual then in market situations. And its also understandable. Going to a spec party a few years ago the plane I was on had to turn back an hour over the Atlantic as the hydraulics went and the cabin filled with smoke and people were screaming, etc. It's not a very nice experience. But I would recommend observing the air hostesses: if they appear calm it's probably ok for you to continue reading your newspaper. If you can't see them or they look panicked you might as well continue reading your newspaper because there is nothing you can do.

On the subject of crowd behavior on train stations: Escalator etiquette in most countries tends to match the rules of the road. So why do passengers on the London Underground stand on the right-hand side of escalators when the rules of the road dictate that we drive on the left?

Jim Wildman comments:

At one point I commuted 115 miles each way to work between Tyler, TX and Dallas on I20. Most of the time, traffic out in the country where there was little traffic traveled within 5 MPH of the speed limit. Once I got to more congested areas, there were more speeders. Of course the congestion meant speeding was thrilling, frustrating and ultimately useless. I assumed those speeding felt better at all the cars they were passing. Activity substituting for progress. 

Scott Brooks writes:

Speaking of panic on a plane….

I was flying on a Southwest Airlines flight back in 2001 when we hit the worst turbulence I had ever experienced (times 10). The plane was bucking, like a bull with unwanted rider on his back, the people that were unfortunate enough to be standing were tossed around like rag dolls. The stewardess barely made it back to her "stewardess seat".

People we screaming and crying in fear.

I was sitting in the front of the plane in one of those seats where the person in front of you is facing you (I think you only see that on LUV planes). The faces of the people in my row were ashen with fear. I looked around to do a mental calculation of the exits and noticed the stewardess. It was not a good sight. She was obviously terrified.

It was at that moment that I decided to do the unexpected. I raised my hands over my head, put a big smile on my face and started screaming, "Roller coaster, roller coaster, Wahoooo!", over and over again.

It took a few seconds for the people in my area to catch on, but when I yelled at them, "Come on, roller coaster with me, roller coaster, roller coaster", they began to join in.

I looked across the aisle at those people and started screaming the same thing, within a couple of seconds they were joining in. I told them to pass it back in the plane. We then yelled at the people behind and told them to pass it back. It was then I saw the stewardess. She was not only scared to death, but she was livid with anger towards me. She was screaming, "Stop it, stop it".

But it was too late….like "The Wave" at the ball park, it took over the whole plane and pretty soon most of the people on the plane were "roller coaster-ing" with us.

I smiled at the screaming stewardess, and I think I mouthed the words (don't remember exactly), "it's ok". She calmed down and bit.
I then started yelling "roller coaster" to her and after a few seconds, she joined in.

Of course, eventually the turbulence subsided and slowly went away.

As it lessened, people started laughing and applauding. Personally, I felt something I had never felt before to this extent…….the exhilaration of the adrenaline rush associated with fear coupled with the joy and relief associated with the removal of the danger, all mixed together with the "shakes" associated with such fear. I felt the sweet and sour sauce of emotions….joy and fear at the same time!

The plane was abuzz with excitement and all forms of emotion!

A few minutes later the Captain even came over the loud speaker to explain what had just happened. I don't remember exactly what he said next, but he basically said something along the lines of never having had an entire group of passengers do the "roller coaster" before and he thanked the gentlemen in the front who had started the roller coaster. He then offered to go back to where the turbulence was so we could do it again.

His offer was met with a resounding, "NO!" and laughter.

I'm sure every passenger on that plane will remember that 5 or so minutes of that plane ride for the rest of their lives.

George Parkanyi replies:

Scott, great story, and an important leadership dynamic involved.

In a situation over which people have little control, particularly dangerous situations, there is huge psychological benefit in giving them something to do. It alleviates the helplessness and gives back some feeling of control that can be the difference between reason and panic. Throwing their hands up and chanting "roller coaster" in coordinated fashion gave them that something to do, and also provided comfort from a "we're in this together" sense of community.

Jul

1

the metsA recent headline shouts about a car company that pays 2.3 billion extra in cash to an entity's health plan. They prepaid much and could have used cash. This story reminds me of one of the centimillionaires that passed through these gates, who bought a chain of what I considered woeful stores, but actually were not that woeful. Anyway, after he went public and made his first centi, he desperately wanted to get out of the stock. So whenever he could he would sell. But the problem was the analysts always said "why are you selling if you're so bullish?". He was very astute. So he always said, "the last thing I want to do is sell, but you guys are always saying how important it is for me to get some wide diffusion of ownership out there to gain liquidity. So I sacrifice myself and let a little go even against my wishes and immediate profit". (I liked the touch of the "you guys". Here a car company is prepaying an extra 2 to the entity that brought them to the knees as well as beggaring the city and all others that they are big in such as "why oh why did you leave Ohio". But to gild the lily for the analysts they don't use stock. But they use cash. And pay up and extra.

Along the same lines, it is loathsome to see a certain bank that sponsors a baseball team around here that has received about 10 times its market value in benefits and increases in wealth from the central authorities marketing themselves in such a hubristic and resilient form. They should keep a lower profile and be ever so much more humble, and do so much more to repay the common man who saved them from the belly.

Jun

29

A union official adresses London dockers29 June 2010

Organizing Department

American Federation of State County and Municipal Employees

Dear Ms. Maralit:

Thanks for your mass e-mail this morning inviting me to recommend students for AFSCME's Alternative Union Break: Summer Session. I understand that students who attend this four-day program are taught how to "fight for a better country," and to promote "social and economic justice," by becoming union organizers.

Alas, I know no student who'd be interested in your program. The young men and women who study economics at George Mason University learn, above all, to think rather than to emote. So our students are rightly suspicious of vague terms such as "social and economic justice."

Our students learn also that an economy most beneficial to the poorest amongst us is one that is free and competitive - an economy governed by the laws of property, contract, and tort instead of by the arbitrary government diktats that are the fetish of labor unions.

Our students understand that widespread prosperity comes only from entrepreneurial creativity, market-driven investment, risk-taking, and hard work - all in response to the demands of consumers free to spend their money as they choose. Our students know that granting monopoly privileges to politically boisterous groups such as yours reduces, rather than produces, prosperity.

Our students understand that entrepreneurs and firms in market economies gain, not by taking wealth from others, but only by creating wealth and sharing that creation with others on terms that are mutually and voluntarily agreed to.

Oh, here's one more important fact that our students understand: labor unions routinely promote Injustice by lobbying for regulations (such as minimum-wage legislation and the Davis-Bacon Act) that price low-skilled workers out of jobs; by endorsing protectionist policies that deny consumers opportunities to get the most value for their dollars; and by supporting many bailouts and other forms of corporate welfare.

So I invite you to recommend to the young people who go through your program that they attend some of the many programs we have at GMU Economics (and affiliated organizations such as the Institute for Humane Studies and the Mercatus Center) in order to learn how they can truly best promote a society that is prosperous, and peaceful.

Sincerely, Donald J. Boudreaux

Professor of Economics

George Mason University

Fairfax, VA 22030

Don Boudreaux comments: 

Thanks for posting my letter, Vic. I'm honored.

Victor Niederhoffer writes:

The honor is ours. It is something that all kids and all adults should read. Nice summary. Of course unions are much worse than you made them out to be, and are responsible for the decline of all cities.

Jun

29

"The Road to Serfdom" is one of my favorite books of all time. It is also on the bestselling lists because of some media mention. Here is a great version of the book in cartoon fashion, very suitable for children of all ages.

http://mises.org/books/TRTS/

And speaking of McChrystal, one of my favorite places to surf in the world is New Smyrna Beach, Florida. Best wave in the state, funky beach town vibe, very cool, mellow tropical paradise. It also has more shark bites than any place on the planet . It's a rather disconcerting feeling when I'm out on the water and realize that I'm not at the top of the food chain.
 

Victor Niederhoffer comments:

About McChrystal and the good surfing versus the sharks reminds one of selling premium or buying the big downs.

Pitt T. Maner III writes:

And Jeff's odds are not too bad. Last fatality in the cooler waters off the Brevard/Volusia Co. area was in 1934 despite 339 documented attacks in the 1882-2009 time frame. Benchley unfortunately got us all thinking negative thoughts every time entering the water in the early 70s… as did a co-worker in the early 90s who had a shark nip story.

Map of Florida Shark Attacks

Jun

27

Among the things a father has to do with his son is make him a hero at amusement parks, play catch with him, teach him how to deal with old, young, girls, boys, teach him to survive, teach him how to use tools, play games that will provide lifelong benefits, and take him to the track. I took Aubrey to the track tonight and he told the bus riders that daddy's horse lost, but it was winning at the beginning but the number 9 came from behind to beat him". I was very impressed and he said when I asked him whether he wanted to go back to the baseball game or track more, he said " i want to go back to both". I was impressed with the whole thing, and yet Artie's wisdom that " all gamblers die broke was running through  the mind. The spectacle at The Meadowlands is rather pathetic. They're losing 30 million a year or more, and each year attendance declines, and the purses decline.

About 1500 people came to the track on this beautiful day and in the comparable days when Derosa and I used to go it was 20000. The quality of the 1500 that were left was very high, and they knew more about the game than almost all market speculators that I knew. One of them was telling me that the trainers cant make money with these 8000 purses, so every now and then, all the favorites lose on a coalition and the trainers make out big with the exacta and pick 4. My goodness, this was rite out of Bacon, and shall we say, the squeezes and inflexionic trading that goes on in our field. The tracks have given up on selling handicappers picks, as the 1000 attendance isn't enough to support it, but the post and sports eye have at least 8 handicappers each who rate each race. Considering the average handle on a race of 10000, that would seem like a concentration of forces in a field with a low return to scale and effort. The erudite analysis of Dave Brower on each horse in each race in the program is very reminiscent of the experts I hear on TV when I am in a hotel and need prices.

I like this typical sentence one of 110 for the day. "Machs tenor. Makes third start off the bench here, and this is the spot to take a shot, draws the pole and trust me, he's better than he shows." Amazingly pithy and deep for each race. When Brower's horse wins, the announcer congratulates him. There are helpful operatives all around the track showing us how to use all the machines. But I opt for the old fashioned teller and he has a belly laugh when Aubrey says to him "x on the 4 hours to place". It's one of about 5 tellers left there with hundreds of computers taking all the meager remaining bets. The sports eye has 20 tells for each race, ranging from average winning dollars, percentage, in the money, beaten favorite, strong stretch, good trip, favorable post position, hot trainer, first or second recent race after layoff, favorable driver change, won last race and stays in same company, second recent race in same class after dropping, superior mudder, blocked in last race.

If only the level of analysis in markets was half as good or half as tested. There were dozens of patrons following simulcasts that were being screened and they screamed as the race progressed and the emotions were so much the same as the thing that Jeff and I and so many others on this list saw in the pits, and no prisoners and life and death passed so fleetingly through the rings.

Thomas Miller comments:

I was in Atlantic City a few years ago and was walking through the large public bus waiting area that serves the casinos. 99% of everyone there waiting for the lonely long ride home and looked dejected and sad staring blankly into space, It was eerily quiet, with almost no conversations taking place. They had obviously lost what little money they had for the week. If you ever fear for Aubrey becoming a gambler, take him for a stroll through this area (it's probably still there). Your father's wisdom is played out in real life on a daily basis. These people play an important role for the casinos like many market players that slowly churn through their accounts paying for the upkeep of the mistress.

Ken Drees writes:

NYT: Reasons for the Decline of Horse Racing

I am up too late tonight posting this–going to pay tomorrow.

I am in the lost generation that never knew horse racing. The only touch I got was from my grandmother who would call us on derby day morning and read us the odds and the names over the phone. We would tell her to bet the horse for two dollars and she would—how I don't know, and it didn't matter because we never won.

At least we watched CBS wide world of sports who showed the major horse races with some built up punchiness since we had skin in the game.

Ralph Vince comments: 

I don't know HOW anyone can approach ANY risk-opportunity in life WITHOUT having been steeped in "The Track," and all it's (now-evident-to-me-market-relevant) b.s., the list of such which would take the better part of today to catalog.

I was fortunate that my father and uncle's were so swarming-crazy about such things. Railbirds at the top of the lane, where the roar of thoroughbreds coming out of the last turn induced an unforgettable euphoria with each race….

"If you go near that window I'll break your g.d. arm," I remember my uncle reminding me at least a hundred times. (I shouldda listened).

As a little boy, there were three, really BIG days, Christmas, "The Opener," (where the Indians, playing their first at-home game mandated you cut school) and the first Saturday in May — the latter, being the biggest. To go to Churchill Downs for that was nothing less than a pilgrimage to the high temple of life itself.

To go there, on any other day and see firsthand the contrast of the high temple, transformed into Podunk Downs on a Wednesday afternoon, in the middle of dumpy L'ville, taunts a boys imagination and makes him realize that the entire episode, the magnanimity of it, is all in people's heads –as with everything.

Jeff Watson Comments:

I grew up at the track from the age 8 or so. I learned everything the hard way paying a very steep vig. I quickly learned to only bet 1 or 2 races on a card trying to find that elusive overlay and still usually lost. Luckily I discovered Bacon, Cohail, and a few others that made my daily deposit shrink just a little. The smells, cigar smoke, the body odor, the spilled beer, torn up tickets, the touts, the losers, the winners, lost dreams, every human emotion is amplified 200% at the track. As a kid, I learned that if I had a good afternoon at the flats, I could make it to Maywood Park by the 3rd race to bet the sulkies at night. We always found accommodating adults to get down our action. I usually went home a little poorer, but much wiser learning many things. There were so many indicators at the track, and I learned at a very early age when to throw out the chalk, which was perfect training for the pit. In fact, learning when to throw out the chalk was probably the best lesson I ever learned that I could use throughout my life. Electronics has done to the track what it has done to the trading pits and I feel very bad about the disappearance of a way of life. There's nothing like hearing the roar of the crowd of 25,000 people while the thoroughbreds are thundering towards the finish line, neck and neck. OTB and screen trading just don't cut it for sheer excitement.

Jun

27

Its all so clear in retrospect that the market went down viciously. It had to be telling the subcommittees that unless they took out the restrictions on derivative trading by the banks that we were in free fall. The final decline to 1063 and dow 10080 today at 1030 was the warning. The scepter of death unless they changed things. The last thing we all want is a cratering economy and stock market before November elections. That's the one thing we can all agree on from Brussels to the Potomac. Let us hope that those very limber people mentioned many times in these posts were able to bring this impending debacle to the members of the subcommittees before they announced the eased restrictions, and that their good deeds were not performed with the just prospect of rewards.

Ken Drees comments:

Right as rain !

Jun

25

I hypothesize that one of the emergent themes of complex messes like our markets is that they follow the example of vivid sports games. Like today, I don't think it chance that the market went up as Federer received the standing applauds and then went down as disaster loomed , and finally rallied right back when he won by a gnats eyelash thereby setting himself up for a disastrous loss in the next few rounds. Call me a nut case or non-quantitative person for saying this, but I believe it.

Sumit Agrawal comments:

If anyone else had said this, it would be the last time I would seriously discuss Anything with him.

But now that you say the same, then I would just say smart men have their quirks, and it is good to have quirks as it instantaneously makes one different , and may you silently enjoy your quirks in warm company of affectionate friends who overlook them with ease!

Word of advice is that one should not wear their quirks on their sleeve, for the public to see. The public is most likely to make an easy and a harsh judgment.

Jun

25

Its good to classify cons into big and small cons, the degree of complicity of the victim, the use of confederates, and ruses versus bait-and-switches. The market would rate at the top in all of these as is readily seen, especially the use of confederates, and baits-and-switches. I am particularly gullible and an easy mark for cons. Recently, with Aubrey I had the pleasure of being victimized by a nice con at a fair. It was the medium sized con of a basketball game with the player having to shoot into a basket about 20 feet away and 10 feet high, with the basket a little smaller than normal. The only way to get it in is apparently to shoot at so high a vertical angle that the ceiling on the game precludes. The prizes include huge 4 by 5 feet whales and dolphins which I thought would be just the thing for Aubrey. Okay I asked the operator how much it would be to win one of the whales. He demurred. It would be so expensive I am ashamed to say. " How about a hundred i said ? " well, I'll have to ask my boss. " The operator said.

He had a conference with several confederates. And then came back to me with a positive shred. "Bring the kid over and we'll make him a happy camper". I pay my money and then I go to bring Aubrey over. The game is still there, but the big prizes have all disappeared. Only a stuffed Finding Nemo is there.  Worth about 1/3 of the prizes I had in mind. "Which one do you want, kid?" Aubrey chooses the Nemo and the man tells him "kid you tried so hard and so well that I am going to give you a prize". As Aubrey walks away holding the Nemo bigger than him many bystanders ask him what he did to get such a prize. " i tried so hard they gave it to me as a reward ". The stages in this con, starting with a rigged game, relying on my desire to get a special deal, bringing in a confederate, then switching the reward are all too familiar. And it is very helpful in thinking about the market to go over these steps I think.

Pitt T. Maner III comments:

I found a nice overview with table of scam types. Elderly are often the main targets.

The success of many attacks on computer systems can be traced back to the security engineers not understanding the psychology of the system users they meant to protect. We examine a variety of scams and “short cons” that were investigated, documented and recreated for the BBC TV programme The Real Hustle and we extract from them some general principles about the recurring behavioral patterns of victims that hustlers have learnt to exploit.

We argue that an understanding of these inherent “human factors” vulnerabilities, and the necessity to take them into account during design rather than naively shifting the blame onto the “gullible users”, is a fundamental paradigm shift for the security engineer which, if adopted, will lead to stronger and more resilient systems security.

From Understanding Scam Victims: Seven Principles for Systems Security , University of Cambridge.
 

Victor Niederhoffer expands on his remarks:

Part of every big con is the final touch where you make the victim frightful to ever demand restitution,or better yet, ready to put in more money to really get the full advantage. It was a nice touch for the operator to praise Aubrey so highly and let him hold the Nemo with such pleasure that for many many times the amount I paid, I would never have demanded a return to the bigger prize.

Rocky Humbert writes:

The cup is half full: If the objective of The Chair's exercise was to bring joy and happiness to his son, then perhaps this was not a "con" — as Captain Nemo was both larger than Aubrey, yet not so large that his father had to drag around an eight-foot-tall stuffed bear for the rest of the day. After all, the eight-foot-tall stuffed bear had unknown risks including the inability to see oncoming traffic when crossing the street perhaps resulting in the demise of both Bear and Chair.

