Feb

6

Have any of you been to Argentina lately. What is the situation on the street. I am thinking of going there on the way to Antarctica later this year. Is it safe?

Vince Fulco writes:

One thing to seriously consider even though it sounds like you are going thru mostly modern areas, Amex has an extremely affordable medical expense insurance while traveling. For a few hundred bucks, as I recall < $250 for my wife and I when we traveled to South Africa, they'll airlift you out of spots and take care of many extraordinary medical expenses. Considering you'll probably never use it but if you do, fees can run tens of thousands of $ depending on what your normal health insurance covers, brought us piece of mind. Everything can be done online.

Larry Williams writes:

Careful on med-evac policies

I just lost my best buddy here; heart issues. We tried med-evac but the reality is 1) you need a local doctor to agree to release, which they will not do unless stable and 2) before the plane/jet wheels up they must have admitting dr and hospital at the other end.

That takes a long time to arrange

Best is to charter. Don't tell anyone of medical issues-get aboard and then go to closest emergency room to airport.

Carder Dimitroff writes: 

I'm sorry for your loss.

I would like to add to your thoughts. Once in the air and within US control, request the pilot use the LIFEGUARD call sign. This will notify the FAA to give the plane priority handling, direct routing and airport priority.

In addition, here may be a helpful link.

A commenter adds: 

First: LIFEGUARD has recently been changed to MEDEVAC to conform with ICAO international standards.

Second, and most important: If you are in ANY WAY fearful that your medical situation may be life threatening, communicate this CLEARLY to the crew and they will declare an EMERGENCY.

MEDEVAC flights get priority handling when they request it. But EMERGENCIES — well, let's just say that controllers will move heaven and earth and every airplane in the way to get that aircraft on the ground at the airport of the pilots choosing.

Most domestic airlines subcontract to a company that has professional medical staff on call 24/7 that assists them in determining the best course of action for the patient. They will get a doctor on the radio directly with the flight crew to assess each situation. 

Feb

5

Two customer anecdotes:

Anecdote #1

My wife goes into Tiffany's and asks the salesperson to measure her ring size. The saleswoman looks at her with one of those "you don't belong in here" expressions and tosses her the ring of samples for sizing across the counter. (My wife measures her finger and walks out — in a moment eerily reminiscent of the scene on Rodeo Drive in the movie Pretty Woman.) 

Anecdote #2

I drop off my car at the Lexus dealer and I tell the rep that I need new brake pads and rotors. Two hours later he calls me (and I expect to hear that the bill is several hundred dollars). Instead he tells me that I'm good for at least another 5,000 miles and that he didn't do any work. The only reason I took the car in was because the mechanic who performed my required annual inspection said my brake pads were worn out.

Many business lessons here.

Jim Sogi writes:

I ordered a custom made down jacket from an outfit in Washington called Nunatak.  A guy named Tom claims he makes the garments. I"ve read elsewhere he jobs it out. They make high end outdoors gear. When I ordered it, I paid in advance and he said it would deliver in 8 weeks. Okay, I understand that. 10 weeks go by with no word, so I email…No response. I call… No response. Another two weeks go by. I email again, and get no response. I figure its a rip off scam, so I call my credit card company. The day before my expedition the guy calls and says he will mail it to my son's in LA. It never gets delivered. When I ask him, he goes off on me and says, "Wow, I apologize for setting off your anger issues….I believe Walmart has what you need in the future. Tom" This is supposed to be high end custom gear, and I would have bought thousands of dollars of gear if it was any good. Is this anyway to run a business? What an unpleasant experience. I've never had this kind of antagonism from a vendor, ever, much less a custom operation. I hope this gets put on the website so others don't have similar problems with Nunatak. The guy was not pleasant to deal with or reliable or helpful.

Mr. Kris Rock writes:

He must have been Colombian and knew from hacking your email you were headed to Argentina.

Feb

4

I have a large collection of vintage vinyl records including many Beatles albums, Dave Brubeck, John Coltrane, Rolling Stones, Jefferson Airplane, Herbie Mann, Freddie Hubbard, Miles Davis, John Renborne. It's pretty classic. I firmly believe that vinyl records, despite the hissing, crackling and popping, contain more information, more emotional content, and are more moving than digitized music. As soon as a vinyl record is on, people start dancing and moving. Digitized music does not have the same quality.

I have wanted to digitize them for years and finally got a turntable with a USB output and built in software to transfer them to the computer and smart phone for under a hundred bucks. It's working well with full 44k sound files sounding better than compressed MP3 format.

The hissing and crackling brings back many fond memories of spilled beer and dancing.

Jan

31

Driving through the Owens Valley on a beautiful sunny clear day, the entire 150 mile stretch with 14000 peaks towering above showed the geological effects of immense glaciers that filled the entire valley during the past ice age. Ice could have been 3000 feet deep gouging up mountains. Even Mauna Kea in Hawaii has clear geological evidence of glaciers! The last ice age was as recent as 10-20,000 years ago and ice covered a large part of North America. Global warming is the end of the current ice age and has provided good weather and prosperity and the growth of civilization and the human race for 20,000 years. The reverse of global warming, namely cooling, is not an attractive alternative. Imagine if cooling began. It would mean summers with snow that did not melt lasting through destroying crops. 4 years of snow on the ground through summer would wipe out most of the world population. 4 years of 40 foot snow accumulation would erase most signs of civilization under a layer of ice. When Krakatoa went off in 1883 the ash plume circled the world and there was no summer in the US that year. Imagine the impact on gnp and the markets if cooling commenced. Its awful to imagine. So its a case of unintended consequences or be careful what you wish for should they figure out how to reverse global warming.

A commenter writes:

Cold weather crops like rye and barley would come back in vogue if we had an ice age which is not unthinkable. The zones for planting crops would change drastically. One would expect that researchers might do some genetic tinkering with corn, wheat, and soybeans, allowing them to flourish in a colder climate. Quite a number of scientists are predicting a Maunder Minimum at the end of this current solar cycle, which coincided with the "Little Ice Age.".

Steve Ellison writes: 

Quite a long time ago, I reviewed Evolutionary Catastrophes: The Science of Mass Extinction by Vincent Courtillot. Every one of the 7 mass extinction events identified by M. Courtillot was caused by global cooling. Therefore, I agree that global warming (which I see no reason to doubt) is the lesser evil.