Jeff Watson comments:

Back in my [adventurous] youth, I ran across a husband wife team that were travelers. Their con was simple and was a beautiful work of art in it's simplicity. The lady(dressed to appear rich and very well coiffed) would drive a brand new Caddie Convertible into a gas station, get a fill up, then would start looking around frantically for the 3 ct. diamond ring she "Lost." while going to the bathroom. She'd enlist the help of the pump jockey and would spend a good 15 minutes looking for the ring. She left very distraught with a note with an address and phone number to the jockey that if the ring were found, there would be a $3000 reward, but please don't tell her husband and only call at a certain time. An hour or so later a ragged man would show up walking through the lot. He'd buy a soda then would show the pump jockey the nice ring he just found. After a little wheeling and dealing, the ragged looking man would walk out with the contents of the register, the pump jockey had the ring and thought he was going to make a big profit. The ring was paste, the address and phone number were all fakes, but the money they made was real serious cash, especially for the 70's when they would regularly pull the con twice a day and average $500 total.

Victor Niederhoffer comments:

What is the market application of Jeff's Cadillac story ? The market applications of the Nemo are that the market has many big up days to lure you in, then you try to buy it on the cheap the next day. At first it doesn't hit your limit so you raise it a little. It doesn't go there so you end up paying near the high ofthe day, or like yesterday, it finally goes down a few points to hit your limit. While this is going on, a tip to a TV or news is given that the market looks great or that his former employee really lost money on that deal et al, and that makes you even more enthused.

You put the position on and then your broker calls you when it goes down. You don't have enough margin in your account. But if you sell within next 10 minutes, he's arranged with his manager not to have the computer extricate you at 1040 the way they did on the flash crash day. Finally, you don't have to come up with more money because you just lost all your margin so you don't have to tell the other half about the tragedy, and the manager gave you an extra special deal by not having the robot take you out ruinously because of your special friendship.

Thomas Miller comments:

Regarding Chair's last paragraph:

Forcing a quick decision under threats and intimidation then showing they are really trying to "help" you is an old scam similar to the "jury scam" I didnt know brokers learned this so well.

http://www.fbi.gov/page2/june06/jury_scams060206.htm 

Big Al comments:

On a trip to Europe with a friend, after high school graduation, I started talking to a German merchant marine guy who was traveling with his CentAm wife and kids back to Germany. This was back in the Iceland Air/Air Bahama days, when the cheap flights went through either Rekyavik or Nassau. So we talked for an hour or two during the Nassau layover and then on the plane. When we got to Luxembourg, he hit me with the story about not having money for the bus trip with his family, blah blah blah, and we "loaned" him $20 apiece (I insisted my friend participate - more embarrassment). Then he gave us his address (yeah, right) so we could let him know where we ended up and he could then send us the forty bucks. I still remember the street address: 1 Jahnstrasse. Ha ha.

Watching the bus pull away, I knew we'd been had. He used the technique of familiarity and friendliness, and my obvious yokelhood, to get the money. At first I was really angry and embarrassed, but after a while I almost felt grateful, because the guy taught me an incredibly valuable lesson about myself and about the con and he charged me only $20 for the experience. Cheapest, most effective education I've ever had in my entire life.

And on street cons, I've been targeted enough times to know the pattern: First, the con uses a simple question to make contact with the mark and **get the mark to do something**. It can be just, "May I ask you a question?" Or, sitting in a car with the window rolled down, "Could you come closer? I can't hear you." Then, after the mark has offered compliance, the con hits him with an intense, rapid-fire story - "My husband kicked me out of the house and took my credit cards and I need a room for the night but it's eighty dollars…" - and tries to maintain contact and control and also confuse the mark, until the mark may hand over the money just to break off the engagement.

One way to have fun is start giving it back to them: "Oh that's so terrible. That happened to my sister once, but she was better off without him anyway. The police can help - just let me get your license number so they'll know who to talk to when they get here." It's funny but very consistent how angry they get when you start lying back to them.

Ken Drees recounts:

I just asked my daughter if she remembered the mouse I won for her [at a fair].

"Oh yes, 'mousy', where is he?"

Oh I threw it out years ago when you got tired of him.

"Why did you do that, he was my favorite all time stuffed animal ever, he had a red coat and black whiskers…."

I just turned and slowly closed the door. 

R.P. Herrold responds to Ken's story:

From time to time, we 'clean house' and we find the black trash bags, presently carefully tied closed, up in the attic; from time to time, I am instructed to 'get rid of that clutter' as the now grown kids 'will never use those again'.

The Brio trains, the metal Erector set, the cast lead soldiers and molds, the Duplo blocks, the stuffed animals, Lincoln logs, the McGuffey readers, the arrow and ax heads collected in the fields, have all fallen to head of the queue for disposition over time

Stuffed animals were in the dock this past weekend. At that point, I usually carefully re-tie the sack, set it to one side for a moment, and then find a new hiding place for the bag in question after her attention turns to other matters. But a grandchild's mother and the child were delighted with the animal figures from my preservation efforts, even if my spouse was not pleased to see 'those old things' again

A few weeks ago, the Brio train set moved in with a gransdon infatuated with rolling stock and were 'new' again; The Erector set, the melting pot and molds, all gone (not to return with current day safety rules — choking hazard of the nuts and bolts, heavy metal fumes). I am on the lookout for a replacement McGuffey (that friend of books that taught me to read upstrairs in a quiet room as the adults 'talked' downstairs), so I can 'seed' a room for young visitorsThe flints and shaped stones? I was not atuned to their disposition occurring; a 'sharpie' sweet-talked a sale for a pittance from a elderly family memberwhen 'cleaning up' prior to closing down a house before sale. That lot of childhood treasures also carried out the door the minnie balls I dug from the earth at GettysburgEntropy won a round that time; I know we'll battle again.

Jason Ruspini comments:

Forgot who said that cons work because people want something for nothing. Clear implications for naive technical analysis here. See, it's easy, you can get rich by extending straight lines.. just keep one eye on your laptop while at the driving range.

To the young person who had a query about what to do with his trading system, at least he tested something, but perhaps there is some laziness there. Unhealthy to think of one system as your "ticket" even if it looks good. Better to find a good place to work where you might actually learn something new.

Stefan Jovanovich comments:

In the good old days of the 1970s the favorite panhandle con in downtown SF was to be a crazed Viet-Nam veteran. Since I spent half my life in those days lurking outside office buildings waiting to ruin some suits' day by handing him a summons, I got to hear every pitch going. The only way to escape was to do the "crazed killer wanting to go back" routine. "Hey, man, can you help me out; I was in the Nam." "Yeah, me, too, and Brother, am I glad to meet you because we got to go back there NOW!!!!! and finish the job."

Like Big Al's artful sympathy, it worked every time; but the reaction was more fear than anger. The con artists did not want to spend any time near someone who was so obviously crazy - for real.

Gregory van Kipnis writes:

The con that almost got me the first time I encountered it. It repeated itself 4 times over the intervening years.

I have deduced that the mark has to be a distracted businessman, walking alone midtown near the major hotels, hopefully someone in NY on a business trip.

In NYC, about 15 years ago, walking cross town early one evening, lost in thought, I was nudged by someone coming from the opposite direction. That was followed by "Jeez, you knocked the food out of my hand. Don't you look where you are walking". There on the sidewalk was a spilled plastic container of takeout food from the all too familiar corner Korean greengrocers.

I thought for a moment to review the memory playback of the contact and responded, "But you bumped into me."

He turned angry exclaiming he was on a short break from work and I ruined his dinner and I bumped into him and I should pay for the loss.

I started to reach for my wallet, then hesitated sensing a con, and said "No, you bumped into me."

He got belligerent, put his face close to mine and with intensity and a shaking body said he was angry and he ought to take me out. I stepped aside, hand on wallet again and started walking saying "there is a greengrocer around the corner. Let's go in and I will buy you a meal."

After a barrage of invective he leaned down to scoop up the spilled food. I continued on my way with a shaken feeling followed by euphoria when I realized I foiled a con.

I few years later the same thing happened. It was a different person different neighborhood near the St. Regis. This time two people. As soon as he spoke I said "bull shit, you did the same thing to me last month". He tried again to intimidate, but I just repeated the response. The engagement ended. They scooped up the food.

The third time, same guys same neighborhood near the Penninula, they just pulled the same stunt on a couple. He was reaching for his wallet. I yelled from across the street that it was a scam and he should walk away. Lots of hesitation followed on both sides. To my amazement the mark paid anyway.

The fourth time, same guys, I swerved just in the nick of time and yelled "you are still at it huh?" No response.

Whenever I see a food stain on the sidewalk with a few strands of noodles scattered about, I smile — the tell tail sign of the aftermath of the con. You would be surprised at how many there are.



Rocky Humbert comments:


An important distinction between this con and some of the other cons is that this one preys on the mark's sense of duty/charity versus the cons that prey on the mark's sense of greed.


One ponders whether being victimized in the pursuit of selflessness is any worse than being victimized in the pursuit of selfishness ? For example, was Madoff's theft from charities more heinous than his theft from plain old rich people ?



 

	

	


	
Jun

	
22

	

	

	
The different beaches in Coney island and Brighton beach all have their nitches and there is no mixing or migration between them and some are totally crowded and some are empty. One of my favorites is the hasidic Jewish beach which always reminds me of irving redels patented method of getting his property taxes reduced by transporting. I like the Hispanic beach also, which is always jammed and where there is loud music and horse play all the time. What lessons can one learn from these pristine beaches which are so clean these days and near the Ferris wheel, the w. 4th handball courts, the old checker tables, and other distractions.


	

	


	
Jun

	
22

	

	

	
Of the reason that was the reason that federer almost lost as cervantes would say is that he was concerned and distracted by the play of his beloved swiss soccer team. What other distractions lead to losses in the market?


 


Jay Pasch comments:


ringing telephones (never again)

a 3-martini lunch (never again)

one's own imagination regarding what one thinks the market is going to do,

delusion (again and again)


Victor Niederhoffer responds:


Romance?


Nick White writes:


Beloveds of any kind, one would imagine. Good natured banter amongst one's associates can take mind off the job. I'm coming to see the Chair's wisdom of no noise, no talking, no intra-day distractions. It really does make a difference. However, it seems to me that perhaps there should be some distinction between "on" and "off" modes. When on, full noise / distraction lockdown. When off…well, game on. Like a firestation or military on alert.


Marion Dreyfus comments:


Safety issues


If one is immobilized by concerns about the outside world such as familial well being, adverse weather or unsafe streets, one cannot be free to fully concentrate


Indeed it becomes a juggling act–which concern will prevail?



 


	

	


	
Jun

	
21

	

	

	
Mr. Pitts fine and erudite post pointing out the importance of the outlet pass to Varusechek who has the best free throw shooting percentage brings to mind Sondheims' song from company . " its the little things you do together that make life a joy " . less hateful and humorous is the real proverb,that little strokes fell great oaks or Wiswell's make quiet moves, or take care of the draws and the wins will take care of themselves.


Marion Dreyfus comments:


Can any of the more psychologically astute listers explain why the win of the Lakers the other night occasioned vast destruction of the city, cars and streets?


Why did the police permit this lawlessness?


Why should we accept this hooliganism?


Stefan Jovanovich responds:


 Marion: your question presumes that there is a "we" in Los Angeles. That is a fallacy; there are only tribes. The tribe that inhabits downtown LA after dark are the homeless, and it was not their property that was vandalized. "Law and order" in LA is entirely up to the local inhabitants. During the Rodney King riots Koreatown was an island of tranquillity even though it was among the neighborhoods closest to South Central because the local tribe immediately displayed their arsenal of (mostly illegal) weaponry. Then, as now, the police were - as they have been for years -well-paid spectators whose concern was their own safety (for all the talk about the danger of the public saftey life, the emergency services in LA now have lower mortality rates than parking lot attendants). As paramilitary SWAT teams have grown in size and budgets, actual control of public events has declined. Some of us cynics think there might be a correlation.


Marion Dreyfus writes:


Thanks for clearing up the mystery.


It is dismaying in the extreme, however.


No-go zones in our country?!Just like the illegals n Arizona, who have entirely taken over parts of the state where no americans can set foot. 


 


Alan Corwin comments:


I don't think no-go zones are anything new in our country. There were a lot of no-go zones after dark in Boston in the 1950's for example, and I believe that was typical of big East Coast cities. The scariest place I have ever been was when I decided to check out Wilt Chamberlin's High School in Philadelphia during the late 60s. I thought I had wandered into a war zone. That may indicate how sheltered my life has been, but it was scary.


The thing that always amazes me about these riots is that they are almost never in the losing city. Things got pretty ugly in Boston the last time they won a championship, but all was quiet on the Eastern Front when they lost this year.


 


Gibbons Burke comments:


Witness the 1992 riots in Chicago after the Bulls won the NBA championship:


Bulls' NBA Victory Sparks Chicago Riots By Michael Abramowitz Washington Post Staff Writer Tuesday, June 16, 1992; Page A01


CHICAGO, JUNE 15 – As Michael Jordan and the newly crowned professional basketball champion Bulls partied with 18,000 delirious fans inside Chicago Stadium Sunday evening, an ugly orgy of violence and looting unfolded in neighborhoods scattered around this city, authorities said today.


Police reported more than 1,000 arrests on charges of burglary, theft, mob action, disorderly conduct and damage to property, all in the hours following the Bulls' dramatic come-from-behind victory against the Portland Trail Blazers in Game 6 of the National Basketball Association Finals for their second consecutive championship.


There were scores of injuries, nearly all of them minor. No one was killed. Among those injured were 95 police officers, two of whom received minor gunshot wounds. Three civilians were shot, two by storekeepers and one by the police, according to a police spokesman. The owner of a South Side liquor store and an employee received second-degree burns when looters attacked their establishment.


Although drunken revelry is still the most common mass response to sports championships, violence of the type that occurred here late Sunday and early today is becoming more common. Last year, after the Bulls' first NBA championship, the looting was less widespread, there were 100 arrests and no serious injuries or deaths.


[…]


	

	


	
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The common theory descriptive of complex messy systems where the outcome is dependent on many variables with much uncertainty about them, each of which influences the others, with much unknown about interrelations and new effects, like the market is that emergent properties, regularities and stable landings occur. What sort of emergent properties are there in the mess that we work in, and how can this be quantified and especially differentiated from randomness. The SP was 1110 + - 2 for 4 days in a row, and had a day of lowest volatility on 6 18 before its fifteenth biggest up opening of last 4 years. What does it portend? What flexionic states will endure?


	

	


	
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 One was recently asked, how do you spot a hoodoo when you are in or dangerously close to their presence? I would say that their past record of failures is a good starting point. As is their ability to talk a much better game than they play. Also, their attempt to impress you with the trappings of success, ( a conference call with their five principals is a usual gambit). Not to be disregarded is their locus of operations, often from a ephemerally built recreational area where permanent lodgings and such things as pianos are not availalbe. The inclination to befriend you and flatter you is also a clue. But how can this be quantified, and how can we learn to avoid them? What should you do when you've met a hoodoo? I've always taken to burning my shirts, especially if they've hugged me as they ofen do. Dare I ask the question of whether there are such things as hoodoos or is it a figment of random numbers? No, that would be too mind boggling. But please help with your insights.


Alan Millhone writes:


Some years ago my late father and me were enlisted by Banque Worms to take over a failing condo project in our area.


The developer met us and after I shook his hand I could smell his pungent cologne on my hand for the rest of the day. He had a lady friend assistant who wore a see through dress with precious little underneath if the sunlight caught her profile just right. When I first met him I could see " carpetbagger " across his forehead.


He was a genuine "slicky boy" right out of South of the 38th Parallel.


People like him wear a lot of bling and cheap after shave. Usually have a woman at their side as a distraction.


They are long gone. Our crew finished the job.


Stay vigilant and wide eyed. 


Pitt T. Maner II adds: 


hoodoos at Bryce CanyonFortunately, I associate the word "hoodoos" with the past leader of my university (UF) geology field camp, Professor of Geomorphology, Dr. Robert Lindquist, who was an expert on the formation of hoodoos in the magnificent Bryce Canyon in Utah  and knew of the locations of many wonders in the West–original survey markers left by Powell, dinosaur bone and gastrolith graveyards, amazonite on Crystal Peak and ancient lahars in South Park, Co. A geologist's geologist who looked like he had stepped out of the 1800s.



As for the other definition, there was a person who once recommended Enron, Freddie and Fannie, and several other long ago bankrupt companies and who was so consistently wrong for awhile that it was almost uncanny. If one had just done the opposite. It was a good education to lose money at an early age though on hoodoo picks. Better to lose and learn using your own thought processes–at least there is a sliver of hope for improvement. 


Russ Herrold writes:


I might add that to view a person's bookshelves (even ones only in public areas) or even books in the process of being read on a table, or to note the absence of such, in each case provide a window into the mind of that personis to me a 'tell'.


Alston Mabry writes:


To see something clearly, it can be helpful to study its opposite. Recent list discussion included one of my favorite anti-hoodoos, Richard Feynman– intelligence, curiosity, enthusiasm, creativity, generosity, joie de vivre.


Russ Herrold adds: 


This certainly may work for when to exit or what to avoid. My brother also seemed to have a uncanny ability to leave the party, when things were getting hot… too hot… right before the cops came and arrested everyone. His friends started following him. However, the same may not be true with when to start a party. As a kid I remember people would fight for a seat next to me during a math test. If I did not like them I would pull a Goldman synthetic and write down some wrong answers, to be corrected latter in secret. It has been my experience in investing that the surest sign of a Hoodoo is willingness to copy someone elses system or trade and yet have no idea why they should expect it to work. There seems to be floating around hundreds of billions par value of formerly AAA paper that now only worth hundreds of millions that seems to prove that these Hoodoos are extremely common, if not the most common Hoodoo around.


Nick White writes:


Perhaps the most difficult aspect of detecting hoodoo-ery is to discern the difference between the genuine actions of the bona-fide dealer versus the pretense of the hoodoo (who - come to think of it– may well be bonda fide, too, but just cursed. Let's call these poor souls benign hoodoos versus their more malignant bretheren).


I think the sure tell of a malignant hoodoo is that their most effective lies will be those very closest to the truth…yet there lies their very advantage over us, and requires some street smarts to know the difference. Perhaps the foil is to know and experience for ourselves the difference between ambition and aspiration. The Stoics made this sort of distinction to help them in their quest against self-hoodooery: Ambition was vulgar, akin to avarice, full of scheming and accompanied by a very lowbrow, keeping-up-with-the-jones mentality. These sorts of feelings were to be put to death in oneself moment-by-moment through Stoic practice. Aspiration, on the other hand, was considered more noble, civic and had the connotation of dilligence, discipline and a bent toward giving a world-class performance simply for the sake of excellence as a way of life. Therefore, perhaps we might say this kind of vulgar ambition is the giveaway quality of malignant hoodoo-ery? Applying this little rule-of-thumb might constitute the foundation of an early warning system.