David Lilienfeld writes: 

In the 1950s, 1960s, and 1970s, 1980s, and 1990s, the asbestos industry maintained that "there was reasonable disagreement" among scientists about asbestos as a cause of lung cancer; no asbestos-related regulations were needed. In the 1950s, 1960s, 1970s, and 1980s, the same was true of the tobacco industry for tobacco and lung cancer (and other sites, too). In the 1980s, 1990s, and last decade, many in the social conservative school of thought maintained that there was little evidence, or at least controversial evidence, about the role of human papilloma virus in the development of cervical cancer (I won't get into the matter of hand and neck cancer and HPV). In the 1960s, 1970s, and into the 1980s, the US salt industry insisted that the data linking consumed salt and hypertension were controversial and that no regulation of the salt content was needed. The argument against the consensus view holds only so long as additional data do not validate the view of that majority. With Copernicus, that was the case. It was the same with the role of bacteria in the development of peptic ulcers.

Absolute certainty and uniform conclusions by all members of the science community shouldn't be needed for policy formulation. If they were, then the Marlboro Man and Joe Camel would still be roaming the ranges and desserts of our television screens.

Ralph Vince comments: 

What a logical stretch David.

In the tobacco litigation, we found secret emails amongst the defendant employee's indicating a nefarious conspiracy to keep their methods and activities secret.

The East Anglia emails are similar in that regard.

I can tell you, from firsthand observation of the computer code that was in the email trove (because I have been writing code since the 70s, and I can tell you from examining someone's code what nationality they are, what mood they were in when they wrote it, and often what they had for breakfast). The code that was dumped was utterly damning to their cause. Not only does it show that the data does NOT sufficiently show that we are experiencing (anthropomorphic or not) temperature rises, but taints the issue because it raises the question of motive. We're left knowing that CO2 in the atmosphere has increased, a seeming understanding that this should have caused temperature rise, and the facts that do not comport to this, and as-yet no legitimate scientific reason (there are some theories, but that's all) to account for this.

Scott Brooks writes: 

I suggest that we look at the motives of the people involved in perpetuating what I believe is a giant con job.

Let's say the earth is warming. Is this a man made phenomena or is it just a normal cycle that the earth goes thru from time to time? Who stands to profit from these suggestions to stop global warming? Al Gore and his ilk?

Why do we trust these idiots in DC to make decisions that are common sense based and "special interest group" based?

If we start down this path that global warmists like yourself want us to go down, what happens when the earth keeps warming up (i.e. let's say it's really just a cycle the earth is going thru and not man made)…….what will happen then? Do you think the politicians will say, "Well, it's not mans fault. So let's roll back all the regulations", or do you think that they'll bloviate about how they need even more power to solve this horrible problem?

Why are you so willing to give more and more power to the government when they have a LONG history of abusing that power to their own selfish ends?

If you chose to go down that path, you will find people like me standing in your path actively trying to stop you.

Garrett Baldwin writes: 

I wasn't going to jump in on this, but I wanted to shadow something Scott said.

With regard to motives, pay attention to the way that the hearings and the solutions to solving this problem are handled. Some of us want the market to solve the problem. For example, let's say that the biggest threat in the world were something that is hard to measure, like the earth is running out of fresh air.

I'd argue that if that were a serious problem, a man would come a long and invent a machine to solve it. We'd rely on human ingenuity. We'd beat back that threat…

But the people who stand to profit through centralized alchemy only want to do it one way — their way. And any solution that is market based, creates competition, and doesn't enrich allies or decision makers or centralize more power with the government is either demonized, destroyed or regulated from the conversation.

The reality is that central planners can't solve this problem. They claim that they invented the internet, but if the government were still operating the internet, it would just be two dudes from DoD playing pong back and forth between New York and Camp Pendleton. This entire hype has evidence of scam all over it. Naomi Klein has demanded that the U.S. distribute $2 trillion to third-world nations who are "victims" of the U.S. and our energy policy. Ironically, the nations that are demanding the money are also the ones that are near the bottom of the Heritage Economic Freedom Index. Countries that aren't developing because they keep they limit their own people's ingenuity and production are going to get $2 trillion and then do what with it? Usher in a green economy? Come on…

So, when I hear the idea that we have to "do something" and do it fast without exploring the data, without asking questions, and without being allowed to have a debate because doing so would cast the distrustful of government as people who don't care about the children or the future or humanity. Meanwhile, the alarmist will have a moving wardrobe of children follow him as he spouts off how important his intentions are and how we are monsters.

Beyond that, we also ignore one thing in this discussion.

What are the positive benefits of global warming? After all, Greenland had a booming farm trade 1,000 years ago. I'd like to get some beach front property in Greenland. I'd also think that trade through the Arctic Circle would be nice and reduce shipping to Asia in half. Why is global warming such a terrible thing? Is it because we refuse to embrace the challenge, and because there's profit to be made by saving us from ourselves?

So, I will say from my perspective this. I don't consider climate change a big deal, and it's not something that I worry about. Humanity will adapt after government spends trillions of dollars chasing this dragon..

Jan

28

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

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

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

Jeff Watons writes:

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

Jim Sogi writes:

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

Laurel Kenner writes:

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

Steve Ellison writes: 

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

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

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

Duncan Coker writes: 

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

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

Jan

24

If cheapskating is going to increase, we might consider whether individual stocks that cater to cheap skates might have inordinate returns. This is the kind of things that my kids might make money with in terms of the category of stock, rather than its financial characteristics. Perhaps. On another front, I believe it is important to be especially cheap after having a good year. I think of Rimm every day with grave loathsomeness.

Art Cooper writes:

It's been a market theme for quite some time to buy stocks like Family Dollar Stores, Dollar General, etc. instead of retail stocks which cater to the middle class. The high-end retail market is a different market, as it responds to different forces. 

Jeff Watson writes:

I'm always accused of being a cheap person and try to not be penny wise and pound foolish. I never pay retail for anything and try to buy only stuff that will hold value. Herb Cohen is a person I look up to. He might look a little seedy, but he makes great sense and teaches sound methods of bargaining. His first $19.95 book I ever bought was probably the best investment I ever made, saving at least a million bucks, by bargaining with some of his techniques over a 30 year period. That's a hell of a return and his techniques work…

Pitt T. Maner III writes: 

Cheapskating is likely to be an increasingly popular topic as hidden inflation and taxes go up. Perhaps there is an opportunity for a "Global Skinflint"!

"Jeff Yeager, dubbed "The Ultimate Cheapskate" by Matt Lauer on NBC's Today show, is a very cheap guy. He re-cants, as opposed to decants, the wine he proudly serves his dinner guests, funneling cheap box wine into premium-label bottles. He believes you should never spend more than USD 1 per pound on food items. And to save time and energy costs, he soft-boils his morning eggs along with the dirty dishes in the dishwasher."

And then there is the TLC show :

"Be aware of what you're using. Victoria Hunt, who retired from her accounting career at 48 has been tracking her expenses and her income on a spreadsheet since 1989. "Every minute of every day has something to do with how I can make a better decisions financially," she points out."

Rocky Humbert writes: 

Mr. Yeager is either wasting money on his super-heated dishwasher or he's stretching the truth about his eggs. Dishwashers (generally) do not heat the water about 140 degrees. See this article on naturalhandyman. To get the egg white solid, it requires about 180 degrees. Even my Miele doesn't get the water to 180 degrees! This does not compute! (That is, he's making his money selling books. Not cooking eggs.) I would suggest that he should instead put his Pop Tarts and morning sausage on his car engine's manifold. By the time he gets to work, he'll have a well-cooked breakfast. (And he can similarly roast hot dogs on his drive home.)

Dr. Johnson writes: 

Ballyhoo? Like any good Spec, one must test, and test I did, the claim that an egg can be cooked in a dishwasher during a normal wash/dry cycle.

Equipment- Miele G5775.

Note: Perhaps not the ideal brand for testing a cheapskate's assertion.

Eggs= Phil's Fresh Farms Free Range Large 42F wrapped in plastic film.

Max Water Temperature Wash5F Max Air Temperature Dry= 185F

Time to complete cycles= 54 min wash & rinse, Dry 22 min.

Results: Egg removed immediately at end of the cycles= Yolk 134F thick and slightly flowing, settles to 1/4 height, white 151F at shell boundary with firm consistency.

Egg removed after 10 Min.= Yolk 141F thick and settles to 1/2 height, white 141F at shell boundary with firm consistency.

Conclusion: Not Ballyhoo! One important consideration for those cheapskates who want to try this method is that egg shells are semipermeable, therefore unless the taste of detergent combined with a menagerie of old food waste is to your liking, sealing the egg in plastic wrap is advisable (also which at +140 F will transmit unwanted substances).

David Hillman writes: 

Yes, let us commend Dr. Johnson both on his testing and on his using Phil's Farm Fresh Free Range eggs, the chicken egg of preference at Casa DGH…..cage-free, no chemicals, natural whole grain feed, laid in nests, and certified humane!

That said, even though my Bosch heats water to 160F and air dries at what seems to be 1200K if one opens the door during the 'sanitize' cycle and is met by a blast of superheated air, this whole business of cooking eggs in a dishwasher seems a bit impractical.

One, it seems like using a sledgehammer to place a pushpin in a cork board. Two, while the dishwasher here is run every 2-3 days, typically in the evening, eggs are a daily breakfast staple. What to do on 'accumulation' days? Three, counting time to heat water or a pan, it takes about 10 minutes to fry, poach, baste, scramble or soft boil eggs on the range. Why wait 76 minutes? Four, dishwasher cooking uses a heck of a lot of water and electricity v. range top cooking, multitasking notwithstanding.

For those who feel the need to multitask in the kitchen, there are what seem to be more practical alternatives to cooking one's breakfast eggs in the dishwasher, though at $90, this might not be thought of as 'cheapskating' …..

Pitt T. Maner III adds:

A few older links, but possibly of interest to those seeking to find ways to ride the money-saving trend and as a possible example of a company that finds quickly (identifying trends) and uses new inventions from private inventors. Khubani the CEO started with ad in National Enquirer.:

1) From 2010: 'A.J. Khubani, the man behind many “As Seen on TV” gadgets such as the PedEgg foot scraper, is making cheapskate gimmicks a priority at his company Telebrands, one of the nation’s top direct-response TV marketing companies.

More than half of Telebrands’ gadgets, sold online and at 90,000 stores, are now focused on helping shoppers be cheap. Khubani, who has been traveling around the country to meet inventors, is speeding up the number of new products he’s launching to every 30 days from every 60 days. “The mood of the country has changed,” said Khubani. “We’ve had tremendous opportunity with this recession.”'

Since 2007, Telebrands’ revenue has doubled to several hundred million dollars, he said.

Read more.

2) The current lineup of brands.

3) From 2012: "For the first time in our company's 29 year history, TeleBrands had 15 products ranked in a single year including our most recent hits like, Slice-O-Matic, Plaque Blast, Slim Away, OrGreenic and Bake Pops," said TeleBrands' CEO/Founder, AJ Khubani. "Each year, we continue to solidify our spot as the largest and most successful marketer of DRTV products aimed at solving everyday problems and reaching mass audiences at affordable prices. In 2011 alone, we rolled-out 12 products — the most in a single year in our company's history."

Read more.

4) On Khubani from 2011:

"The son of Indian immigrants, Khubani started out at 23, spending a few thousand dollars on an ad inNational Enquirer — a move that led to his first big hit. Since then, he's sold hundreds of millions of "As Seen on TV" products, including AmberVision sunglasses, the PedEgg and Doggy Steps. He has bolstered the careers of ubiquitous TV pitchmen, including the late Billy Mays, who enthusiastically hawked products now found on the shelves of more than 100,000 retailers. Today, Khubani is the leader in the $20 billion direct consumer marketing industry, turning out more "low-tech" products than ever before."

read more.