However, before any of us jump on the moral high horse and consider themselves "aspriational", the Stoics further stipulated that it required very great self-knowledge to even know the difference between these two values, let alone to declare oneself in one camp or the other. Even then, the Pyrrhic victory was assured– if you felt yourself to be truly humble and aspirational, you were most likely hopelessly ambitious and required greater training to cure the very need to make such statements about oneself.


Jeff Watson adds:


Nick, you made the most erudite explanation of hoodooism I've come across in a long time. One might wish to consider the partial hoodoo which affects 95% of the population. With the exception of a few good trades and the ability to be a good father, I'm a world class hoodoo, among the best. I won.t deny this because that would be a folly, and total lie as I can make money but my personal life is a train-wreck. I won't get into the Faustian aspects of all of this, but it is there. Hoodooism comes in many ways, shapes, and forms and I've seen and done them all. Hoodooism is like the old adage that history doesn't repeat itself but it always rhymes. The hoodoo that the chair describes isn't enough, the one you have to watch out for is the one that makes money on a regular basis, he's the danger.. He might steer you onto something good, but there is always a price to be paid, and the price is not always what you expect and not the currency you wish to pay..


George Parkanyi writes:


This whole notion of hoodoos frankly I find rather uncharitable, and burning one's shirt after a tainted hug smacks far more of superstition than science.


Now not hanging around negative people I understand. Some just wear you down with their negativity, and you do have to cut your losses at some point. But to classify those who have tried and failed into their own undesirable caste is unfair and a vast oversimplification. People run into difficulty for many reasons– failed relationships, health problems, sometimes just honest mistakes. My experience has been that people have far more to offer than what appears on the surface– regardless of their circumstances.


I wander past homeless people– ostensibly life's greatest "losers"– sometimes as I go to work, and when I really think about, I'm awestruck at how they have managed to survive all this long– with absolutely nothing, through harsh winter conditions. How do they do it? Clearly, they have skills that I don't. One time I gave a not only homeless but also legless man $10. He didn't ask for it. I just walked over and gave it to him. Here he was on the front lines at the very edge of humanity, representing on my behalf one of the worst possible circumstances that I could even imagine for myself and somehow I was drawn to him. When I gave him the money, he beamed at me with this smile of pure joy, looked me straight in the eye, and cried "God bless you!" To this day I will never forget that blessing, because at that moment there was a seismic shift– I actually physically felt it– in my understanding.


In the lands of the dispossessed, I don't see hoo-doos at all. I see potential teachers.


As for people who befriend you only because they want something from you, the best I think you can do is make your own decisions on to what extent and level you wish to engage. If you enjoy their company or there is something about them that you like, go with it, but don't take risks that would seriously jeapordize your business, family, and other relationships. Not everyone is genuine, yet not everyone's on the make either– and some people are absolute gems. To be completely distrustful will cut off a lot of wonderful experiences. To expect too much of people or to be overly trusting will set you up for disappointment, or worse.


It's like trading really. If you diversify your relationships you have less risk and less volatility. If you concentrate your relationships, you have more risk and more volatility, but perhaps a bigger payoff in the intensity of love and friendship. You have to figure out the right mix for you. The interesting thing about relationships is that that while you're investing in others, they're also investing in you. The more relationship value you create, the more relationship value you (and others) will also accrue. I can't quantify it, but I think there is a real multiplier at work there.


Last point. If you're not confident enough to engage or deal with a "hoo-doo" without fearing harm to yourself, then perhaps you should worry less about the "hoo-doo" and examine your own fears. What difference should it make to you if have a conversation, dinner, or even a business deal with such a person (however defined)? In what sense would that make you a lesser person or cause you harm? It may or may not, but I think its a good question to ask.


 


Jeff Watson comments:


George, it would behoove you to read up exactly a hoodoo is before writing such an elegant, misguided essay. The essay was great, almost fantastic, but missed the point. I can say this because I'm a hoodoo and proud to admit it. Not all hoodoos lose money in the market and in life and divorce. Some lose through gambling drugs, going for long odds, begin too easy with short odds. I lose my money by staking unreasonable ventures, loose women, and bad ventures. Not a lot of misadventures but enough to affect 11% of my bottom line. Add that to my losing trades, my 30 dependents, and I have a big nut to make every month. Nothing like the Chair, but still significant. There should be a place in the hall of fame foe us grinders who knock it out every month for years…That's gotta count for something.


Duncan Coker writes:


On the topic of hoodoos, when I am performing a task others can either help me perform better, have no impact, or lead me to perform worse. A hoodoo would would reside in that last category. I am not so concerned about their motivation or intent, just their impact. With my favorite fishing comrade, we actual raise the level of our game so to speak, so an inverse hoodoo. We share information on the flies that are working, fish caught, good spots on the rivers, ( after a small bit of subterfuge of course for good measure). We have a good rhythm of leap frogging each other up the river, alternating the good stretches, not spoiling the water ahead for the other. Plus the general level of conversation or lack of it fits well with the day allowing us to focus on the river and landscape around us. In a pinch we can count on one another. I recall one day I slipped and snapped my fishing rod while at the same time managed to lose my fly box and all flies and watched it float away into the fast current. My friend saw it all and after a few jibes, offered to share his set up, and we took turns the rest of the day. We landed my rainbows that day.


But I have fished with hoodoos as well. One guy we nicked named Trigger. He was so nervous and jerky casting and moving around the river we thought he had an itchy trigger finger and thus the name. He could destroy a beautiful fish laden stretch of river faster than anyone I have seen, with sloppy casts, poor retrieves and a general disharmony with the environment. And he liked to talk, talked way too much. So just being around the guy brought my fishing down and took away my rhythm. Plus, he had the very real affect of spooking any fish near us. They must have known he was a hoodoo as well. One day was enough with Trigger.


Nick White comments:


Actually, I wonder if the null hypothesis is that we're all natively hoodoos…with only will, practice and a life record to help us refute it?


Thoughts?


George Parkanyi responds:


Humanity in the aggregate, and individuals all, are - maybe flawed isn't the best term - let's say limited, at any given point, by the sum total of our experiences and our genetically born underlying capabilities and pre-dispositions. Most of us I would think have far more potential than we ever actualize. As infants and children, we start out gang-busters, absorbing everything - especially information and ability most pertinent to our survival. It is primarily a world of exploration for us at that time, underwritten by the support of those that take care of us in the early years. We're all about curiosity and imagination. As our thirst for knowledge and experience leads us to new experiences, we also begin to develop routines and habits, which enhance efficiency and conserve energy, but also help us re-experience that which we have enjoyed or that have worked in our favour before. The filtering begins, and the type and nature of recurring experiences that we seek increases. Habits take form, even at a young age. The continuously developing habits, I believe, progressively and increasingly compete with our desire and ability to pursue new experiences. At certain points in life, we even choose massively pre-packaged experiential templates (e.g. marriage, career) as well, which hugely filter and channel our future experiences. Ultimately, we (not all of us, but a large portion) reach a point where there is no further desire to seek new experiences that are outside our past experiences. Our habits completely define us. As we age, we also begin to lose the resources, particularly health and energy, with which to pursue and expand our overall life experience.


Perhaps a hoo-doo is simply a person that can or will not go to the next level, and finally settles for habit being the determinant of his/her future experiences. Perhaps they give up on the pursuit, or are ultimately distracted away from seeing or imaging that next level of experience beyond the point that they have already reached (which point would be different for each person), and never even think to look toward the horizon of their life again. All I know is that habit is a very powerful force, and ultimately I think it overwhelms us.


John Holley comments:


"Amen, JT. Sorry I made you burn a shirt that time I hugged you at the Mets game, Vic!" KD


Just to show I put my actions where my mouth is, I will share with the list that I recently have read two very important books that have shaped my life thus far. Both are shared favorites, highly insightful, and forever giving and common amongst the Spec Listers:


1) Memoires of a Superfluous Man - A.J.N. (via Vic)


2) Five Lessons: The Modern Fundamentals of Golf - Ben Hogan (via my Dad, also Kevin Depew's fav golfing book)


These books are on my top ten list. If you haven't read them then do it. In fact read them over and over again.


Other than G-man's speech in Atlas, the 1 thing I hang onto that Lack shared recently in a post regarding his Father that would get you out of being a Hoodoo is appropriately going to be number twenty six.


26) “If you saw Atlas, the giant who holds the world on his shoulders, if you saw that he stood, blood running down his chest, his knees buckling, his arms trembling but still trying to hold the world aloft with the last of his strength, and the greater his effort the heavier the world bore down on his shoulders—what would you tell him to do?” " To Shrug." Shrug, bare more. Your mind can handle it.

	

	


	
Jun

	
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 The games between the playoff teams in basketball resemble nothing more than a battle between the bulls and bears with the individual star and goat players resembling the best and worst performing stocks. What can we learn from the games that will help up in markets?


1. Returns from deficits are often probable. The Lakers were behind by 13 points.


2. Multiple comparisons make ephemeral seasonal and set up patterns completely non-predictive. Boston C's had won 4 of its last 4 games out of 7 in the playoffs. C's had won all 11 finals. They had led 3/2 of 25 finals. The team that had led 3/2 won in 21 of the series. The team that was ahead the first quarter won each of the 6 previous contests. C's were 12/2 in games they held their opponents below 90. All these in C's favor, but they lost. Many more. Similarly for setups for markets.


3. An individual good player or bad player is the difference between success and failure. The placement of Robinson in the game when Rondo got tired was enough to insure loss for Boston as was the loss of their center. An individual stock like Proctor and Gamble, or Apple or GS can be the difference between a good or bad day.


4. The home court advantage is very great. The Lakers were well rested and they know the spins of the balls. The angles of the chess board are key in a blitz game. A market that has not used up all its bullish or bearish juices with a recent spate of victories on the road, i.e. a big up trend is much more ready to perform.


5. A strident approach never beats the thoughtful one. Doc Rivers was yelling at his team to perform and not be heroes while Jackson was patiently telling Kobe not to be so animated.


6. Rebounding is key. The C's shot 7 percentage higher than the the L's. But they were out-rebounded by 10. The markets that have the ability to swing back from deficits throughout the day get more chances to win.


7. The ability to score from the paint was key to the victory. If you take care of the draws, the easy shots, the wins will take care of themselves. A market that goes up or down in an uninterrupted way throughout the day is much more likely to show subsequent superior performance than one that's constantly backing and filling.


8. Good health is the key to victory. The injury to K. Perkins of Boston led to the 53-40 rebounding advantage of Boston that was the key to victory. It also had a ripple effect on the smaller Boston players making them try harder to get rebounds after their shot, and paved the way for the loose cannon Robinson to get in the game to spell Rondo thereby cementing the loss.


9. The tortoise beats the hare. The C's were ahead for 90% of the game, but they managed to lose. It's the team that has not lost all its energy for the final part of the day that is going to win. The C's were all enervated after all the fast breaks and helter skelter shooting so uncharacteristic of them, and reminiscent of the Knicks with no rhyme or reason to their play in the fourth quarter.


10. Never give up. The L's missed more than half their foul shots, made only 30% from the floor, got only 20% shooting from Kobe, and were behind the whole game, including an insurmountable 13 in third quarter but managed to win. They refused to give up. Neither should the market player when behind and he's tempted to stop himself out.


Pitt T. Maner III writes:


Game 7 was not a pretty game. The refs very early decided not to call fouls. The 2 teams recognized that immediately. Defense, boxing out, rebounding and positioning became critical. San Antonio Spurs played that hard defense during some of their title runs.


Boston to some extent overleveraged on defending Kobe. Ray Allen played him tough but the rotation to Kobe left other players open and it was only a matter of time before experienced players like Artest and Derek Fisher hit key shots or picked up rebounds. Lamar Odom began dribbling the ball up the court in Game 6 that changed play setups.


Calm coaching (emotional instructions vs. critical assessments) , adjustments and situational awareness were important. Pacing was key. If you go out too fast in a series or game you can "blow up" in the end. Developing a rhythm is important to success. Very small things like having Vujacic in for free throws made a difference.


The Lakers played hard towards the end of several games they lost. There was a constant pressure that was palpable and it let the Celtics know that if they missed free throws or shots or turned the ball over they could lose. So instead of playing to win the subconscious note was to not lose. Avoidance of choking replaced winning thoughts.


Noise, trash talk , crowd hostility, and assortments of distractions had to be worth 2 to 3 points for the Lakers.


The overall theme seemed to be that hard work, rebounding and experience (the 10 and 13 year veterans) and suffocating defense won out over shooting % and a deep bench. Past history was not predictive—younger players weren't born and had no sense of history in most cases. Bill Russell who?



Ken Drees writes:


The psychology of not losing is more aptly described as the art of losing on schedule.


This has been mentioned before I believe–teams that win game 5 and go into game 6 with a mentality of only having to win 1 of 2 are setting themselves up for failure. Like the Indians against Boston being up so many games in the alcs and only having to win one—just one game and their pitching aces choke. Once you lose the first game, then the subsequent game is a must win and then the pressure is all on you and not on your opponent.


In trading, after a good run–one may think that one only has to trade even or slightly better to keep a winning scorecard. Or in golf, with a lead playing for pars instead of continuing after birdie golf. When you are hot you have to play or trade even better. Its time to focus and excel, not coast to the finish. When you are in a slump, then its hit the practice courts/cages/charts/post-mortems.


Lars van Dort adds:


In the same spirit is something I remember from a book on chess by Max Euwe (world champion 1935-1937). He wrote that after gaining a material advantage, one may have the tendency to play more cautiously. Instead, one should strive to put the extra material to maximum use, keep the pressure on and not shy away from complications. I have often found this thought to be very useful during games of chess and indeed other activities.


	

	


	
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 Robinson lost the game for the Celtics as predicted, missing key shots, scoring no points, taking Rondo out of the game, and completely negating the Celtics ability to get any rebounds while he was in and field marshaling the final loss. It reminds one of feeble attempts of stocks to end the day higher when bonds sail through the roof with some random announcement of manufacturing output in Philadelphia or some such.


Al Corwin adds: 


I was distressed to see your prediction play out as it did regarding Robinson. It's a little harsh to blame the whole loss on him, but he had a chance to make a positive difference at a critical juncture and did not. He was only in for a few minutes, and the Lakers gained eight critical points in that short time span.


As much as I am pained by the thought of another championship banner hanging in Los Angeles instead of Boston, the Lakers have to be commended. I am not used to thinking of the Lakers as gritty, and this was a gritty performance. They dug deep when the Celtics had the chance to put it away and they outscrapped the Celtics for loose balls on several critical occasions in the fourth quarter. A little less than maximum effort at any point in this game would have doomed the Lakers, but they did not shirk.


I have to admit that my admiration for the skills of Gasol were elevated by this series. He has a remarkable set of offensive skills, and he plays with fire in his heart. His offensive rebounds at critical times did much to put the game away. His defense was much better than the book on him would indicate. His most blatant weakness is at the line, but he made the ones that counted at the end.


 

	

	


	
Jun

	
18

	

	

	
A Young SondheimMr. Pitt's fine and erudite post pointing out the importance of the outlet pass to varusechek who has the best free throw shooting percentage brings to mind Sondheim's song from company "it's the little things you do together that make life a joy." Less hateful and humorous is the real proverb, that "little strokes fell great oaks" or Wiswell's "make quiet moves", or "take care of the draws and the wins will take care of themselves."


	

	


	
Jun

	
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Yankees vs. HoustonIn various readings, one casually hears about meetings between the flexions at dinner or lunch, where they discuss their positions such as the counterparts who are buying pounds from them or lunches where they all are invited to give their views. These obviously serve the same function as the annual meetings at Delphi a few thousand years ago and Jackson Hole, and Davos today, And conventions where the bigs can make sure they are on the same page. But how do they make sure they are on same page during a given day when so much can happen these days. The shadow wants to know, And at a baseball game between the yankees and Houston that Aubrey attended yesterday one was looking closely at the hidden signals and conventions for clues as to how they communicated.


One was impressed with the myriad ways the teams have evolved, their equipment, and particularly their stretches and sideways running practice to better steal. I liked also the rhythm of the throws around the infield after an out so that the third basemen would gradually approach the mound as they relayed it around the paths, and then lob it so gently to the pitcher so as not to offend the sensiblities of his pitching hand et al.

	

	


	
Jun

	
14

	

	

	
 One has been asked the name of the beautiful Jack Schaefer story. It is Miley Bennett.


"Yes. I gave Miley the gun. But then I knew what he would do with it. I guess you'll have to let me tell this in my own way. There's no one else can tell it, not so it comes out right. I guess I'll just have to hope you understand what I mean. And how I felt."


Miley said "I'll find it. (the sheep ranch). "You see, I've got to. The sheep are depending on me. I told them I'll be back."


"Sheep didn't worry me any. They did worry the old style ranchers. Worried them and made them mad. They had been running cattle in their own way a long time and didn't see any reason why they should keep right on as they always had. These men and their kind controlled the (state dept of interior). It didn't mean a thing to them that the fed laws made no distinction between cattle and sheep. They did, and they tended to enforce it. And they had been finding ways. Sheep had been killed and flocks stampeded. I knew of two herders found dead back in the hills and several more beaten badly. Miley Bennett's was the only flock I had heard about anywehre around that year."

	

	


	
Jun

	
13

	

	

	
Robin HoodIt is interesting to contemplate what the markets would look like if instead of a 25 percentage increase in such areas as the contributions of businesses to the interior as a door opener for 2010, they all were increased to totality–to Robin Hood away 100 % of all business profits and gains from investing. Would not employment decrease and interest rates go to zero? Would not the stock market descend? And would not the loan to holdings of government securities of banks fall to zero? Most important of all, would not the amount spent on lobbying be increased and even more important, would not all pilot fish of excessive capitulation be eviscerated? In short, the reflections on the market would not look that different from today, I think?


	

	


	
Jun

	
13

	

	

	
In a nice chapter on Morse in 50 Years On Wall Street, Clews talks about how people followed him even after he was down and out, before my dad's predecessors had to retrieve the body from the Bowery for the morgue and pay off the debts. It reminds one of the changes in tempo and forms that plague us now with the interventions of flexionic nature et al.


But he did ruin the chronic bear Little even when he had two feet in the grave.

	

	


	
Jun

	
11

	

	

	
VigilantesIf there ever were a time that it was absolutely necessary for the welfare of the commonweal for the bonds to have gone down, it was yesterday. Time after time, the insatiable bond auctions have shown an enormous revulsion before the announcement only to go up big showing big profits for the clients of the flexions on their holdings. But finally yields had their biggest back up, i.e bond prices fell almost 2 points, in 10 years. The vigilantes did not wish to buy the bonds at the lowest yield ever and refused to countenance the movement of productive activity from the common person to the organized blocks that vote based on how much they can get from the trough.


The holdings of treasuries by the banks has been increasing steadily and they have been making a fortune by borrowing at 0% at the window, and buying bonds. Why should they lend when they can make money by buying at a discount at the auction, and then showing an immediate 1 % profit on their 1 trillion or so of holdings. Every 10 billion counts.


What could possibly stop this transer of resources in the future? Only a message that continued agrarian reform, continued transfers with all the negative multipliers, continued new programs, continued expectations of reductions in incentives to start businesses as the rates go up to 35% and more from 28% for the LLC and sub chapter s's that actually start businesses and provide jobs outside of those elicited by increased regulation, the necessity of lobbying at the interior, and jobs to provide clean energy at those proffering the regulations and redistributions, aside from the vigilantes.


I was long the bonds after they fell today and lost as it had never happened like this before. But for once, I was happy to make a contribution to the vigilantes for the greater good. 


Rocky Humbert comments:





U S Senator Tom CoburnAfter a day on the proverbial treadmill, I mount the non-proverbial treadmill with cable-tv clicker in-hand for both relaxation and stimulation of body and mind. I often watch television during this exercise period.


Last night, I allocated my viewing between:


The Housewives of New York City (Bravo) — for insights into fashion, consumption, and a lifestyle that might cause even Ayn Rand to blush;


Re-runs of Jeopardy (Game Show Network) — for factoids and trivia useful for appearing erudite at cocktail parties;


Fox News — watching with hope that Krauthammer might crack a smile — which would be a sign from G_d that there is hope for my children and children's children.


Lest one think that this is all a non-sequitur to The Chair's comment, the final show that I surfed was Cramer — whose guest was Senator Tom Coburn (R-Okla). Both Cramer and Coburn were pounding the table for a meaningful extension of US debt maturities. Cramer wants Treasury to immediately issue $2 Trillion of 30-year bonds; whereas Coburn predicts a Greek-style liquidity crisis within 2 years — and wants Treasury to promptly re-finance existing bills, notes and Fannie/Freddie at long maturities with untold Trillions of issuance. See this article.


According to Bloomberg, over the past several years, the average maturity of US Debt shortened to a 26-year low of 49 months. Geithner is in the process of extending that to 72 months, but if Cramer and Coburn's proposals gain traction, yesterday's auction result will be a pleasant memory. It will be analagous to my accidentally pressing the "MAXIMUM" speed button on my treadmill — with the headphone cord attached to the handlebars and wrapped tightly around my neck.

	

	


	
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Nate Robinson dunkOf course the one exception to the beautiful team work that leads to many of Boston's baskets that inevitably will win the series, is that they have won two playoff games with the loose cannon, the braggart small trader who jumps up and down on his colleagues back when he makes a profit or scores a basket, Nate Robinson who is 9 times as likely to lose a game the next time he comes in as win it, the same way when nas goes down 100 at 330 pm, and then reverses 50 in the last half hour, it's ready to lose so big the next time.


	

	


	
Jun

	
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 Nobody asked me but the Lakers look very similar to the Knicks to me in their helter skelter approach to getting baskets with the only exception that they have a very good star in Kobe who can fake many ways. There is no rhyme or reason to their play, and when they score a basket it's a fluke three by Kobe or a lucky rebound by Gasol.


Boston on the other hand has a raison d'etre and reminds me of the teams that play the Knicks that always pull away during the fourth quarter.


You can almost see the tug of war between the two teams, like the fight between the bulls and the bears near the end of the day, as the flexions attempt to liquidate the weaks before reversing the next quarter.


Alan Corwin writes:


As a Celtic fan since before the days of Bill Russell, I concur with your analysis and hope it holds up. The Lakers have lots of talent, but it doesn't mesh a lot of the time. The Celts go through frightening stretches where they can't put the ball in the hoop, but they are almost always getting good opportunities.


Red on Roundball is still worth watching. You don't even have to be a basketball fan to appreciate the way his mind attacked the game.


The difference between Nate in Boston and Nate in New York is that Doc Rivers know when to take him out (i.e., most of the time).


Pitt T. Maner adds:


The 5th game should be big–winner would have an advantage.


There is the interesting dynamic of finesse/skill (Kobe) vs. power/inside game (Big Baby Davis).  Actually Davis is quite skillful and almost ballerina-like in those not so easy reverse layups–he shows tremendous heart and desire and considerable improvement over his LSU days (where he was darn good).


Comments this morning were about how can a true 6' 6" guy like Davis go in amongst trees like Odom 6' 10"ish and Gasol (7 footer) and be effective since they know from scouting that you have to overplay Davis to one side.   Answer was  quickness, positioning and "he has a big tuchus"–ha, but its true.  The more space (base) you occupy laterally with mainly muscle the bigger you can play against length.  And he has some of the same cat-like quickness of Barkley.


The Lakers had a chance last night if they make those technical free throw shots and if the referees change the call that went against Kobe when he took an apparent charge.  So it was a bit risky to keep the Celtic 2nd team in there late into the 4th quarter, although they played very well.  Riskier than it looked.  7 or 8 point lead in the NBA is like 3 to 4 for mere mortals.


I suspect that Phil Jackson hasn't shown the Lakers complete hand yet and has some ideas for each game number–situational strategies for game 5, 6 and 7.


With respect to Kobe his fade-a-way shots and 3 pointers look lucky but he is better shooter than one might think–if he goes on a streak watch out.  Hot hand type.


Not quite Bird vs. Magic but its still a very entertaining NBA championship series.  A Game 7 would be great.


	

	


	
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Jack SchaeferThere is a beautiful short story by Jack Schaefer  about a shepherd who is run off his land by cattle men who don't like the smell and ground after the sheep do their thing. He's from New Jersey, but he loves his sheep. It starts with the sheriff talking, "Yes I gave him the gun. And I guess I'm the only one who knows the story. Let me tell it in my own words." I always cry when I read that story, it's one of the best ever, and I usually am tempted to cry when I lose money on the bonds. But this time the temptation was countered by the greater good involved. I told you why above.


	

	


	
Jun

	
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Errors in statistics are usefully classified as type 1 and type 2. A type 1 is a false positive or undue credulity and a type 2 error is a false negative or false skepticism. The greater you try to reduce the level of error in one the greater the likelihood of error in the other.


                                          Don't reject             reject


no effect hypothesis true       correct                type 1 error              


no effect hypothesis false      type 2 error          correct


A useful way of considering the decision making is above. Consider for example the no effect hypothesis that a pill is not healthy. if it's not healthy and you say it's healthy you make a type 1. If it's healthy and you don't say it is healthy you make a type 2.


A certain agency that regulates drugs is famous for only considering the type 1 errors, making sure with endless and ruinous double blinds that type 1 errors are minimized to the excessive making of type 2 errors and keeping off magic bullets that would extend life span and health enormously.


There are many areas where these trade-offs between errors occur. For example in spam filters. You can reject good things, that's type 1. You can accept bad things– that's type 2.


Our own field often has trade-offs like this. The hypothesis that a system or set point for a trade is random is a good null hypothesis. If you accept the system, you're just incurring churning for a worthless randomness. If you don't accept the system, and it's good, why then you've lost some good money.


The decision to expand your business or trading is another area that crops up frequently. If you expand it you might get in over the head. If you dont expand it, you might miss the gold. The movement into a new field, or the engagement of an employee or employer is another frequent trade off of type 1 and type 2, gullible reaching versus excessive caution that frequently arises.


The usual way to trade off between the two types of errors is to consider the cost of both errors, and to balance your decisions based on the relative costs. Considerations relative to randomness, and variability must also be considered. Also, the myriad psychological biases that lead us to place too much reliance on avoiding the two types of errors that the cognitives have contrived with their silly experiments on college students et al.


What other trade-offs of type 1 versus type 2 do you see that mite be of use to market people or others and what better way to consider gullibility versus skepticism do you see?


Alan Millhone writes:


This weekend I will travel to Grove City, Pa for a yearly Checker Tournament. While playing I will have choices to make. Sometimes there's only one way to move. Often times there's more than one way to move or jump. Checker players and Market players need to evaluate all moves or trades before executing. In Checkers if you touch a piece you have to move that piece– often with disastrous results. If you trade on line you need to consider your trade carefully before hitting "send". Tom said, "Move in haste— repent in leisure". 


Victor Niederhoffer adds:


Sharif KhanThe trade-off in errors in games like checkers and chess would be someone offers you a seeming advantage. Your null hypothesis is that it's not worth accepting. If you take the gambit or seeming opportunity when it's really no good you're making a type 1 error.


In checkers I've found that no opportunity that looks good, no opportunity to set a trap for example, is worthwhile against a good player, as good players never make mistakes. You were too gullible. If you don't take the opportunity when it would have been good, you're making a type 2 error. You were too skeptical. I find that in checkers the type 1 errors are much more costly than the type 2 errors, but in chess I don't know enough to say. But among the good players, I think they often are too cautious or too skeptical if they wish to win a world championships. They are too likely to go for the draws. In general, I would say if you want to be the best you have to be ready to make the type 2 errors to a greater extent. But then you always risk going belly up.


The situations are not without personal applicability to myself. It's easier in squash. I played an errorless game. Never made a type 1 error of going for broke with very risky shots. Well, it wasn't that bad. i went for about 5 years without losing a game in a match or so. But it wasn't good enough to beat the infernal Sharif Khan as much as I should. I should have played a much more errorful game, being willing to accept the risky shots and confrontations and hitting it on the rise and changing my infernal errorless slice backhand to a top spin so I could belt the ball through the Khans the way the Cubans who played Jai Lai could. In other words, I didn't make as many type 2 errors as I should have. 


Anatoly Veltman comments:


I remember grandpa coaching me at 5 or so: "always believe a man." If it turns out to be a lie, you'll find ways to extricate. But if you distrusted without good reason to begin with, you risk losing a friend– and that's an ultimate loss.


Jim Sogi adds:


Why do smart people make either type 1 or 2 mistakes? Presumably, and by definition, it is not because of stupidity, so some heuristic must be at play. In type 1, the fear and result is that you look and feel stupid. In type 2, there is less risk of looking and feeling stupid, but you end up being frustrated by the loss of opportunity. The joke around here is "which is worse" –you present a bad and a ridiculously bad alternative. Weighing the cost benefit is faulty because of proven heuristics are lopsided towards avoidance rather than gain. Add in marginal utility considerations and the difficulty is even harder. 


Bill Egan comments:


I will add a twist to the type 1 error problem. I have seen certain extremely intelligent people simply be unable to conceive they might be wrong. This is a problem that gradually gets worse. They have been right 99% of the time because they are so smart, and as time passes, they make bigger and bigger bets because, 'hey, I've been right.' This isn't quite hubris or arrogance because they really are that good. Finally the odds catch up with them.


Roger Longman writes:


Roger LongmanVic,


Love this.


So seems to me the real challenge is figuring the cost of a type 1 or 2 decision.



In the case of the FDA, the costs of a type 2 error are dramatically higher than the cost of a type 1. Those costs aren't financial, or not primarily financial. There's the substantial humiliation cost, for example, of approving a drug that turns out to have some important side-effect (or a side-effect more important to a group of influential people than its benefit to a group of less influential people) and being dragged in front of a congressional committee (Charles Grassley of Iowa has been the grandmaster of this, but he's got plenty of competition). There's the bureaucratic cost of being passed over for a more visible job, or an interesting review opportunity, if your name is associated with a controversial decision.


All of which is to say: of course the FDA errs more on type 2's. And the growing pharmacopeia (much of which is generic and therefore low- cost) only encourages this bias towards type 2 errors, particularly in regard to follow-on drugs (i.e., new molecular entities in the same class as approved drugs). If — the FDA figures, albeit not publicly

– by instinct, as it were — there is already a good drug that helps a majority of people why take the chance that a second drug in the same class will provide more incremental benefit than incremental risk, which — as I note above — comes with disproportionate institutional costs?


There's also an inherent problem with drug development divorced from serious comparative effectiveness (the current system of purchasing drugs, based as much on rebates retained by payers as medical and economic value provided to patients and employers, actually discourages the kind of comparisons common in most sectors of the consumer economy).


Victor Niederhoffer comments:


Longman was editor of Windhover Information Ventures Biomed and is very knowledgeable about the FDA. I wish he had been at Prof Tabarrok 's talk at junta where the positive case for the FDA going out of business was limned with statistics and current studies on deaths caused by lack of approval.

 

	

	


	
Jun

	
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Socks on the handsI believe the absence of routine may be a critical factor in creating failure. All the distractions, including the physical and mental act of taking phone calls is enough to throw a game off. I liked to do very normal things throughout a tournament, as I reached the finals, and I would recommend that for a trader. Whatever you do, don't use the hands and mid level organs before you play.


Nick White comments:


I also hold that routines are essential to success– no doubt about that. But is there some wisdom in allowing for the fact that life throws the odd curve-ball? Are there circumstances whereby following a usual routine will get one badly hurt or killed (market or otherwise)? What ought to be done when a personal disaster strikes 2 minutes after one has placed their largest position and it then gaps half a percent against? What principles of training facilitate adaptation to the wild rather than adaptation to the expected?


One society in history seemed to grasp this - the Spartans. Their routines seemed to emphasize preparation for both the expected and predictable, as well as to develop faculties, skills and resources to deal with that which was difficult to prepare for…in other words, to build up so much personal and corporate redundancy in capabilities that there was very little (bar hubris) that could steal the victory.


Jeff Watson writes:


 Whenever I am in any kind of competition, trading, poker, surfing, whatever I try to follow the same script., In poker, for example, I pick up the cards the same way every time, look at them once and leave them face down on the table. I handle my chips the same way every time and time my reaching for the chips do it in the same manner. I keep the same vacant look on my face and time my eye blinks. I keep conversation at a polite minimum as tremors in a voice can give away tells. I wear a high collared shirt as I don't want a pulsing jugular to be seen. I have several other proprietary methods to minimize any tells and other methods to create false tells. still, according to one of the ex-world champions of poker, I have less tells than anyone he's seen, but the tell I have makes him able to read me like a book. From past results, I believe that he's telling the truth.


Nick White asks: 


Can tells in a closed-form game compare to tells in a wild environment? If one lost a comparably ruinous percentage of bankroll in the market as their poker game, would the displayed tells be the same? Or concealment easier? 

	

	


	
Jun

	
7

	

	

	
a giant shrimpThis piece  illustrates so many things that it must be shared. "Sorrows never in single spies…". Misery loves company. No contingency should be overlooked in efforts to help your position along. And the upside down fixed income trader formerly from Harvard says, "stock investors should brace for higher volatility ". et al.


Steve Ellison comments:


The last time I got my hair cut, it was cut by an older lady from the Mississippi Gulf coast who had lost everything in Katrina and moved west. She told me that many other people who had lost everything fell back on shrimping as the occupation of last resort and are now faced with a second wipeout.


	

	


	
Jun

	
7

	

	

	
 An evil man in the news. "No one really believes they turned daddy in without a heads up that they were alreading coming for him, right?"


Vince Fulco comments: 


Since this story broke, I have been shocked to find out how many 'average joes' in my childhood community of upstate NY have been devastated by this mad man. Cases in point are a reasonably successful but otherwise unremarkable family doctor who was forced to return back to work full-time at 70 and separately a mid level real estate exec who's dealing with severe clinical depression after his couple of million $ in life savings; generated through scrimping and saving, were completely wiped out. The tentacles of evil reached so far that it does seem to give credence to the 6 degrees of separation theory. It could have been avoidable if following some of the earliest and simplest of universal truths:


1. Don't put all your eggs in one basket


2. If it is too good to be true, it probably is and


3. Trust but verify (often) among numerous others.


Anatoly Veltman comments:


A few aspects don't get enough attention:



1. Majority of those who lost participated of own lure/belief that they were in on special advantage/inside



2. That's one explanation of why many clients don't want to acknowledge that they were; another is that some took out more than put in.



3. Beyond profitable withdrawals, tens of billions more will never be accounted for– kept by investigating insiders.


4. The "reverse Robin Hood" of taking from many to give to few is thriving well past-Madoff: within the entire latest bubble and almost all government actions of present


 

	

	


	
Jun

	
7

	

	

	
 The reference  to regression towards the mean contains a beautiful discussion of this useful market effect and could only have been written by Stigler himself.


Rocky Humbert writes:


This is particularly relevant to those who bought a beach house on the shores of Lake Wobegon  during the real estate boom, because prices only go up, and "you gotta own land, because they ain't making any more of it." See the Lake Wobegon Effect. And, eventually will be relevant to gold — but from $1250 or $2500 or $5000/oz only Didier Sornette and I know. And I ain't tellin' …

	

	


	
Jun

	
7

	

	

	
Nadal beats SoderlingI guess that I should stick to the defunct game of hard ball squash in my racket predictions as I thought that Nadals' poor strokes and unusual musculature would make the 3/4 winning probability on his winning the French Open a good coppering. However, he won in strait sets, (in the spirit of Anatoly) and all one can say aside from "j'excuse" is that the indicator worked well with Federer's loss being the tell that the market would go down big to the lows.


Pitt T. Maner III writes:


Soderling had his chances in the 1st set that might have made the match more interesting. He hits hard flat shots that break down most players strokes. But this style goes almost totally against clay court teachings of using top spin to keep the ball high over the net and deep to create a greater margin for error. The hockey-type slap shots work for him if he is on, otherwise it produces a lot of unforced errors. I would not be surprised if Soderling had bandy or hockey in his background.


Soderling inexplicably let several shots go that then dropped in and he was very tentative in coming to the net–nerves I suppose.


If it had been Borg they would be carrying Nadal off the court on a stretcher with IVs because he would have to cover the court for 5.5 hours not 2. Borg and Vilas had rallies that went to over 50 hits in the old days. Soderling was tired after 2 hours? They don't make Swedish players like they used to.


Well maybe he will do better on grass and with shorter points.

 

	

	


	
Jun

	
7

	

	

	
Rip Van WinkleA good review of wealth effect  to 2002 shows that nothing new was added over 40 years Rip Van Chair was asleep.