5) Not all have been appreciative of Khubani's methods:

"But will anyone care about dust mites? Khubani wasn’t achieving much traction among his Telebrands staff with his bed-spray idea, when along came a proposal for an anti-dust-mite pillow, from a colleague Khubani mysteriously describes only as “a business associate.” It’s hardly a new concept—there are several such pillows already marketed to allergy sufferers and asthmatics. But so far, nobody has had the brilliance to incite a national panic around flesh-eating creatures that feast on human remains—and lurk in the pillow of every man, woman, and child. “The hum you sometimes hear at night?” Khubani asks eerily. “That’s the sound of 2 million dust mites eating your dead skin.” Or perhaps it’s the sound of one man in Fairfield, New Jersey, homing in on your next anxiety. "

Read more. 

Victor Niederhoffer adds: 

Of course the main virtue about cheapskating is that it prepares you for such activities in your business. As the oil magnate said, "I am not smart enough to act one way in my personal life and another in my business. My margin is 8%, and if I gave away 8% on everything my 200,000 employees would be out of a job. So I make them pay for their telephone calls." Regrettably, the oil magnate was victimized by old man's disease (the same disease as the sage), and he was locked up in England for 20 years, with his retinue preventing him from going back to us for fear that he might change his will, and he was soporifisized by many nubile girls and other attractive women he would meet at museums. 

Funny. More important even then the fine posts with examples and tests of cheapskating is the query I have received from many of the younger hearted on the list. "Where are those museums that the oil magnate frequented?".

Gary Rogan suggests:

I suspect the Getty museum is a good place to start.

Stefan Jovanovich writes:

I hope Gary means the original one in Malibu, the villa whose design Getty himself supervised but never saw. The monstrosity built on top of the landfill by the 405 is absolutely the worst place in LA for the amusements Getty had in mind. If he were alive today and living in SoCal, he would be going to OCMA to appraise the latest generation of lovelies.

Jim Sogi adds:

Eggs can be cooked sous vide at 144 -155 for 20 plus minutes for a wonderfully cooked smooth soft boiled egg with a consistent texture throughout.

Food grade hydrogen peroxide diluted to a 3% solution is an excellent way to sanitize kitchen and utensils and not toxic like chlorine. 

Jan

20

The book Rational Herds: Economic Models of Social Learning by Christopher Chamley has many stories, models, and algorithms, that are helpful for gaining insight to markets. The stories start with the penguins standing on the edge of the ice, needing to get food but not knowing whether a killer whale or seal is waiting for them underneath. The first penguin to dive in provides much information for all the others. But it's not advantageous for him. The asymmetry between what's in the interest of the individual and the group and the advantages of social learning are readily seen by this example. The solution is for the other penguins to push the unlucky one in. The analogy of running the stops in markets with the first one to do so possibly losing money, but the others all gaining from the information is seen.

Another story is based on yellow cabs being 90% probable in a city. But an accident happening and the observer saying it was a red cab that caused it. Problem is that the observer's is only right 4/5 of the time. Bayesian analysis shows that after the first observation it's 9/13 that the yellow cab hit him. But after two reports the probabilities drop to around 48. The rate of convergence to red versus yellow follows a definite process which leads to all sorts of implications for cascading, herding, randomness, and social learning. Many examples of investment decisions based on following the leader and false decisions making from random events are given.

One wishes that the author would have followed some of the stories that motivated the book and shown how all the formulas would work for the simple examples above. The book is intended mainly for economics, social psychologists, finance people, and statisticians. But it's also relevant for anyone interested in how information travels. It's not easy reading and requires pencil and paper and working out a few examples to get much benefit from it.

I alternated reading it with modern times, and books on plants in my recent visit to Chicago. Glad to be back with you.

Jim Sogi writes: 

Sitting in LA traffic a few days ago got me thinking about individuals in a group. Ants probably think they are pursuing their own individual interests to be fed, to be safe, to have friends. But looking down on them from above shows a different picture. Each car in traffic has their own individual desire and plan but looking down at traffic patterns shows a different picture. Each investor or speculator has their own reason to buy or sell, for ex, personal reasons, business, family, taxes. But looking at the aggregate shows a different picture.

Gary Rogan writes: 

Worker ants can't reproduce and cant think. Their only genetic purpose is to help the colony survive so that the queen propagates her genes by producing a relatively small number of fertile descendents. Human beings can think and reproduce, thus even genetically they have a very different purposes, closer to the ant queen but with thinking abilities. Their natural goals are not those of the collective. 

Leo Jia comments:

I've come to think that perhaps no human can step out of the herd no matter how hard he or she tries. While there are many who realize the disadvantages of herding in a modern society and try to break free, they nevertheless follow another herd, trying to break away from the traditional ones.

I was thinking about this the other day. We understand how cells serve the functioning of our lives. They are alive themselves but work selflessly in ways defined for them to serve the body and mind. Can they be said to be herding?

Are we here to serve some upper life like ants serve the colony? That is a hard question, but if it were true, perhaps herding would be not only inevitable but also necessary. It would ensure we live by the rules, which are the only basis for our lives. By that logic, being selfish would only serve ourselves negatively.

Dec

30

The Hobo may count cig butts: I count private jets at the Kona airport where the richest people in the world come to vacation and live. As you recall last year the fixed base operator was overflowing jets with over 75 with overflow routed to Maui. This year there are only about 30 jets. Mostly small jets. I guess the top 1% is worried about the higher taxes of about $80 per mil which is about the cost for jet fuel for a private jet to fly to Hawaii. So this year the rich were flying at the beginning of the year, and the market was up nicely. Next year doesn't look so good by this forward looking indicator.

Richard Owen writes: 

I think it was Andrew Smithers who noted that the IMF when flying their jets over latitude generally made good decisions, and over longitude bad decisions. Thus attributing the difference to jet lag and the importance of sleep.  

Dec

13

My transparent, stretchable Fibonacci overlay seems to be successfully identifying price levels around which the main indexes cluster. This in itself does not predict the future, it identifies where the holes are on the bagatelle table, but not which one the ball will settle in. Moreover it may reflect a self-fulfilling prophecy rather than a rule. Nonetheless, the information can be useful in constructing multiple-leg options positions.

But my overlay is not predicting timing. All the pundits mention Fibonacci but this does not seem to be the case, has anyone tried other methods? Interested in any pointers.

Looking forward to stepping back in the water, but want to maximise the acuity of my toolset first.