Rocky Humbert writes:


I would suggest that any attempt to quantify this relationship based on the history of the past 50 years may be flawed for a wide variety of reasons. Because:



1. Changes in pension plans. An individual's income is allocated between current consumption and investment (where investment is simply deferred consumption.) If an individual relies upon a defined-benefit pension plan, then fluctuations in stock prices will not affect the (perceived) future value of the pension plan. Whereas, if an individual has a defined-contribution pension plan (e.g. 401k), then there is an immediate and visible effect — and short-term price fluctuations may cause an increase/decrease in the allocation of income between consumption and savings. The decline of defined-benefit pension plans over the past fifty years may substantially increase the sensitivity of individuals to asset price changes.



2. Jobs for life. This phenomenon is related to both #1 and #3. The average tenure of employment by a single large corporate employer has declined over the past 50 years. Union and non-union employees at IBM, General Electric and myriad large corporations were accustomed to "jobs for life," and this practice started a secular decline in the 1980's courtesy of Jack Welch at GE, and became the norm when IBM had its first industry-wide layoffs in the 1990's. Even Goldman Sachs never used to fire employees, and this model changed under Steve Friedman and Bob Rubin in the 1990's. The consequences of this strucutral change may have made for a more dynamic/flexible economy, but it should also contribute to a heightened sensitivity by individuals on their job security. I would argue that this phenomenon exacerbates a feedback loop in the economy which was less pronounced 30 years ago.



3. Inflation/wealth effect. There is a measurable (and somewhat illogical) wealth effect when NOMINAL interest rates are extremely low. For example, retiree's hate spending principal, but don't mind spending interest income — even if there is deflation and real interest rates are high. Likewise, I've seen research that show people feel better in a environment of higher nominal returns even if the real, after-tax return is negative. This phenomenon can also be seen in investor preference for high dividend yielding stocks which have a low return-on-equity. (I am guilty of this stock bias too!) I posit that low NOMINAL interest rates were extremely corrosive in Japan, because of this phenomenon, and that contrary to economic theory, had the had BOJ raised short-term rates might have resulted in a counter-logical boost in consumption. Of course, Japan is/was a nation of savers.


4. Changes in expectations. At the end of the 1990's, some surveys showed consensus expected 10-year forward returns on stocks to be 13%. At the depth of March, 2009, similar surveys showed that the expected return was diminimus/negative. I WOULD POSIT THAT CHANGE IN EXPECTATIONS FOR LONG TERM FUTURE NOMINAL RETURNS ARE THE CRUX OF THE STOCK MARKET WEALTH EFFECT. If one makes an investment predicated on a 300% return over ten years, and instead realizes a 30% over ten years, it will have a vastly different wealth/consumption effect, than if an investment is predicated on a 30% return over ten years, and realizes a 25% return over ten years. There are two reasons for this:


(1) The shift from 30% to 300% (1990's) and then 300% to 30% (2000-2010) requires a one-time huge decrease/increase in the amount of income diverted to savings;


(2) There is much less room for disappointment post the reduction in expectations — hence I would argue that there will be less wealth affect with static (low) expectations.



That is, rather than a direct stock price/wealth/consumption effect, one needs to consider the alternative hypothesis that it's really the rise (or fall) in long-term return expectations that we are seeing … and that's both logical, circular and difficult to measure analytically.




Keeping in mind both Keynes and the permanent wealth hypothesis, one needs to accept that much of this is psychological and reflects individuals' long-term confidence.



Just a few thoughts….


	

	


	
Jun

	
7

	

	

	
One wonders if there is a regression bias effect so that all numbers, indeed all events that are expected to be very much better than the last occurrence tend to disappoint. There are random factors as well as recurring "skill" factors in all such events. The random factors bring the actual number down towards the mean while the skill factors tend to bring it up. Assuming they are both equal in a number like employment, the expected realization is half way between the previous and the predicted.


	

	


	
Jun

	
4

	

	

	
 Harry Browne's book  about why the best laid investment plans go wrong has a very precise and useful chapter on how to evaluate forecasters starting with keeping records of the actual forecasts, when they were made what the price was, and what transpired. These are usually very different from the humble self evaluations "we erred on calling the high in silver" we said 1080 but it was 1065. A hilarious review of such is contained in edspec.


Jeff Watson comments:


To me, the value of forecasters, pundits, touts, advisors, mavens, etc lies in the opportunity in fading them. When one says that everyone in the world should be short t bonds, I look at the other side. When a guy rides a motorcycle around Europe and says to buy German stocks and forget about them for 5 years, I take a look at the other side. When the newsletters and blogs tell you to do one thing, the move has already happened or else they're talking their book or gambling. 


Kim Zussman comments:


Years ago, the late Louis Rukeyser published a newsletter which listed picks of various market experts either interviewed on Wall $treet Week or profiled in the letter. Each issue had a running return for each pick, as well as the average - which was usually very good.


I noticed once in a new issue that a stock had been dropped from the list of recommendations, with a note to the effect "manager no longer covers". Also noticed the bad return for this stock had been removed from the running total average. Had you bought all the recommendations, your results would definitely have been worse than reported!


There is a similar problem with extrapolating stock index data from over 30 years ago, before indexing was widely available / utilized. Think of how difficult it would have been to own 500 stocks of the SP500, in correct proportion, adding and deleting simultaneously with the index. This may be an "indexation premium", which ought to be gone by now.


	

	


	
Jun

	
4

	

	

	
Didier SornetteA friend of mine sent this very interesting link. It's about the work of Didier Sornette.


Victor Niederhoffer comments:


He's an actor  always predicting the end of world, reporting one blade of scissors never expectations, like its 30% likely there will be catastrophic decline but never that it's also 40% likely that there will be an extraordinary rise. Similarities and retrospection galore and a doomsdayist.  


Allen Gillespie writes:


I can't speak to that, but his book does have an interesting section regarding the implications of a zero interest environments and he references Von Neumann and other who wrote in the late 1930s the last time t-bill went to negative yields. The math is such that both U and -U can be solutions and hence jumps (up or down) like the "flash crash" and 1999 become acceptable solutions. That's the problem with ZIRP and QE because what is the value of a continuous stream of rising dividends at near zero discount rates? And what happens when QE stops like it did March 31, and on the fiscal side where the government reached is max transfer payments on April 15? Where despite rates still being near zero there was a exponential relative tightening of monetary conditions. And where did PG and others print? Why just below the last free market lows in 2009 before QE.


So, in effect, he does mention the possibility of a large rise and decline because both U and -U are solutions in a speculative bubble regime driven by ZIRP, QE, and massive explicit moral hazard. In short, things can trade anywhere and the days around the timing of when the Fed finally removes its ridiculous rates low forever language will be interesting as it will represent a 3rd non-traditional tightening. The issue is the Fed will probably need to run QE2 in the background when the debt roll doubles next year and climbs more in 2012 before falling and stabilizing thereafter by which time FNM and FRE might have run through the max losses.


I am not a quant but just a fundamental guy who also has a decent eye for politics, and I think it is relatively simple– the Fed's said "oh sh_t" after Lehman so they have tried to put Humpty Dumpty back together again by running bonds back to par and stocks back to Lehman levels (1166). Prices above that they will not artificially support, far enough below that they will so long as they are allowed to print $$$. The big risk, which cannot be quantified, is that historically it is a POLITICAL event which removes this support mechanism from the markets and that can happen in a day and stocks must fall a lot to find true cash (not bank convergence trade) buyers - those old men with canes who do exist but are becoming fewer.


Also, for the curious given current events– there was a large rise when the U.S. declared neutrality in the third quarter of 1939 only to fall a year later as this laid the ground work for its friends being run over. Isn't GM supposed to be IPOed then - TM problems real? - AIG insured Goldman? BP - the green energy firm - Yukos for the industry anyone - except we can't create a faux back tax - so we will just grab it with environmental taxes that will be coming. As to gold, its takes tighter money to kill a real bubble as 1999 and 2004-2007 showed and while on a relative basis the Fed has tightened with no QE, Europe has eased and until the U.S. can roll its 3 year average maturity debt with large origination years of 2008 and 2009, I am staying long and I bet other are too.


Peter Grieve writes:


The word "econophysicist" alone should be a danger signal, that someone is hubristically applying a certain analytical discipline outside its sphere.



One might as well say "gamophysicist" for "marriage counselor", or "hippophysicist" for the author of a horse betting pamphlet.


I bow to no man in my love of physics, but it only has power in clear cut situations.


Ralph Vince Concurs:


"Econophysicist?"


Gimme a break!


"…bubble markets display the tell signs of the human behavior that drives them. In particular, people tend to follow each other and this result in a kind of herding behavior that causes prices to fluctuate in a periodic fashion."


Really? Who would have guessed that!


Ah, Switzerland! Yodeley hee hoo! These guys are always in Switzerland, aren't they? 


Yishen Kuik writes:


Victor may be right– some of Sornette's older (erroneous) predictions which I think appeared on his faculty UCLA website aren't around.


I don't know if someone has consolidated all his predictions to check the batting average, but he certainly may have left out his losers in recent press releases and papers. He seems to have channeled a lot of energy at bringing press attention to his work. I suppose his final objective is the lecture or consulting circuit a la the distinguished expert on derivatives and other professors.

	

	


	
Jun

	
4

	

	

	
Postcard from Coconut Grove, FLMr. Vince points out the authentic bias that gives the utterances of people who like to yodel and carry guns gravitas. One should extend the opposite to shore resort communities like Fort Lauderdale and San Diego, where the frequent recreational visitors and romantic atmosphere tend to reduce the guard. Laffer frequently memorializes the figures on returns versus state of incorporation as a function of service revenues. And in addition to Delaware, Texas, and Nevada, one should not forget Utah. I would extend the studies to extent of organized labor membership in the state as well as the state of such tells as pump your gas laws, or even augmentations or negations (as in the corridors of the beltway through delays, tests et al) of second amendment carry overs.


Rocky Humbert adds:


Adding to this observation, one should avoid investments where the company or its CEO is domiciled in Coconut Grove, Florida. This might be due to Florida's bankruptcy homestead exemption. Or it might be due to the fact that Coconut Grove is where the "nuts" come from.

 

	

	


	
Jun

	
1

	

	

	
 "Why use a stethoscope when we can just see it through a cardio exam. Slowly and gradually community hospitals will come to resemble FVA hospitals. We will have universal care like the great nations of Europe. And we'll suffer with double digit unemplyment and smaller houses and cars while we wait for the health care that is our right" et al.


The question is why is every profession, not just legal or medicine or architecture and ours, becoming more and more so that the customer is no longer the pitiless captain?


Vincent Andres answers:





1. More and more poor education (+ other reasons) makes more and more people incapable of doing something truly useful. More and more people cannot do hard jobs or dirty jobs. Nevertheless, in order for the global system to keep up appearances, those peoples have to got an official occupation. The system works well. Everybody deserves a place in the system. The system is able to provide everybody a place in itself.


2. Putting everybody several hours in front of a TV per day is a first solution, but this does not well maintain the appearances of people working. (Although there is clearly a trend admitting as socialy acceptable that people have more and more of their time leisuring.)


3. The only other solution is to adapt the level of "jobs" to the level of people, i.e make the job simpler simpler and simpler. Hard jobs or dirty jobs being forbidden, the only other possibility left is penpushers. So the system has to create millions of such jobs. But this has to be done in a credible way. So complexity is created everywhere where it is possible, in Europe, in France, new laws, rules, etc are created on a weekly basis. (even our judges don't know the law in full today). There is also a multiplication of levels, each level being able to produce its own laws/rules (fractal complexity). This justifies the creation of thousands of offices, agencies, businesses, etc, officialy to cope with this complexity, but /in fine/ truly only to provide jobs, or better said, occupations. The system is a gigantic gas factory, and one of its main function now is to add each day more and more complexity, more and more pipes, in order to justify hiring people to build and maintain those pipes. Each of us deserves a place as an extra in this global spectacle.


Of course such a system is in deficit, ie not sustainable by itself on the long term. No country can survive with ~40% of the population playing theatre. It has to import most of its energy from outside. Hard and dirty jobs have greatly to be done by outsiders.


We are currently living in a moment where energy importing from our outsides becomes a bit more difficult. This system, in which we became more and more simple "extras" is analyzed in Society of the Spectacle by Guy Debord, 1967  (caution: although the book has great ideas, it is not super well written).

	

	


	
May

	
27

	

	

	


1907 Panic on Wall streetOf course every man with a dollar's interest in the market was broke, tied up or disgusted. The large traders, who made money on the way down, got the big head, over-sold, and were caught on the rallies. The little ones, chronic bulls, had lost stocks, money and nerve somewhere in the avalanche, and The Street was full of wreckage, lost hopes and lame ducks.



Following these ebb-tide conditions, there was a see-saw market wherein stocks swung within a narrow range, "a period of rest and recuperation" which financial physicians assure us is so "beneficial to the market".


But the whip-saw market offered no rest and recuperation to the traders who wanted to get their money back where they dropped it, nor to the bankers who looked wearily up toward Trinity Church, expecting to see its green lawn extended through Wall and Broad streets.


I believed, even after what had happened, stocks were only half way down to where they belonged.  Things had gone on this way till June 1904 […]


Suddenly the bearishness in me got a jar that made it sit up and take notice. The City of New York offered an issue of bonds and they were heavily over subscribed!


Anxious to be away from the ticker in order to think clearly and accurately, the next day, Saturday found me at a little house down the creek. As soon as I could I jumped into a row boat, pulled up stream and finding a quiet nook and pushed her nose into the rush covered bank. […] For an hour I lay in the bottom of the boat staring at the blue sky and thinking hard. Then sitting up and taking pad and pencil I put down without prejudice the following principle factors bearing on the financial situation. […]


On calling the attention of a few of my friends to it they bought some high dividend players, and then gave the figures to the press. The stock[s] rose, the public bought. US Steel selling at 10 having in its long decline from 55 ruined or crippled more people than any other stock in history was now in the hands of people who could hold it. As most brokerage houses insisted upon payment for it in full, there was little held anywhere except by those who owned it outright.





from magazine of wall street, circa 1905. Nothing has changed.



Douglas R. Dimick adds:


Researching 1903, I came across a good read to recommend: “The Big Board, History of the New York Stock Market,” by Robert Sobel.


The velocity of price action and depth of directional mass does not necessarily support 1903 and 2008 comparisons. However, one may ponder two issues apparent then and now. First, upon post-downward movement of the market, a question remains as to whether markets remain overvalued via concentration of economic and political interests at regional and national levels of commerce. Second, the since evolving ruse played on the individual investor; then garnering (veto) power contra the now rumored relegation to proverbial outsiders relative to the economic reality (i.e., big gets bailed and small gets foreclosed) a la the 401k magic show of the derivatives shadow economy – defer tax on one bird in the hand (or retirement savings) so you can be taxed two birds (or currency fueled inflation and federal fiscal debt) beyond poor-and-middle-class-grasp when the economy throws you out into the bushes of unemployment.


At least this time it did not take a whole generation to figure out how “they” stole it…


“Although he appeared more like a court jester than a ruler, Bet-A-Million Gates was one of the leaders of the Street. He went on a European business trip and vacation in 1902, and returned just in time for the 1903 panic.


"I am surprised at the condition of the stock market," he told reporters who met his ship. "It is not natural. The causes are purely artificial, and they rest on a false basis. I do not believe there was ever a better time to invest in reasonable securities. I have come back stripped for the fray, and I am going down into Wall Street."


Gates immediately plunged into the market, forming a syndicate to buy up those shares he felt were underpriced. Nevertheless, the market collapsed in the spring and fell heavily through early summer.


This so-called Rich Man's Panic was over by late August, and J. P. Morgan’s return from his annual European art-collecting expedition helped restore confidence. By October, prices were on the way up.


The Rich Man's Panic was merely a brief interlude in the bull market, but it was of great significance. The upper class, the insiders, suffered in 1903, not the small investors.


Early in the year the latter went on a "buyers' strike," having decided that prices were too high. They sold in the early spring — along with the astute managers of the Standard Oil Empire — while Gates and most professionals bought. It was the first example of the new power of the small investor, a power which would not be fully recognized by the usually sensitive Wall Streeters for another generation.


After 1903 the investment bankers consolidated their positions, destroyed competition, and expanded into new fields. The titans were not power hungry; rather, their expansion was a necessary part of the investment picture of the period. The huge combines formed by Morgan, Schiff and others rested on the market's ability to absorb new securities.


The 1903 panic demonstrated that the small investor could not be relied upon completely, so the bankers turned to new sources of funds, and found them in banks, trust companies, and insurance companies, which were growing rapidly during the early twentieth century. In 1900 total bank assets were $10.79 billion and assets of life insurance companies stood at $1.74 billion. By 1907 these figures had risen to $18.15 billion and $2.93 billion, respectively.


If an investment banker could gain control of a large bank or insurance company, he could sell it his undigested securities and maintain a market for other offerings as well. Thus, the investment bankers took control of the financial and insurance firms during the early years of the century.”


With the repeal of Glass-Steagall and lax regulatory oversight via political dressage, have we not returned to similar times and places of an inverted market history?

 

For quoted text, see http://www.alexanderhamiltoninstitute.org/lp/Hancock/CD-ROMS/GlobalFederation\Wo rld%20Trade%20Federation%20-%2095%20-%20The%20Big%20Board.html.

 

	

	


	
May

	
26

	

	

	
Upside down openVis a vis yesterday's down open of 3%, capping a nice 200 point continuous decline in a month.


It is interesting to reflect (in retrospect) that when Collab and I got our first job 11 years ago at street.com the managing editor was not interested in anything about our employment or anything else except that we be pc and not mention Galton but kept up a steady stream of questions to me: "there's a rumor going around that you were caught short in gold and that you're being squeezed and that's why it's going up (then about 280), and wondering if you'd care to comment on a "need to know basis." One hadn't traded gold for years at the time having called it a day after they banned buying to bail the members out who were short against the Texans . But one was reminded of that by the rumor "the large man was selling" and putting pressure on the market on the down side with tetrapods (and doubtless flexions) piling in also yesterday at the open (though in the opposite direction). If the "large man" was in play, why it's like "Morse is back" and trolley and canal are ready to go through the roof.


Anatoly Veltman writes:


It is indeed interesting to recall the Sep 1999 Ashanti mine hedge default, their bankers covering from $255 all the way to a split second buying frenzy near $330 in the Comex pit, all in one week! They then took over a year to slowly deteriorate back to $255 double-bottom. We'll be readying for a mirror analogue, anticipating $1250 area futures double-top May 2010 


Rocky Humbert asks:


Anatoly, I would be most interested in understanding your reasoning why you believe that we have (in gold) the Nasdaq analog of March, 2000 — as opposed to the Nasdaq equivalent of Autumn of 1999 (or earlier); noting that in that Nasdaq blow-off, that asset was paper securities which could be, and were, issued endlessly, whereas in this market, the asset is a comparatively limited supply of metal that is valued at only 1% of the total global financial market…


And more specifically, can anyone identify any contemporary broad-based asset "bubble" which ended without central bank tightening– as a necessary (but not sufficient) condition? And if not, why should this time different? Stay safe and don't jeopardize your health.


Sushil Kedia suggests:


Why could there not be another interim situation in between what Anatoly is suggesting and what Rocky is thinking:


Gold goes to 1000 as well as 1400 within calendar 2010?


The safety trade can witness the largest volatility it has produced in this decade. As currencies are displaying signs of sloshing much wider than in the last decade while common conversations of most getting trashed abound, why should the expected to be super currency for ages, i.e. gold be spared of a widening range of outcomes?


Anatoly Veltman replies:



 Yes Sushil, current news-items certainly make the price of this most useless commodity on the planet volatile: Panicky Greeks Paying Over $1,700 Per Ounce For Physical Gold By Patrick A. Heller on May 25th, 2010


The fear running through the Greek populace is that the nation's government may default on some of its debts. Since 1965, the Greek government has imposed restrictions on trading British Sovereign gold coins (gold content .2354 oz). Despite those restrictions, the Bank of Greece reports that it is selling an average of more than 700 coins per day to worried Greeks. In the first four months of 2010, the Greek central bank sold more than 50,000 sovereigns at its main downtown Athens office. Bank officials estimate that at least 100,000 other coins changed hands on the black market. The Bank of Greece has received as much as $409 per coin, which works out to a price of more than $1,700 per ounce of gold! Prices paid on the black market are reckoned to be even higher. A popular spot for street vendors to sell their coins is near the Athens Stock Exchange. There the traders wait for citizens to bring payments received from unloading their paper assets like stocks and bonds


	

	


	
May

	
26

	

	

	
pez dispenser dispensing viagraHere are some poignant things to reflect upon about yesterday, May 21, I think:


0. The low of the day was below the low on the Flash Crash day.


1. A Millstein occurred, was it bullish or bearish and as of when.


2. The set up at the beginning of the day was highly similar the previous day. How best to define similarly without a neural net.


3. The low was not quite equal to the low of the year on Feb 7.


4. The interactions with bonds and oil and copper and the dollar was predictive.


5. It followed a series of disastrous Thursdays, with double digit S&P declines.


6. The sponsor said  he wouldn't buy stocks.


7. A promoter said he sees S&P below 950 in fib retracement. Another sage from a broker's house saw stocks rallying. Presumably their disseminated views caused spikes at the time of announcement. Was there anything predictive in comparing the reaction.


8. The S&P pit opening followed the biggest decline in a year.


9. The fixed income prices  opened at an all time high, and closed at an all time high but managed to drop a percentage regardless.


10. The flash rise occurred with 20 minutes to go from a 1.5 percentage drop in afternoon after a vastly different experience in prior days.


11. The courage to not be dissuaded out of your position from the other broker, or the inner survival man, or your assistant who always wants to take profits as of Friday 3:40pm would have been redoubtable.



12. Mr. Vix and Mr. Vic opened at one year highs and followed a similar trajectory to the fixed income.


13. A 10 percent correction occurred; is it bullish or bearish or random. Same for breaks of the long moving averages.




14. To what extent did May options expiration have a predictive effect.


15. Were the movements in the Euro and Asian markets overnight a pilot fish?


16. Was revulsion from the increases in "sharings" and "service" scheduled for the beginning of 2011  a factor?


17.  What political factors relating to the approval of bailouts by houses  in Europe and reforms  in the US played a part?


18. How do predicted earnings increases factor into the Fed Model and should the Shillerian 10 year p/e calculation be obfuscated with the man.


19. It was the biggest decline in a week in the year.


20. There had been a run of multiple intervals of declines in a row.


21. How did all this affect and react to the moves in individual stocks?


Inquiring robots within and without the mind wish to know the answer to such questions on a scientific and or useful basis for future input. What approaches and other more poignant queries should be proffered or gainsaid?


and…



22. The sage likes to compare the stimulus bill to taking 1/2 a tablet of Viagra and then diluting it with candy. We need more he said.


What are the natural reflections engendered by such an utterance?


I'll give a prize at the annual spec party for the best such reflection.


Pitt T. Maner comments:


Bob Dole petting a dog on the headThe potential stimulative effects of lower oil prices come to mind. There are more scholarly sources to be found, but here is a snippet of thought.


"Every $1 per barrel drop in oil's price increases U.S. GDP by $100 billion per year and every 1 cent decrease in gasoline's price increases U.S. consumer disposable income by about $600 million per year."


Lower oil prices like Viagra would seem to be useful for the longer term mechanism of action effects but its the lowering of obesity (and sugar consumption) and belt-tightening of runaway spending that may be more important in the long run.


An image of Bob Dole petting his dog on the head comes to mind. 


Martin Lindkvist writes:


The sage seems to know a lot about the right dose of……candy. Some questions remain to be answered though. When he said "we need more", was he referring to the stimulus bill or the stimulus pill? And who are we? Should the market mistress be jealous? 


Sushil Kedia adds:


The mythical character James Taggart in Atlas Shrugged would have said so had Viagra been available in that age. Might I extend the tautomerization such that the James Taggarts hidden all over "in the system" are as sagacious as the sage or perhaps the other way round that the sagacity of the sage is a Taggartian mumble.


He never believed that anyone should be paying taxes. At least that's what he positioned to imply by never giving out dividends. He could have little regard for those who indeed tax their finances and their bodies to experience the pleasures of achievement and the achievement of pleasure, respectively.



Give me more! This ain't enough!!


Jack Tierney comments:


"Our first stimulus bill, it seemed to me, was sort of like taking half a tablet of Viagra and having also a bunch of candy mixed in as everybody was putting it into their own constituencies. It doesn't have quite the wallop." - Warren Buffett




A spoonful of sugar helps the medicine go down

In this instance, Mr. Buffett is borrowing from the equally iconic Mr. Disney and his tune "A Spoonful of Sugar Helps the Medicine Go Down." However, since so many different and divergent candies were necessary to satisfy the various "constituencies," few were pleased with the aftertaste. Mr. Buffett has suggested a second dose and "taking it straight" since July of '09. Unfortunately, inherent in his initial support and subsequent carping is the unavoidable insistence that there exists a stimulus package, which properly configured, will work. This is unfortunate because it foretells that something, something equally stupid, will be done.


The suggestion (whether sugar coated or not) is flawed on two counts (at least). First, the same "smartest guys in the room" who created the disease and subsequent medicine are once again heading up the project. Secondly, the historical record contains numerous examples of "stimulus programs" which have two things in common: they have been designed and promoted by the very brightest and they have all failed.


Further, if we are to adhere to our commonly held characterization of the market as The Mistress, then Mr. Buffett's Viagra suggestion is obviously misdirected. Although the recommended medication might do wonders for the stimulators, the only important response is hers (and I'm sure that I'm not alone in observing that on occasions, rare occasions, our enthusiasm just isn't enough).


At some times (perhaps at all times) we must let the Mistress work it out on her own. If TV ads and infomercials are to be believed, modern self-applicable developments have added to the numerous nostrums, aids, and approaches already available. Checking the historical record once again, we find that her response times can be capricious. But she alone determines the timing; the addition or withholding of a spoonful of sugar won't speed things along.


Steve Ellison comments:


"The set up at the beginning of the day was highly similar the previous day. How best to define similarly without a neural net."


A simple calculation of open relative to the previous close would have shown the similarity of Thursday and Friday. For example: "a 10 percent correction occured, is it bullish or bearish.or random. same for breaks of the long moving averages."Dr. Zussman showed last July that several moving averages from 40 to 70 weeks had good predictive value, so I would interpret the break of the 40-week average as bearish.




"the sponsor said he wouldnt buy stocks."


So what? He's a bond guy.



"What approaches and other more poignant queries should be proffered or gainsaid?"


At the beginning of May, I posted the performances of 13 asset classes in a horse racing format. I suspect that some important "forms" in the markets last about two months. That is why I showed two-month performances and chose to post them at the beginning of a new two-month period. The S&P 500 had the second best return of the 13 asset classes in March and April. Furthermore, the form in March and April was a slow and steady upward trend. The public would be looking for more of the same in May and June, so something very different was guaranteed to happen.

	

	


	
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the pitIt is regrettable that the pit is dry as a witches heart with only 15000 contracts trades a day versus the old 100000 and all its trades must now be made for logistic or officious or immediate arbitage profit of 10 points reasons rather than it being the hurly burly take no prisoners den of iniquity that it was (where all trades in a customers favor were taken down ) in the old days when it was not dwarfed 100 to 1 by the electronic market. It is interesting to note that the prices are so outdated in the non-robot market that the swings are often 70 points less on each side during the day.


Jeff Sasmor comments:


For sure it's not the hub it used to be. But it's a lot of fun to listen to (although there are long stretches in the middle of the day where nothing's going on at all). And while I certainly can't speak from any authority on the swings, the prices that I hear called out are usually within a few ticks of the electronic prices seen while listening. Actually I've wondered how they can be so close… Maybe I don't get what you mean by "70 points less on each side." 


Anatoly Veltman writes: 


Intra-day chart of electronic trade will regularly travel further to each extreme than pit transactions would. Because way fewer transactions will in fact be consummated in open outcry, many extreme prices will never land on pit-contract chart. On May 6th, it was quite possible for someone on the opposite side of the pit to offer at 1060-even (and possibly lower) for split-second; but final chart doesn't show any transaction done below 1060-even. Electronic trades did touch the session-limit level some six handles lower!

	

	


	
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nadalPittsburgh Phil would have a field day with this 4-11 odds on Nadal now by betting the field I think. Nadal's game is very brittle and subject to many errors.


Lars von Dort writes:


Betfair has Nadal currently trading  at 1.46/1.47 to win Roland Garros.


This is in decimal odds which translates to a 68% probability. The odds on Betfair are generally better than most bookmakers'. This UK-based company runs actual markets in sports results. Some may be familiar with Tradesports, a site that did the same, although worse, and is now closed. Or Intrade, which does the same for non-sports events such as elections (still going strong). Unfortunately, Betfair blocks access for some countries, including the US, due to legal considerations. I hope (online) gambling in the US will soon be allowed again without any restrictions. I believe everyone should have the right to spend his/her money as he/she pleases. Also, it would further improve liquidity…I've learned to respect these markets. There is no easy money and generally they are quite efficient. I don't see value in betting on or against Nadal here. The price seems fine. He has been dominating all clay tournaments he has entered this year. He did drop a few sets, amongst others to Gulbis, who may be an interesting player to follow this tournament (although he just lost the first set in his first round match).



Anyway, I'm not touching this market. I would certainly be very interested to see what Pittsburgh Phil would do.


My quest for value lies in betting on tennis matches while they are in progress. I believe this offers more opportunities than betting before the start of the match (or tournament). I'm about to graduate on an analysis of the in-play tennis betting markets. I'd like to write a bit more about my findings soon, if anyone is interested.


 

	

	


	
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 It is amazing that Zachar out of the clear blue sky with only disinterested sagacity predicted that  the S&P would totally retrace the loss of 100 points on that memorable Thursday, May 6th. He called for a Millstein which is the technical name for a fluke error in price that shows on the screen that fortunately wasn't true, and then while you shake your head and tell the wife that it was just an error and she shouldn't worry, and you relax and take a break perhaps, even get a little shut eye, sure enough like a horrible incubus the price goes back exactly to that unthinkably terrible level. SPU's did it hitting 1060 bid at 1170 for one split second during the carnage as brokers liquidated the last poor victim of over leverage, and then snapped back to 1140 when Zachar made his amazing unqualified un el erian who has so much to gain with a prediction of that nature, prediction. Touche. Bravo. One of most amazing things i've seen in my career. At 1940 May 20, the S&P traded at 1061.50 which is as exact as it gets.


Alex Castaldo adds:


Here is the headline that came through on May 21, just like Mr. Zachar predicted:


BN 7:45  *JUNE S&P 500 FUTURES FALL BELOW LOW REACHED DURING MAY 6 ROUT 

	

	


	
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 The Secretary problem, i.e the optimal number of applicants to interview for a secretary job before quitting would seem to have much applicability to the time to come into the markets these days. How many extremes should one wait for in a day before coming in one way or the other, and what is the expectation for such strategies?


Jordan Low writes:




Is it just a coincidence that 1/e is close to 0.38 or the ratio used for Fibonacci time and price projections in technical analysis?



Rocky Humbert writes:




Steve Landsburg recently wrote about a variation on the Secretary Problem. He noted that "an anonymous math department chairman reports on his own strategy for cutting down on the [interview] workload. The math professor believes that one of the most important determinants of a successful career is luck. So each year, the math professor randomly rejects half the applicants without even reading the folders. That way, he eliminates the unlucky ones."


I suspect that there may be a market analogy in this admittedly sarcastic observation.


Phil McDonnell wonders:


Is it a coincidence that Fibonacci believers always seem to use the rhetorical form of: Is it a coincidence that (fill in a single observation) came close to (fill in selected Fibonacci value)?


Russ Herrold replies:


I do not think there is a co-incidence– the human mind tries to order data, and Fib sequences crop up everywhere. It is natural to do a 'trial fit' just as the eye tries to estimate a fit for a curve [and thus the reason for ready transforms as normalization, log, 1/exp and the like in running a regression– scaling often permits identifying the 'noise' and getting a 'good enough' solution]



Doing the math, of a run of repeated application of any two integers (seemingly separated by whatever distance, although I have not done a formal analysis or proof), the series seem to converge to a Fib set reasonably monotonically after say five rounds for low integers.


I ran into Fib numbers, learning the run time pass estimates for the IBM sort-merge algorithms in in the late '60s, and it appears that Knuth found them in sequential pass sorting as well. I seem to recall a childhood cartoon called 'Donald Duck in Mathmagic Land' where that quackish fellow pointed out that golden spiral, and the perfect rectangle 

	

	


	
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sotheby'sA daughter webmasterist asked me how pools signal to each other to stand aside on auctions and not get into bidding wars so as to lower the average net price that you get with high quality goods from auctions with the majors to about 50% of the current market value. I didn't have a good answer except to say that it's the invisible hand. The big dealers partner on deals, and they decide in advance who's going to buy it. With that one big dealer the only presence the competitive elements is withdrawn. Also, if a non dealer customer comes in the dealers know what's good and what's bad. And how much to bid. And they often tell the customer that he'd do better buying from them without the hurly burly of having to wait a few hours while the blue bloods in their monotonous voice try to eke things above the reserve.


She then asked me how this is done in the markets. And again I didn't have a good answer. Some of them have dinners together, others go on the media to tout, and others ride in a car together or tergiversate who's weak and where the vulnerabilities are. Often it's a pilot fish in a peripheral market that's not so obvious like the fixed income vis a vis the equities.


But I didn't have a good answer like Dickson does in his baseball work, i.e. the hidden signals, and the changing nature during the game, as to the code, and who's giving it? What would you have said so as not to disappoint a daughter with one's naivete?


Henry Gifford writes:


I know of at least two ways cartels do this.


My mother used to be a licensed auctioneer, having done a few charity bits and wanting to be legit, which ended her up on the list for doing auctions for the city government. At the Dept of Sanitation auctions where she auctioned off contents of apartments that had been stored by the landlord for the required time period before auctioning, the boxes were sealed, but the Dept of Sanitation employees tipped off the cartel to which lots were good. The cartel bid a minimum and then held their own auction on the hood of a car outside. Each member put the cash on the hood as he won a bid, then at the end of their auction the money on the hood was split evenly between the cartel members, about 5 or 6 of them. One time one guy was in the hospital, sent a messenger with a low bid for one lot, which he didn't win, but he was eligible for his cut of the auction profits, delivered to him in his hospital bed. If an outsider showed up at an auction, everyone bid against him at a cost shared by the whole cartel if they won the bid, and encouraged him to win the bids on the crummy lots. If someone showed up saying it was their personal goods for sale, they did a "courtesy bid" and let them buy the stuff for $10. At the police auctions, the jewelry was not in transparent plastic bags, but in translucent bags which bidders were prohibited from opening to examine the goods. Insiders, of course, knew which were the diamonds and which were not.For public bidding on contracting work, it works a little differently. One scheme is a cartel takes turns assigning jobs to members, who are told how much to bid, and which jobs they will win. They are asked to bid high enough to lose on some, etc. This requires cooperation from the agency putting the work out to bid, to discourage participation by outsiders. This can take many forms, including "confusion" about the time and place of the bid opening, or simply waiting until two weeks after the bid opening and mailing the bid back with a note that it was late. As money paid to purchase plans and money spent to put together a bid is not trivial, a few experiences like this can discourage someone from bidding - my personal experience.



Another trick is to put out work worth about $100K and mention a $50K contingency fund for unforseen site conditions, unknown soil conditions found only after digging, etc., confusingly written, so if an outsider wins they are told their bid is to be reduced by $50K, while insiders get $50K added to their bid.


Or, heavy duty mechanical work is mixed with painting work, which contractors who lack housebroken workers are hesitant to bid on, thus only one or two friendly contractors bid, and maybe bid high to cover unforseen adventures with painting. Another variation is asking for a very expensive, special piece of equipment, which insiders know they can skip installing, while outsiders are held to the terms of the contract.


This puts the systems into two broad categories, as far as I can see:


1 Better information for insiders 2 Rules are different for insiders.


Number two was perhaps covered on the list when some firms on Wall Street were bailed out, leaving us mostly with what was described below as rides in cars together, etc.


When I can't avoid being near a radio which is playing, I am reminded of this when I hear "company such-and-such announced some problem, the stock fell x points today", of course telling me what is told on the news is not news any more, and there was someone getting the news ahead of time.


I used to own a newsstand, and get the Sunday NY Times Real Estate section on Thursday night, which led to some good real estate deals for me. But, otherwise, I don't know of any legitimate way to get any such advantages.


Alston Mabry writes:


At auto auctions, if the guy running the car has an in with the auctioneer, then you gotta watch out and make sure you're not "bidding against the wall", as they say. Crowded conditions make accurate observation difficult. 