I found this nice online chart for streaming SP500, also gives longer term charts.

Jim Sogi writes:

Not sure what you're doing, but I've been pondering time and time frames and relationships of time. Some systems using returns have time exits and a study of time seems like its important. Not sure exactly how, but the idea is to maximize return based on time while minimizing loss. The relationships change by cycle. It seems time itself and speed and roc volatility all have cycles in time. Perhaps survivorship times give some info.

Bill Rafter writes:

The question is whether one wants to value time or eschew it. Both can be done, so it's up to the practitioner.

Valuing time is easy, as most economics is time series processing. And most all market data comes dated. Shunning time is trickier; do you want to avoid just some time, or all of it?

Point & Figure analysis is what most subscribe to if they want to eliminate some time, and they do that by defining "box sizes" or the minimum move they consider significant. The theory is to define the noise level and throw that noise away. Sounds great, such that someone would be willing to be a tad late on a move if the signal had a higher degree of accuracy. Our extensive research says that P&F is certainly a tad late, but there is a decrease in accuracy. Here's another caution: most of the literature on P&F is written by those lacking native intellectual capacity (IMO) who have no concept of research. To them P&F is a religion akin to animism.

A more successful approach than P&F is not to create box sizes, but to drop all "inside days". I say more successful in that you eliminate insignificant data, and do not lose accuracy. However we have not been able to increase accuracy over normal data analysis. But we are still working with it, and may find something. You still get a time grid, but with lots of the days missing.

The most effective way to eliminate all time is to use Lissajoux patterns. That link will give you an animated example of such with two sine waves. There are lots to be said about this, but I don't think many have the appetite for it

Dec

11

I have a question for Jeff Watson and Jim Sogi, our two surfing experts. Do you think Kelly Slater been able to dominate surfing for the last decade plus partly due to the conditions in surfing being so variable…so nobody gets "set" ? Not to diminish his obvious ability to take new younger opponents and their fresh techniques apart piece by piece…

I am reminded of this article I recently read from the world of cricket… Michael Vaughan (England) was commenting on when Sachin (India) (arguably, or maybe not, the second best ever batsmen in the world) should retire:

"Sachin could still eke out a few runs for another 12 months but he is not batting at the levels he used to. Look at the way he was out in the second innings in Kolkata. It was a good ball from Graeme Swann but he was just prodding at it.

He got 76 in the first innings but the man at the crease was not the Sachin Tendulkar I know. He was not playing the free-flowing way we have loved down the years. He is having to think and really work out where he can score every single run but in the past it came naturally."

… once you have a solid start, the middle order feels more comfortable and is coming in with the game already set up."
 

Jeff Watson replies: 

Slater is smart, is a complete waterman, and a great competitor who knows how to win. Pro surfing contests are a game, and Slater plays it better than anyone. That being said, he is an animal, a freak of nature, a surfer like one has ever seen before (and we might never see one like him again). Slater is arguably the best surfer in any and all conditions, from the slop in New Jersey to big gnarly Teahupoo in Tahiti. Slater has that uncanny ability to predict what the wave is going to do just like the best chess grandmasters are able to look 10 moves into the future.

I don't know of any other athlete in any other sport that has dominated like Kelly and been the best in the world with a 22 year run. It simply has never happened before, so there's no data to compare it too. Furthermore, whenever the naysayers say Slater has lost his mojo, he wins another title…..and the naysayers have been saying this since 1996-1998……One could argue they thought he lost it in 1991 when he was on the TV series Baywatch, and was dating Pamela Anderson . And I think that was around 10 titles ago. 

Jim Sogi adds:

Kelly was the youngest world champ and is now the oldest. He is in phenomenal shape and has muscles on his muscles in his calves. He trains constantly and scientifically down to what he eats. He has a fierce and competitive attitude. The mental part is probably the biggest factor. Many younger guys have athletic ability or gifts, but the road around the world to the competitions is tough. Kelly cherry picks the contests to which he is seeded, so doesn't have to work his way up or qualify, saving him valuable mental and physical energy. He can travel with style. He loves what he does, and this is the most important thing.

Craig Mee says:

Thanks for your thoughts gentlemen. And now a few words from Slater himself while at this years concluding event where a few points separated Slater and another world championship):

"Slater played guitar and sang at a concert at the Turtle Bay Resort while the event went on hold this week. Golf has been high on the agenda. The stress does not appear to be killing him.

'We've had enough time to think about it,' he said.

'We're trying to put it out of our heads as much as possible because when you're out in the water, if you're thinking about a world title, it's taking away from what you need your mind to be on.

It's Pipe. You have to be on your toes. Which way are the waves going? Do you have to paddle deep? How's the lineup look? How far in on the reef are you? How big is this set going to be? Where's the guy you're surfing against?

'You have to be clear-minded enough to make good decisions every time there's a peak coming at you.

'There's enough to think about in the present moment without worrying too much about the bigger picture.'

Dec

10

Modernist Cuisine is a scientific book about cooking using science rather than tradition to develop the best quantitative parameters and methods for cooking. A teaser for the book describes cooking poached eggs at 144 degrees rather than the usual boiling water. It takes 25 minutes but the eggs are perfectly consistent with a smooth soft texture throughout the white and yolk.

It turns out that egg coagulates at just over 140 degrees. The violent boiling water disturbs or breaks the whites before they are cooked; when water doesn't boil, the whites don't break, and it is enough to cook the egg.

There are a number of other foods that also can be cooked at lower temperatures such as steak which needs 138 for a consistently perfectly cooked medium rare steak evenly through the entire cut. The steak is cooked in temperature controlled 138 water inside a sealed bag to the correct temperature. Then just brown the exterior to seal it on the bbq or pan and to add flavor. Special equipment helps such as the Sou Vide cooker.

Dylan Distasio writes: 

I have been lusting after a copy of Modernist Cuisine since it was released, but have been unable to convince the wife to let me blow $450-500 of hard earned cash on it as an amateur cook, It's truly a labor of love. Nathan Myhrvol, one of the co-authors, was the CTO of Microsoft before moving on to pursue his love of food science. You may be interested to know that Modernist Cuisine at Home was released earlier this fall. It is one oversized volume as opposed to four separate ones and is geared to recipes and techniques that are a bit more feasible for a home cook.

It is also significantly less expensive and probably does not sacrifice too much for the home cook at a current price of $105 on Amazon. I have a copy sitting here waiting for me under the Christmas tree that my wife was kind enough to give me, but that I had to promise not to open ahead of time. If you're interested, I'll post my impressions to the list after I open it and have a chance to peruse it and cook from it.

Jim Sogi gives us an update:

Modernist Cuisine at Home by Nathan Myhrvold just arrived. Reading his CV is astounding. He has multiple degrees, Phds and has worked with Stephen Hawking. He made millions at Microsoft early on and after an early retirement, he devoted his genius to cooking. This book is to cooking what Ed Spec is to investing, using the scientific method to cook.

He used sealed pouches to seal in foods while cooking. He uses pressure cookers to bring out smooth caramelly flavors in vegetables which require higher temperatures than boiling water allows. The expensive part is buying the additional equipment such as the sealer, the sous vide bath, the induction stove. One could get by with a digital thermometer on a budget. If I ever get to another Spec Party I promise to demonstrate the techniques.

Dec

10

Our band's new lead guitar player is one of the best in town and knows music theory. He recently gave me a quick lesson on the Circle of Fifths. A chord is basically two notes, often three. Chords in a song have progression. Typical overtones are 3, 5, 7, 11, 13. Interesting to note the prime numbers. The 5 easily resolves to the 1. The 7th and higher overtones create tension and the resolution to the one is a release or catharsis. Minors and diminished chords have a unique emotional resonance. Interestingly, the same notes can be different chords depending on the the tonic. There are some similarities to Japanese Candlestick chart theory with record highs of 11 wanting to resolve. I imagine there is some tendency of stock charts to follow an emotional path similar to music and the theory would be similar also. Chair wrote about music and markets in Edspec.

Jeff Rollert writes: 

Jim's next lesson involves power chords and the blues… ; )

Easan Katir writes: 

Much more original thinking in Educ of a Spec, however as one who learned music theory before trading theory, it is useful to see how the 11th resolving to the octave is similar to the attraction of round numbers noted by the Chair.

Also the octave is similar to investors selling when they have doubled their money.

The recent trajectory of FB is not totally unlike the dominant phrase in Thus Spake Zarathustra , which could be the PR theme of its übermensch founder.

Jeff, blues might be similar to options traders, with the endless repetition of the same chord relationships selling vol the way the bluesman makes lamenting his lost loves into an art form and ekes out a living.

Nov

29

Shouldn't dividend paying stocks consider reducing or eliminating dividends, and instead use free cash flow for share repurchases? Assuming long term cap gains tax will be less than tax on dividends.

Gary Rogan writes:

They have to consider that many of their holders are sub-250K and many hold in tax-shielded retirement accounts. "Widows and orphans" still rely on dividends to some degree, so there is probably some sort of a Laffer-like curve where the post-tax income total return averaged over all the holders is optimized by a particular dividend policy.

Mr. Krisrock writes:

You can't turn on a financial news program without hearing about special dividends. Companies are also rewarding employees with 15% dividends as a year end bonus. Even better is issuing debt, which is tax deductible and buying back stock when ITS is not at a market peak?

This will likely happen sometime next year…not now. Most liberal Californians haven't figured out how Obama has tactically created the seeds for a republican internal war in 2014. Boehner has made sure his entire house leadership is comprised of supporters, and he can cut a deal that enrages the tea party whom he despises. Now tell me who defends personal property rights, when there is a rebellion among republicans. Obama can get back the house in 2014 simply allowing the brain dead rep establishment to self destruct. They are really that dumb…and he is really smart …he won re-election no matter how he did it.

It would be a waste of corporate cash to buy stocks here and now and the more special dividends from companies like Home Depot, the more we can confirm the worst is coming.

Jim Sogi writes:

Isn't the threat of dividend tax a good way to shake out accumulated cash held by corporations? Wouldn't a better way be to get rid of the dividend tax? Equities would go through the roof.

Nov

29

Rome: an Empire's Story By Greg Woolf gives and excellent review of the reasons and history of the rise and decline of Rome's empire which was kept relatively intact for 1500 years. The rise he attributes to efficiency, trade, and military success. The fall he attributes to weak alliances with neighboring countries to rule the provinces, and lack of incentives to produce from the provinces. I find many parallels to the present. The good news is that it took 1500 years to disintegrate.

Steve Ellison writes: 

I am partway through volume 1 of Gibbon's The Decline and Fall of the Roman Empire. There was little incentive for the emperor to rule for the benefit of his subjects rather than for his own pleasure. Rome became a military kleptocracy after the murder of Commodus in 192. The armies knew they were the source of power and demanded an exorbitant price for their support, beginning with the Praetorian guard's murder of Pertinax and subsequent auction of the throne to the highest bidder. Frequently contending for rival generals to seize the throne, Roman armies put more energy into fighting one another than fighting the enemies on the frontiers.

Stefan Jovanovich writes: 

Details, details:

"Romans imagined [the empire] as a collective effort: Senate and people, Rome and her allies, the men and the gods of the city working together." This continued as Rome passed from the Republic to the Caesars, who were kings "even if [Romans] could never bring themselves to call them by that name." It is "a history of remarkable stability. If it was largely true that (as one historian has put it) 'Emperors don't die in bed,' it was also true that the murders of many individual emperors seem to have done little to shake the system itself."

Since "decline and fall" is the current meme, one should hardly be surprised that publishers and their authors want to cash in on the latest craze. (That is all publishers ever do; and authors, poor things, are usually desperate to oblige.) Professor Woolf should have resisted the impulse. He certainly knows better. The "collective effort" he describes is a complete fairy tale. The Empire never even developed a common language; our "classical" education notions are based entirely on the fact that rich people had too know Greek because that was the commercial language of the eastern provinces — which was where the money was. Latin was for the inscriptions on the public buildings and for the official orations and the school examinations but the "common" people continued to speak their own tongues. Even the Army relied on whistles, drums. and flags for its "commands" when it took to the field. This explains why Latin itself became almost instantly obsolete even south of the Rubicon. No one writing about the Hapsburgs, who did manage to keep their own Empire running for a good long while, would ever have offered up such fictions about "court and people, Vienna and her allies, the men and gods of Vienna working together". But, we have enough information to know that the court spoke French in that Holy Roman empire. The beauty of Roman history is that there are so few actual facts that survive that one can make the story whatever one wants it to be.