	

	


	
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the broadmoor in Colorado SpringsOne would hasten to recommend the Broadmoor  hotel in Colorado Springs where my daughter Artie just graduated Phi B. Kappa from Colorado College as one of the best hotels I've been to along with a few European hotels with similar geological grandeur. The view of Pike's Peak and the lakes and the botanical gardens and 3400 acres on property and the infinity swimming pool, and the fine dining along with its illustrious history with the Penroses and the Palmers with their combination of dashing entrepreneurialism (he sold out to Kennecott Copper at 25 at the high after a 25 bagger, and then used the money to make the hotel the best in world at time with many Maxfield Parrishes and great architectural elements. Where are the Penroses of today one may ask, and how have they lost their incentive to create.


Not too good on the he barbeque there but the Colorado lamb was very good and the three golf courses of Michael Nichols, Trent Jones, and Palmer were about as heavenly as a golfer could wish with a big fairway mountain course. 


Dean Davis comments:


The golf courses are nice too, but beware the thunderstorm (w/ lightening) coming over the top of Cheyenne Mountain (home of CMOC). The siren system can give one quite a start during a back swing. I remember that we were there the night when Princess Diana died.


Nearby, an interesting collection of Golden Trout (not listed because I think they are protected) for viewing at the old school tourist trap Seven Falls.


Pitt T. Maner writes:




It is a wonderful place to learn  historical geology  and about Florissant Fossil Beds [14 page PDF]


For me, a trip to Cripple Creek  for ice cream after a week of UF geological field work was a highlight. Not too far away is Skyline Drive  which is on a feature known as a "hogback"–many car ads have been filmed using it as backdrop. One of our class assignments was to measure this section with a Brunton compass (for strikes and dips) and measuring rods (to determine true formation thickness). Once over the top of the hogback you had a view  of the penitentiary from the hard white caprock of Dakota sandstone.


Beautiful area …


Phil McDonnell adds:


The Broadmoor is a classic resort. Their Sunday brunch is one of the best to be found.


I would second Mr. Maner's suggestions having seen all but the hog back. Cripple Creek is especially interesting because it was where Penrose and Tutt had their mine. I highly recommend the mine shaft tour and the melodrama at the live theater in town.


The Air Force Academy is just north of there. Pike's Peak is one of the few mountains where one can actually drive to the summit. When I went to the summit, it was snowing in July. Nearby Cheyenne Mountain has NORAD or the Stargate in the basement.



Ralph Vince writes:


I'll second (or triple, or quadripple) the Broadmoor and what Phil says abut the Sunday brunch. It's like the Grand Canyon, or Yosemite. You haven't really experienced America till you've tasted it. 


	

	


	
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Jim LorieDirect marketing studies of numerous goods offered for sale by mail with prices such as 299, 399, or you the customer pay what you think it's worth show that revenues are maximized with the option. It reduces the consumer surplus by letting the customer say what its worth to him as compared to the marginal cost of the last customer to sell to. The studies I believe are referenced in Lorie and Roberts' book on marketing.


I thought much about Jim Lorie as i walked the mountain trails of Denver as he wanted most of all to be a cattle rancher, and loved his horse. He started so many of the fields of modern finance including index funds and efficient markets with the data base. Many owe their entire careers to him including me, and he was a man like Artie who was a second father to so many. Artie and he met and we had a steak at Gallaghers before my first national singles tournament I won. They were two peas in a pod.

	

	


	
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a quizOne may inquire in answer to Rocky's quiz to what pockets do the big v shaped moves big down and big up in a half hour accrue. One would not think that it would accrue to those who are leveraged more than 2 to 1 or 3 to 1, as not only must they meet initial margin but must meet maintenance margin before they are liquidated at the lows would not the ability to borrow from a big lender at low rates help the top feeders and flexions in such a regime? Just a theoretical query.


George Parkanyi asks:


Why not? You could target multiple stocks, some of which are just decoys to mask the main attack, work it from multiple accounts, have your "one cent" bids at the ready, and then bring the hammer down with a concentrated attack at exactly the place where most traders would place stop-losses. Enough kindling to spark a sudden flash fire. You slam the market down to the low bids placed that have been placed according to some pre-calculated algorithms that make it look random (which you've probably modeled already on a Cray). You cover with a huge profit. Others step in, it's all over, and you slink away. You would need to have detailed knowledge of how off-exchange platforms work (e.g. no stock-specific circuit-breakers). Some smart traders and top-notch trading platform programmers, with the appropriate financial backing, could pull this off. Come to think of it, it could have been a heist.


The main flaw I see with this though is that someone this smart would also have anticipated the attention that the anomalous trades would attract. In the end, some were actually busted. Could the manoeuvre then have been a decoy/catalyst for something else? Perhaps a huge, leveraged currency position, or one in some other correlated market like oil? If I were an sleuthing man, I would look there. Because of globalization and the interconnectedness of global markets, a foreign power could even set up something like this. Who might want to unload a pile of US Treasury paper, oh for example?


This would make a good movie.


Vince Fulco writes:


Last Thursday was eye-opening on so many fronts…


1) Technology has superceded our humanity– The exchanges and regulators proved themselves completely unprepared and uncoordinated for a growing cascade of one sided activity. What is so infuriating is that there has been a public warning by infrastructure experts and traders about the growing potential for systematic dislocations for a few years and as usual specs have been told, "all is well". Moreover there is evidence of a wholesale and I would say engineered withdrawal of bid side activity. Planes don't just fall out of the sky en masse.


2) Assume at all times that your systems will fail with questionable potential to regain access. I believe IB did the best that it could but I never saw the software behave in this manner after years of observing mkt stress pts. My DOM halted for 1-2 minutes twice with re-newed (displays of) activity 10 pts down each time and then a complete shutdown when SPUs were in the mid 60s-80s. The software came back up after a quick re-login however. Would be interested in behavior of others systems.


3) What we knew on de jure basis; that the exchanges will always do what is best for them, became de facto. Formal decisions as to what to cancel and what level to cancel (60%) were arbitrary, not subject to any outside scrutiny and not challenge-able. I was particularly bemused by the CME's almost immediate claim that their systems worked properly & there would be no trade cancellations even though the activity in cash instruments underlying them still needed to be examined more carefully and in limited circumstances were ultimately canceled. The House wins always in the end.


4) Amazed at the resiliency of human nature– while I am not surprised to see to this week's pop subsequent to ECB/EU/IMF activities, until trading activity fragmentation can be addressed more comprehensively, why are folks so confident that it won't happen again? And soon?



5) Trading is war– Any complacency can have fatal effects. One must always cast a wide net as there were suggestions and pre-cursors in other mkts, as much as 30-60 minutes prior, that would have kept one's exposure down if not non-existent. Always more to keep tabs on, more to learn and more to think about. And that's when fighting the last war.



Rocky Humbert responds:


As students of mathematical logic know, it is impossible to DISPROVE a conspiracy theory — because the absence of evidence is not a proof of anything. Hence I submit that the primary usefulness of speculative post-mortems should be introspection and self-improvement … (i.e. And what does this plunge foretell about the future? And what can be learned from the experience?)



On the first question, I recall a post by the Chair (some years ago), where he noted that when there's a horrible adverse price move in an open position — and the price then recovers, he anecdotally observes that one should exit — as the recovery was a golf "mulligan." We'll shortly find out whether the rally of the past few days is a mulligan.

Also on the first question, I was surprised to observe that yesterday's retail investor sentiment showed only a modest increase in bearish sentiment. Prior to the plunge the bull/bear/neutral ratios were 39/28/32 and yesterday (after the plunge and recovery) the bull/bear ratio was 36/36/26. So retail was evidently not spooked too badly … (I use this statistic as a qualitative contrary indicator.)



For me, the experience of last Thursday reinforces the value of always having dry powder to exploit panic (even if the prices are revisited), as the risk/reward of fading a market that declines 10% in ten days is vastly differently from the risk/reward of fading a market that declines 10% in ten minutes.



I would be most interested in hearing from others what lessons they learned…


Sushil Kedia comments:


If it is hugely profitable to build such a conspiracy, then with all the technology and all the geeks why do such events happen only so rarely?


Has the frequency of such conspiracy explained moves been rising?


The learning that I obtain from such an event, drawing on the Chair's older post of such being the golf mulligan and a recent one wherein he said that such moves clear out the short term longs and the spike back clears out the short term shorts too. So, the markets when turning from day to day battle shift gears for month to month and quarter to quarter battle move sizes, actually then such moves are like a "benign devil". The same way angina pains do trouble but are nature's blessing calling for a more thorough heart check up and recuperative measures to be brought in, moves as these reduce the number of people who would have suffered much deeper damage over a longer course of time in the particular markets.


Can't agree more with anything than Rocky's thought on having some dry power, always.This specific situation of electronic markets (that appear to be so high-tech and hence an illusion of having progressed) disintegrating for moments brings to mind the signature line of Mr. Bollinger: When you progress far enough, you arrive at the beginning!Man must work, to even have a hope to be paid. Any modifications to any degrees in the tools of work will not lead any man (computers too!) to a point where without work and just by stealing anyone can hope to be paid, consistently. Change the system to whatever, men will work even though sometimes thieves will be able to steal. Men may still not get paid upon work and it may not mean that it was someone's steal, since spills happen and will happen.


Victor Niederhoffer comments:




Well said. As Zachar points out and this was originally brought to my attention by someone deeply in my debt, who actually beat me the last time we played tennis, it's a millstein. If the shoe fits, wear it.


	

	


	
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I, RobotI normally don't comment on market moves as it's hubristic and self referential and exacerbating to those who lost and generally self defeating if too useful, but many people have asked me why it happened and here are my brief thoughts without the counting and fact checking that I would do if I didn't have seven kids and seven mortgages.



1. It was a exact repeat of what happened in October '08 where the market plunged from 1200 to 1000 on the news of the bailout approval and acceptance. It had Lobagola-ed back from 700 to 1200 without a pause and now was ready to go back and forth the way it did before 1200.


2. The inside trading of the French Bank was in play again as it broke through 1200 that day they exited ahead of everyone else and the book the perp wrote said the management knew about it.


3. The rational expectations had to make it happen. The service rate is going up by 100% in Jan 1 so why would anyone sell in 2011 when they can sell in 2010. Knowing that they will do it on Dec 31, they keep moving back to the current.


4. The fixed boys are always prey to the judgmentals. They have to do what the robots say and they do it without regard to price as they have found that the robots do better than the judgment on getting an execution.


5. All the robots said it was going to go down. The moving averages were broken. The round numbers were broken. The Dow 10000 was broken. The price at the beginning of the year was broken. Each break triggered "smart" robots to sell.


6. There was revulsion from the sagacious remark on Monday that the oracle himself had the other side of trades with "the bank". It was good for a 2% rise, but people are not such fools. And there was revulsion that they were playing a game where they are treated as such useful idiots. After being fooled like that by the wind from the granaries the whirlwind of a whip-last occurred.


7. There is an all-seeing eye that makes the prices of stock go opposite from the currencies. When the dollar rose by 5% against the euro, that was too much profit for the dollar investors so the stock market had to go down that much to equate.


8. There had been no decline of 1% for a month and this regardless of the astronomical Dr's study is highly bearish. Everyone was making money by going against the little jiggles until the robots found themselves with a loss that they were not accustomed to.


9. The broken window and all that. There is no way that all the transfers are not going to have a negative multiplier and this is reflected in incentives to invest which reaches a climactic point on the days before the flexionic releases on the first Friday of the month.


10. The number itself was going to show a non-random uptick when the denominator and numerator had the same random seasonal adjustment and this was released as usual during the lunch on a strictly need to know, only to a handful truly necessary operatives.


Many more but that's a start.





	

	


	
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The next meeting of the Junta will be Thursday, May 6th at 7:15pm at the Mechanics Institute (20 West 44th Street between 5th and 6th. Avenues) with Dr. Alex Tabarrok from George Mason University talking about the efficacy of medical regulation.


	

	


	
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  · Don't get too far ahead if you want to keep the other player in the game.


 · Don't break the windows of the neighbor's house or they will call the police.


 · Always take the referee out to Chinese dinner after the event is over. Do thank him profusely for his good work and express your confidence in him.


 · Bring good equipment into the game especially things to protect the hands and feet.


 · Stay around the good players so that you can learn from them, and curry favor with them and perhaps share some of their rewards.


 · Aim below the legs when you are hitting someone so that they can come back and don't demand immediate retribution.


 · Be sure that you don't pay too much attention to the attractive other gender as it will distract you from game the same way many of the 1930s reconstructionists got sidetracked with their younger assistants.


 · Do pay much attention to the media as they will help you get the rules bent in your favor because everyone will want you to be in game. Also good for prestige and recognition.


 · Don't try to grab all the money at once as you want the other side to come back with more from their siblings and parents and jobs.


 · Keep records of all the good and bad so you can improve, but be sure not to document any of your bad stuff.


 · Court an aura of humility so that you are well liked and properly respect the other side.


 · Stay clean. Especially do wash your hands before and after playing and brush your teeth before and after, and wear good socks and change them so you don't get blisters.


 · Use your own man gambit to show that the other side is wrong by showing them that one of their own agrees with you.


 · Maintain the appearance of fairness as it might lead to punishment if you are overtly getting good calls from the referee.


 · Know the endings of the "one potato two potato three potato four" choosing thing so you always get the good players on your side.


All these are applicable to current things in market but I must be missing many. Please augment and improve.

	

	


	
May

	
4

	

	

	
lilac bushIt's not barbecue, but today I had the pleasure for the first time of tasting lilacs. I was inspired by a kid's book that said that to find out why bees like the taste of sweet things you should squeeze the nectar of some nettle plants. I took Aubrey to the Bronx Botanical Gardens and we smelled the lilacs. By far the best-smelling were the hyacinth lilacs. To me it's the best smell in the world, and it stops time and elicits every romantic spring personage that one could ever imagine.


Inspired by the reverie, I couldn't resist tasting a number of the small flowers. I found that the white ones on the top of the trees were superior in taste and smell to the red ones, especially lilac poincare and lilac common. The taste is like a mixture of raspberries and sweet peas. A slight tartness at first, but then a beautiful saladly green with sweet overtones.


I've seen some recipes for lilacs subsequently, but surprisingly nothing on the actual taste of lilacs, indeed almost a googlewhack. I highly recommend that all speculators take a break from their trading before or after the daily fray and sample a few in their area.


Phil McDonnell writes:


As a home gardener I have been amazed at the number of flowers that can be eaten and are considered delicious gourmet treats. For example, zucchini flowers. Zucchini plants have two types of flowers, male and female. The male flowers stand erect and tall as is only proper. The female flowers are short stemmed and demurely lower. Even though the two flowers look similar, I find it very easy to remember the difference.


The taller male flowers are the first to be found by the bees. They next visit the lower females, thus facilitating fruiting. If bees are lacking, then the higher male flowers can pollinate the lower female flowers simply through wind action. After the male's job is done the gourmet can harvest the male flowers for a real treat. Just sautee in butter, salt, garlic and onions. Each female will give you a zucchini.


Vincent Andres adds:


Reading Vic's post, I was thinking exactly on that: "fleur-de-courgette" and I didn't know it translated as "zucchini flowers". Thanks Phil. I'll be growing some in my potager every year. Beignet-de-fleur-de-courgette  is a terribly good (and not so difficult) flower recipe. Here  is a video.  I expect to have my own olive oil in the coming years to made it 100% with raw home products. 


Bruno Ombreux writes:


May I recommend a French delicacy: Crystallized violet flowers.


They are very easy to make. These are the flowers  you use.


	

	


	
May

	
3

	

	

	
 I strongly believe that ventilation and outdoor sports have a significant impact on longevity. However, I have scanty scientific evidence for it. How would readers suggest I come up with some proper support for my theory?


Pitt T. Maner suggests: 


The first dose-response study for the positive effects of Nature. There has to be a Vitamin D angle too…a highly promoted vitamin at the moment. As long as your not on the golf course (not the healthiest place anyway) the mind/body stress relief benefits seem significant:


Just five minutes of exercise in a green nature setting, like these beautiful hills in Vermont, can boost mood and self-esteem.


Credit: Michael Bernstein, American Chemical Society


How much "green exercise" produces the greatest improvement in mood and sense of personal well-being? A new study in the American Chemical Society's semi-monthly journal Environmental Science & Technology has a surprising answer. The answer is likely to please people in a society with much to do but little time to do it: Just five minutes of exercise in a park, working in a backyard garden, on a nature trail, or other green space will benefit mental health. Jules Pretty and Jo Barton explain in the study that green exercise is physical activity in the presence of nature. Abundant scientific evidence shows that activity in natural areas decreases the risk of mental illness and improves the sense of well-being. Until now, however, nobody knew how much time people had to spend in green spaces to get those and other benefits. "For the first time in the scientific literature, we have been able to show dose-response relationships for the positive effects of nature on human mental health," Pretty said. From an analysis of 1,252 people (of different ages, genders and mental health status) drawn from ten existing studies in the United Kingdom, the authors were able to show that activity in the presence of nature led to mental and physical health improvements. They analyzed activities such as walking, gardening, cycling, fishing, boating, horse-riding and farming. The greatest health changes occurred in the young and the mentally-ill, although people of all ages and social groups benefited. All natural environments were beneficial including parks in urban settings. Green areas with water added something extra. A blue and green environment seems even better for health, Pretty noted. From a health policy perspective, the largest positive effect on self-esteem came from a five-minute dose. "We know from the literature that short-term mental health improvements are protective of long-term health benefits," Pretty said. "So we believe that there would be a large potential benefit to individuals, society and to the costs of the health service if all groups of people were to self-medicate more with green exercise," added Barton. A challenge for policy makers is that policy recommendations on physical activity are easily stated but rarely adopted widely as public policy, Pretty noted, adding that the economic benefits could be substantial. Policy frameworks that suggest active living point to the need for changes to physical, social and natural environments, and are more likely to be effective if physical activity becomes an inevitable part of life rather than a matter of daily choice.


Provided by American Chemical Society


Riz Din adds:


Ventilation has a pretty clear impact on longevity when it comes to the transmission of infection. This study looks at TB infection rates in different ventilated spaces  and finds that sometimes, simplest is best:




Facilities built more than 50 years ago, characterized by large windows and high ceilings, had greater ventilation than modern naturally ventilated rooms… Even within the lowest quartile of wind speeds, natural ventilation exceeded mechanical (p < 0.001). The Wells-Riley airborne infection model predicted that in mechanically ventilated rooms 39% of susceptible individuals would become infected following 24 h of exposure to untreated TB patients of infectiousness characterized in a well-documented outbreak. This infection rate compared with 33% in modern and 11% in pre-1950 naturally ventilated facilities with windows and doors open.