Jim Sogi writes:

The key is "1500 years". It's not going to fall apart in the next 100, that's for sure.

Gary Rogan writes:

The difference is that they couldn't do state borrowing in anywhere near the same proportion to their GNP as the US can. It also took less than 100 years from the peak, however defined to really difficult times. And as "mr. grain's" article demonstrates in less than 200 years from the peak free people were volunteering for slavery to avoid taxes, an inflation rate of 15,000% was experienced, free employees were essentially made into slaves at their places of work, and women, children, and parents were physically hauled off and abused to get to the tax evaders. All due to overspending and overtaxation.

Also for whatever reason they limited the free grains to a relatively fixed number of people, and the amount was small for quite a long time. Their modern equivalents today with a much more advance education in economics talk about redistribution with such excitement and such lack of concern for where this is all going that would make Nero proud (I mean the part about fiddling while the Rome burned, except they are not fiddling but setting the fires).

Vince Fulco writes:

I am still trying to understand how a society flourishes with reported median family incomes stagnant or below that of a decade ago? And there is no sign the worker is gaining any bargaining power. Sure the govt can artificially tinker with rates reducing the carrying costs but someday existing debt must be paid; at least at the consumer level. It is debt assumption for non-producing overpriced (after debt service costs are added in) consumer goods which will kill this country.

Tim Melvin writes: 

I agree with that to a large degree…..crony capitalism at the expense of everyone else is a cancer in any society….the problem is not capitalism exploiting the workers. it is the complex and intertwined relationship of business and government that does us the most harm. Eisenhower was right.

Anonymous adds:

Tim,

I think the malignancy has metastasized much deeper than that, and now sits in a kind of acid bath (the pending "fiscal crisis') where all else is peeled away and we see it clearly (in fact, the fact that people seem to NOT see this clearly is evidence of its metastastization) and it is this: Our society — at every level — is characterized by a desire for more rules, and an exception of those rules for ourselves.

Talking different tax rates is a carve out. The argument that the elderly should get a carve out. The birth control carve out. The government worker's salaries untouchability as a carve out.

How about when the White House issues exemptions to Obamacare?

Affirmative action is a carve out. All corporate socialism is a carve out. Every bill passed by Congress does not apply to them. I call that a carve out!

The white lady's sinus-snort lament, "This is RIDICULOUS!" always pertains to her being denied her attempted exception carve-out to the rules.

That's the cancer. The cure would take a lot more than Mitt Romney, and likely cannot be cured by a single individual.

History doesn't exactly repeat, usually, an incident is followed by another incident of similar cause but differing results and often differing in duration. I don't think we're going into a 1,000 year long dark ages. I think we're racing headlong now to something far more sudden and shocking, and bigger than any one man or political party can purge from our psyches.

Jim Sogi writes: 

I used to think the revolution was just around the corner, society was fragile and was about to come apart. Not now. Look at NYC and Sandy: that was an amazing comeback. The recession was bad, but the economy is slowly coming back. Things are not bad now. In the 1940's there was nuclear world war. Japan, Germany, Europe came back. Russia fell apart, but now is back. China killed 10s of millions, but came back strong. People are resilient and social systems are strong. The apocalypse is Hollywood and journalistic bogus hokum ballyhoo.

David Lilienfeld writes: 

The same is true of the US post-Civil War. Nothing before or since has had the social and economic impact that that war had. The US is more adaptable than Rome was. As Peter Drucker often observed, the US genius is political.

One of the signposts that Rome was done was when it was no longer able to rely on client states for security. That isn't the case now with the US.

A better paradigm for guidance might be the Persian Empire.

Gary Rogan writes: 

I keep coming back to the debt issue, the current size, and the ability and desire by "the powers that be" to accumulate more at an astonishing clip. Four years ago I predicted a debt-driven collapse that Rocky chided me for so much, and while the timeframe now seems indeterminate, what IS the way out without a currency collapse and all that follows in those types of situations? The bond vigilantes are not too concerned, and they know all, but what is it that they see? Can they see far into the future or are they playing musical chairs? 

David Lilienfeld adds: 

I'm reminded of the comment by Jim Carville, Bill Clinton's political advisor. In a re-incarnated life, he said, he wanted to come back as the bond market. "It can intimidate anyone it wants to."

Nov

27

Nate Silver is the guy at the NYT who called the election using statistical analysis. His book The Signal and the Noise is NOT at all like I expected. It's about baseball, weather, earthquakes, poker, economics, stock markets, politics and elections.

Baseball uses statistical quantitative data (stats) and qualitative subjective data (scouts). Silver says you can quantify the subjective data by assigning it a score, or even a rank, which can be statistically analyzed. This is similar to the idea in the Predictioneer's Game, by de Mesquita, in which he takes subjective values, assigns a value and ranks them, and using the resulting spreadsheet can make statistical conclusions. Its the plus/minus pro/con column idea of decision making.

When looking at a player's potential they ask, among other things, "does he want to win enough to overcome the fear of losing." It's a good question to ask a trader as well. There are some great quotes in it. For example, "major league memory" i.e short term, forgetting of slumps. And from Bill James, "Our weaknesses and our strengths are always very intimately connected." He says in the most competitive industries, like in sports, the best forecasters must constantly innovate.

Silver discusses the advances in weather forecasting with huge computers taking up rooms. The human addition of judgment can improve forecasts by 15%, for example by incorporating the scouts impressions of players with pure statistics. Weather forecasters improve on the computer models with human judgment. They have achieved 300% increases in accuracy and can give you up to 36 hours advance notice of a storm. But after that forecasts become worthless. The time or place of Earthquakes can't be predicted, only their frequency and severity over a long periods of time.

He discusses the problems with economic forecasts with 4 million metrics retroactively adjusted. Statistics show that economic forecasts are worthless and can't tell if we are in a recession or not. He discusses poker and the use of probabilistic thinking. He espouses the rational market view which is not going to be well received in this forum.