Closer to home, this resource looks at ventilation rates and health and performance (work and school) outcomes. The general findings are in line with expectations i.e. ventilation is perfomance enhancing. One last memorable finding comes from the EPA web-site, which says "The average person, through the natural process of breathing, produces approximately 2.3 pounds (1 kg) of carbon dioxide per day."On that note, I'm heading out for a brisk walk in the sun (and wind), before knucking down to some more studies! 


In another commentary, Frances Kuo who is a director of the Landscape and Human Health Laboratory at the University of Illinois, does point out that "None of the studies involved taking people and assigning them to different ‘doses’ of nature; rather, they looked at how people who sought out nature on their own responded to nature.” All in all, it doesn't look all that newsworthy, although I can't see the actual study which may be more enlightening than suggested by the media reporting.


This is veering a little off tangent as it neither relates to ventilation or outdoor sports, but I did find a previous study from Pretty that involved putting subjects on a treadmill and measuring their responses when exposed to images of different landscapes; subjects did show better responses when exposed to the green landscapes.

	

	


	
May

	
3

	

	

	
 In my travels today I noticed four vehicles loaded to the gills with furniture and mattresses. Three were pick up trucks and one was a car pulling a loaded trailer.


In renting units I always dread a person calling me and saying at months end they have to move now. This usually is a bad omen.


One couple called me today who got burned out of their unit two weeks ago and wanted to rent from me but never called me back till today. I told her I had already rented the unit. She told me they had a terrible time getting back their deposit till today. Likely their former landlord did not have the money on hand.


Victor Niederhoffer comments:


An alternate take on the i -95 bearish route.


	

	


	
May

	
3

	

	

	
 I am writing a letter to Aubrey on his fourth birthday and as part of my introduction where I emphasize the importance of a proper foundation, something that will take account of the load and settling, and the variations when the temperature and water changes, and taking into considerations Galton's method of starting the day with shaving and brushing the teeth as a proper way to start, and all good scientists who keep a lab book with their previous days' effort, and where they left off, and every trader's proper foundation of writing down what happened over night since he left off writing down what happened the previous day, I want to emphasize to Aubrey the importance of taking good care of your teeth. I believe that very much of life expectancy and health depends on good teeth as germs start there and migrate. But I don't have any evidence. What is the best way to make this point?


Scott Brooks comments:


Be a good example and do it with him every morning, noon, and night. Kids watch what we do far more than they listen to what we say.


Make it fun for him. Don't just make it about brushing his teeth, make it your time with him. Talk about things that are important to him, and make it fun by talking with your mouth full of tooth paste and a tooth brush….i.e. so your speech sounds funny (kind of like when you try to talk to a dentist with a mouth full of cotton swabs).


And be consistent. Give him 'marker phrases', things that will stick with him his entire life (I don't know that "marker phrase" is the technical term, it's just the term that I use).


For instance, a marker phrase I say to my kids constantly is, "What happens when you listen to Dad? Good things! What happens when you don't listen to Dad? Bad things!" And then every single time they do what you tell them to do, reward them somehow and say (with a smile), "what happens when you listen to Dad?" (and they will say "Good things!"). BTW, the reward doesn't have to be anything other than a smile or acknowledgment that you know they did something good. And when they do something wrong, say to them, "What happens when you don't listen to Dad?" Much of the time they won't say "bad things" but they'll understand.


Here's another "marker phrase" that I use with my kids. Every night before I put them to bed (or if I'm out of town I call them and do this over the phone), I say this to them (we call it the Brooks Success Creed):


Remember, in order to be successful in life, you have to be:


A man of good character


A student to the best of your ability with ambitious purposes


of congenial disposition


Possessed of good morals


Having a high sense of honor and a deep sense of personal responsibility


You must always do unto others as you would have them do unto you


And above and beyond all else never get up (they usually say that phrase)


And remember, if you ever need me or mom for any reason, we'll always be there for you, we'll always take care of you, we'll always love you forever and ever unconditionally, no matter what. You can always count on us, you can come to us with anything, we'll always help you, we'll always take care of you. And remember, I'm your protector, I'm your Knight in Shining Armour! I Love You!


There are, I believe, many meals for a lifetime in that creed. But the key to it is that, embedded within it, are many key marker phrases that you can reference for the child. For instance, lets say that I'm having a tender one on one moment with one of my kids, I will say something like, "you are really becoming a 'man of good character' and I'm so proud of you". Or if they are struggling with something and eventually fight their way through it (i.e. a math problem), I always praise them and say something like, "You did so good figuring that out. And do you know how you did it? You 'never gave up'! You can even do this when they do something wrong. For instance. "When you behave like that you're not having "a congenial disposition".


Back to brushing one's teeth. If you want Aubrey to develop the good habit of brushing his teeth, tie brushing his teeth back to one the many "marker phrases" that you share with him multiple times a day and every night before he goes to bed. When he brushes his teeth, especially when he does it on his own, make a point to say something like this: "Aubrey, you are such a 'man of good character' for brushing your teeth? Brushing your teeth and taking good care of yourself really shows me that you have a 'deep sense of personal responsibility'! I'm proud of you, son!" Ingrain the marker phrases into his mind by consistently saying the phrases over and over and over again. Bed time is critical as are other tender one on one, moments. Tie activities to the marker phrases by pointing them out to him in real life/real time situations so he will attach the activity to the "ideal" of the marker phrase.


I'm no child rearing expert or anything, but I do know that this is what my wife and I have done with our kids and they seem to be turning out ok…although we do have to remind the younger one's to still brush their teeth from time to time! 


Ken Drees writes:


This reminds me of billboards I saw in Jamaica: "Remember to Brush your Teeth", next to a picture of a toothbrush and a smiling child. It also reminds me of the site's traveling hobo who said that if he could have a suitcase full of toothbrushes when he was in the Amazon, he would be rich. 


Pitt T. Maner III writes:


Based on the amounts of money spent the diamond analogy is not too far off. Sealants may be worth investigating…


Oral Health Facts:


* Tooth decay (dental caries) is the most common chronic disease of childhood.

* Only 1 in 3 of all U.S. schoolchildren and only 1 in 5 of children in families with low incomes have received dental sealants.

* In the United States, 53 million children and adults have untreated tooth decay in their permanent teeth. Much of this problem could have been prevented by greater use of fluoride and timely application of dental sealants on chewing surfaces of back teeth.

* African American and Mexican American adults have twice the amount of untreated decay as non-Hispanic whites.

Oral Health Problems are Costly

* Each year, Americans make about 500 million visits to dentists.

* In 2009, an estimated $102 billion was spent on dental services in the United States.



Marion Dreyfus comments:


Buy a poster of the body's blood system, capillaries, veins, and show by tracing down from the rich supply in and to the mouth how germs make their way from the mouth's cavities and capillaries down to the heart and elsewhere. The same poster will also serve to show how drug addiction and the use of tainted needles carries the poisons from injection site to the far reaches of the brain and everywhere else. 

	

	


	
May

	
2

	

	

	
Franz Marc's The BullFor the first time since October 2006 there were no declines of 1% or more in the month of March 2010. One hypothesizes that the number of such declines will increase from the three in April 2010. Indeed, one hypothesizes that a month with zero such declines like March 2010 is inordinately associated with the end of a bull market in Birinyian terms – assuming such exist.


Kim Zussman writes:


To clarify, these dates are for 21D periods which had one or more daily decline <-1% and were following a 21D period which had no declines <-1% (like March and April 2010). The first column after "Date" is count of declines <-1% in that period. Next col is that 21D period return. 3rd column is count of declines <-1% in the next 21D period, and the last column is the return for the next 21D period.


The last 4/5 mean returns for subsequent 21D periods have been negative:


Date    count -1%   21d ret  nxt 21-1% nxt21 ret

05/31/07        1        0.030     4       -0.018

01/30/07        1        0.001     1       -0.018

11/27/06        1       -0.005     0        0.032

04/28/06        1        0.006     4       -0.039

01/27/06        1        0.022     1       -0.002

10/26/05        3       -0.020     1        0.065

08/26/05        1       -0.031     0        0.009

11/26/04        1        0.051     1        0.026

07/29/04        2       -0.031     3        0.007

03/29/04        5       -0.020     3        0.000

01/28/04        1        0.030     0        0.015

	

	


	
May

	
2

	

	

	
Rose Wilder LaneThe book Old Home Town by Rose Wilder Lane  is a vivid and beautiful tale of the origins and foundations of the Americana character from small towns to American values. It is highly recommended to be read along with books about the importance and influence of small towns.


And of course one should look at the performance of companies based on the size of the towns they have their headquarters in, as well as their years of incorporation.

	

	


	
May

	
2

	

	

	
the two blades of the scissors come togetherOne of the hallmarks of a terrible decline in the fortunes of a company besides skyscrapers and hubris is an acquisition binge. A certain non-bank company with extensive financial interests and a tall chief headquartered near me that has made thousands of acquisitions and does not talk to analysts except when they are in trouble comes to mind as well. Much too often the acquirer sells out when it sees the handwriting on the wall. Many of the big banks bought with abandon before their own fight with the death spiral.


The other side:


One has seen this happen often times when I was in the finder business with buyers trying to cover up their own lapses by buying to boost lapses in their own business. Often the two blades of the scissors come together with the buyer trying to pull the wool over the seller and the seller over the buyer. The net result to me has always been that companies that make it a principal part of the business to buy companies seem to me to have inordinately poor performance. I have seen innumerable conglomerates in my day go from great to dismal. The companies that say they are in the business of acquiring and use the word "tuck in " acquisitions or some such are all prime candidates for a fall in my experience. Of course every one of these acquirers says that their mantra is "we leave the acquired company alone to run its own business. Look at how small our headquarters is."


All these thoughts come together when I saw a quote from a sagacious business man in the Midwest saying "I am ready to spend 11 figures on Monday if I get a call from the right acquirer." How has he held back the Canutian tides? All these thoughts must be quantified.


George Parkanyi writes:


I'm not sure how counting as such would work here. Perhaps you could do an analysis of company performance as a function of accounting goodwill. Beyond that, I think it ultimately comes down to human nature. People don't easily identify with being part of a big monolithic entity. They understand that their individual impact is heavily diluted. My experience has been that the best teams are small, tight, and focused, and conglomerates by definition are not tight or focused. The so-called "synergy" that acquisitions are supposed to create is usually just a euphemism for "layoffs", particularly to the working ranks. Muy anxiety. And/or sometimes the entire heads of acquired companies are cut off and new ones screwed on, muddying the career paths of those just experienced managers just below. Large organizations in general also feature a wider communication gap and disconnect between senior management and front lines. To me this is a solid prescription for poor morale, and subsequent mediocre to poor productivity.


Another type of company to watch for are the ones that are constantly re-organizing. Re-organizations more often than not, in my experience anyway, tell me that a company is not tackling its problems head-on, but rather just papering over previous poor decisions by shuffling people around.

 

	

	


	
May

	
2

	

	

	
There is a horse running in the Derby tomorrow called Stately Victor. 30-1. I think that I'll splurge and slap two dollars down on this thing in your honor, though I've ever bet on a horse before. This should be interesting as I imagine there are few things in life more obvious than a guy who's never been in one before trying o look nonchalant in an OTB, amongst the cognoscenti therein. Especially a guy asking a two dollar bet. I look forward to the experience.


Victor Niederhoffer says:


In my honor you should bet only a buck, as that's the figure that Bacon liked to bet.


Tom Marks replies:


Well, I'm in. Followed your risk parameters as well… Still made my two dollar wager to win, but went partners with my friend's mother at a buck apiece. All of which made for an educational scene in the OTB.


I approached some guy who, judging by his expressionless bearing, gave off an air of insider ennui. I've come across many a person with a been-around-the-block look about them, but it seems there's nothing quite like an OTB been-around-the-block look. This guy had it, rolled-up newspaper, pencil, and all. I've always sensed such resigned weariness while walking past the window of one of these places in NYC, as it's like looking inside a box of sadness.


Anyway, I asked him how to do exactly what I wanted to do. He proceeded to walk me through it, after which I mentioned that I was partnering with my friend's mother on the investment. With that he sighed deeply and shook his head, telling me that now he had to bet on Stately Victor. He didn't explain exactly why, but I got the impression that he didn't feel entirely comfortable with running his "system" up against the chances of two people with possible beginners' luck. It seemed as if he was now hearing a little voice in his head and would never forgive himself if he didn't heed it.


Superstitious bunch.

	

	


	
May

	
2

	

	

	
Wayne GretzkyHere's a quote from the Sage:


We are ready to act. If I get a call on Monday on a 10 billion deal and I like it, I'll say yes. We're interested as ever. We wrote a big check and issued shares in connection with Burlington.


The query is this quote is reminiscent of some other highly hubristic utterance before the fall, but I can't put the finger on what it was.


Pitt T. Maner III asks:


Was it the October 17th, 2008 op-ed?


'In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”'…..


"I don’t like to opine on the stock market, and have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities. "

	

	


	
Apr

	
30

	

	

	
Prom king and queen1. It is absurd to contemplate the ¼% movements in the S&P these days within a two minute period and to realize without looking at the news or having any outside contact that one can predict exactly what it was. A man was spotted at an airport in a polyester suit with a briefcase labeled S&P, Moody's, or Fitch depending on how South the airport was and the extent of the move.


2. A very interesting article in the Economist of Feb 2010 says that "the market makes the manners." The gist was that during the height of the economy tailspin everyone was nicer. A merger specialist says that when he went to tout a deal to a bank CEO, the bank CEO in the past would have his secretary usher him out after five minutes as he walked past 50 of his competitors. Now he says he gets an hour interview, the bank CEO tells him what the strategy is, and then walks him out to his car. Similarly with venture capital firms taking a few hours to tell management consultant how they see things. What is the economic explanation for this? The Freakonomics  explanation? Or the Landsburgian  explanation? And what is the market significance of this? How can it be used in romance and money-making?


Alston Mabry comments:


One thinks of the difference between the girl who has ten boys asking her to the prom, and the girl who has only one. Maybe there is an optimal number of suitors to maximize humility and minimize bitterness — say, two.


But the idea of manners, and the recent televised Capitol prom to which the former partners were invited (and surely there will be more dances this season), brings to mind Tullock  and his insights  about productive versus unproductive competition. How much greater is the aggregate cost than the illusory benefit?


Tyler Cowen suggests: 


More "marketing" because companies are more desperate for new business.


Also, high unemployment means that higher IQ people are in lower-tier service jobs and higher IQ people are in general more cooperative.

 

	

	


	
Apr

	
29

	

	

	
will-o-the-wsipAside from all the games named after the frigid weather in Scotland where the only thing to do in the winter was drink and play checkers — the Ayrshire Lassie  et. al. — there is a game named after another common situation: the Will of the Wisp. How often do we see a market move which is beautiful but can't be acted upon? A move in Japan where the bid and ask is one or two minis a side, or a move on a holiday in Europe when the US isn't open. Or a move in one market that — had your own market been open — you could have aced. What other will of the wisps are there in markets and life besides the checker game where it looks like you have a win, but it's really a loss, forgetting about the romantic situations for a moment.


Ken Drees elaborates:


From Wikipedia:




The will-o'-the-wisp can be found in numerous folk tales around the United Kingdom, and is often a malicious character in the stories. In Welsh folklore, it is said that the light is 'fairy fire' held in the hand of a pwca (compare Puck), a small goblin-like fairy that mischievously leads lone travelers off the beaten path at night. As the traveller follows the pwca through the marsh or bog, the fire is extinguished, leaving the man lost. The pwca is said to be one of the Tylwyth Teg, or fairy family. In Wales the light predicts a funeral that will take place soon in the locality.


Wirt Sikes in his book British Goblins mentions a Welsh tale about pwca. A peasant traveling home at dusk spots a bright light traveling along ahead of him. Looking closer, he sees that the light is a lantern held by a "dusky little figure", which he follows for several miles. All of a sudden he finds himself standing on the edge of a vast chasm with a roaring torrent of water rushing below him. At that precise moment the lantern-carrier leaps across the gap, lifts the light high over its head, lets out a malicious laugh and blows out the light, leaving the poor peasant a long way from home, standing in pitch darkness at the edge of a precipice. This is a fairly common cautionary tale concerning the phenomenon; however, the Ignis Fatuus was not always considered dangerous.


There are some tales told about the will-o'-the-wisp being guardians of treasure, much like the Irish leprechaun leading those brave enough to follow them to sure riches. Other stories tell of travelers getting lost in the woodland and coming upon a will-o'-the-wisp, and depending on how they treated the will-o'-the-wisp, the spirit would either get them lost further in the woods or guide them out. Also related, the Pixy-light from Devon and Cornwall is most often associated with the Pixie who often has "pixie-led" travelers away from the safe and reliable route, and into the bogs with glowing lights. "Like Poltergeist they can generate uncanny sounds. They were less serious than their German Weisse Frauen kin, frequently blowing out candles on unsuspecting courting couples or producing obscene kissing sounds, which were always misinterpreted by parents." Pixy-Light was also associated with "lambent light" which the "Old Norse" might have seen guarding their tombs.


In Cornish folklore, Pixy-Light also has associations with the Colt Pixy. "A colt pixie is a pixie that has taken the shape of a horse and enjoys playing tricks such as neighing at the other horses to lead them astray". It may well be said that the wild colt pixy would sometimes bedevil regular horses on a ride and cause them to lead their human masters into a predicament or hazard, and might have yielded the pixy - horse name variation.


In Guernsey, the light is known as the faeu boulanger (rolling fire), and is believed to be a lost soul. On being confronted with the spectre, tradition prescribes two remedies. The first is to turn one's cap or coat inside out. This has the effect of stopping the faeu boulanger in its tracks. The other solution is to stick a knife into the ground, blade up. The faeu, in an attempt to kill itself, will attack the blade.




Easan Katir comments:


Similarly, the Tibetan Book of the Dead warns against following the dully-glowing lessers lights beguiling the in-transit soul to fall to the lower bardos. Rather, seek the clear white light to the heavenly lokas and beyond.


Coincidentally, Darby O'Gill and the Little People aired on the movie channel yesterday, featuring a very young Sean Connery, thematically followed, as one would almost predict, by The Gnome Mobile, featuring a perennially-old Walter Brennan, and the usual Disney stable of supporting roles. One observed a striking resemblance of the GS CEO with a gnome, that same sly impish grin.

	

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