One interesting point he makes is that aggregates of forecasters are more accurate than individual ones due to the wisdom of the masses effect. He uses this to good effect in political forecasts and polls.

All in all, I don't recommend the book. It's a aimed at a popular audience at a low conclusory level with little meat for stat oriented dailyspec members. I barely made it through it, due to lack of interest, (not inability to understand).

Nov

8

One has found that there is an electronics circuit that almost always retrospectively provides a great description of price action in markets. I wonder if there is an electronics circuit that compresses the voltage output keeping it in a range, sort of like the finger in the dike, but then after the compression is over on the negative side, e.g after the negative feedback is taken away, the voltage doesn't immediately lead to tremendous negative voltage. I seem to remember such a circuit with op amps.

Jon Longtin writes:

There are a variety of electronic circuits that perform such a role, depending on the application. One common application is a voltage regulator, which provides a (nearly) constant voltage, regardless of the load applied to it. The circuit monitors the actual voltage currently being provided and compares to a pre-set reference value. The difference between the actual and desired (setpoint) values is called the error, and is used to adjust the current provided to the circuit to bring the voltage back to the setpoint value. For example if the load increases (more electricity demand) the load voltage will drop and the voltage regulator will provide more current to bring the voltage back up. Same goes for a decrease in load.

There are some limitations and compromises in such a circuit. First is there is a finite amount of current that the power supply/voltage regulator can be provided, and if the error signal requests more than this amount, the output will not be maintained. Also of importance is the time response: a circuit with a very fast time response will respond more quickly to fluctuations in the load, but can also result in so-called parasitic oscillations, in which the output oscillates after a fast change in load is made. By contrast a longer time response provides a slower response to a variation, but tends to damp oscillations. This same behavior, of course, is seen in countless financial indicators, and is part of the art in deciding, e.g., how many prior data points to include in a signal.

A somewhat more complex version of the above, and perhaps more closely aligned with the behavior of a market signal, is an audio "compressor/limiter". This is a device that constantly monitors the volume (magnitude or voltage) of an audio signal and makes adjustments as needed. A limiter is the simpler of the two and simply sets a threshold above which a loud signal will be attenuated. The attenuation is not (usually) a brick-wall however; rather a signal that exceeds the threshold value is gently attenuated to preserve fidelity without overloading the audio or amplifier circuitry. A compressor is a more complicated animal and provides both attenuation for loud signals AND amplification for quieter ones. In essence a HI/LO range or window is established on the unit, and signals exceeding the HI limit are attenuated, while signals below the LO limit are amplified. This resulting output then (generally) falls within the HI/LO range. This is used extensively (too much!) in commercial music. Humans naturally pay attention to louder sounds (ever notice how the volume universally jumps when commercials come on TV? They are trying to grab your attention with the louder volume). Pop music attempts to achieve the same by using aggressive compression to provide the loudest average volume for program material without exceeding the maximum values set by broadcast stations or audio equipment. The result, however is that the music sounds "squished" and doesn't "breath" because the dynamic range of the content has been reduced considerably. With such devices there are a variety of adjustments to determine the thresholds, time before taking action (the attack time) and how gradually or strongly to attenuate (amplify) signals that exceed the envelop range.

Here' s a fairly decent article that describes this in more detail.

Incidentally both of the above are examples of a large branch of engineering called Controls Engineering. The idea, as Vic stated, is to monitor the output by using feedback and make adjustments accordingly. There are countless different algorithms and approaches, as well as very sophisticated mathematical models (people build careers on this) to best do the job. Like most complex things, there is no single approach that works best for every problem, but rather involves a balance of performance, cost, and reliability.

I highly suspect such algorithms have already found their way into many trading strategies, one way or another.

If interested, I can suggest some references for further reading (though I am not a Controls person myself).

Bill Rafter writes: 

 Think of your voltage regulator as a mean-reversion device. If a lot of this is being done, then your trading strategy must morph into simply following the mean.

In light of recent changes in the investment climate we suggest that one should tighten up controls in which one is long a given market. Perhaps that might also or alternatively mean (a la Ralph) tightening the size of the positions. The result will be taking less risk and incurring less return, but taking additional risk would seemingly not be rewarded in the current milieu.

Jim Sogi writes: 

Dr. Longtin's description of compressors and limiters was
fascinating.  A compressor on my guitar signal chain prolongs the
sustain on a signal in addition to smoothing out the volume spikes and has less fade as the signal weakens.  With added volume, one gets a
nice controlled feedback.

Sometimes in the markets one sees a sustained range with the spikes being attenuated reminiscent of a nice guitar sustain.

On a different note, one curious thing is that people cannot  discern differences in absolute volume.  It's very hard to hear the differences
in volume between two signals unless they are placed side by side.

Nov

8

Along comes a series of scholarly studies in The New York Times: "Get What You Pay for? Not Always". They report on studies that through 2008 show that S&P companies that spent more on politicking performed worse than those that spent less. They also point out that the flexionic firm with 3 chief executives at Treasury or Governor spent unwisely this time as they moved from the party that can never lose again to the other side. They point to a study from 1981 to 2004 that showed that companies that contributed to political action groups grew slower than those that did not. Furthermore it didn't matter if they picked the winner or loser. And then the proverbial Harvard professor Coates is quoted that the jump in spending led to a deterioration in market performance. Anecdotal examples are given pointing out that banks are big political contributors but they performed badly. Jamie Dimon says, "he's hardly a democrat any more". And finally they show how AT&T tried to get their merger with T Mobile approved with letters from 76 democrats and 56 million in contributions over the preceding years, and yet it wasn't approved and they paid a 5 billion break up fee.

Well, all these studies are of the kind "your own man". Political contributions are necessary these days as the % of workers and their suppliers and G expenditures as a % of GNP goes up. Also, one would posit that the companies that made the greatest contributions were most in need of it, and would have done much worse had they not greased the wheels of G. Also, one would hypothesize that the relation has changed since 2008 as the idea that has the world in its grip has become more prevalent.

Indeed, some good questions arise. With the increased need of having the forces of the weather gauge at your back with government aiding and abetting you, one would think that the companies that give the most to politics are those that have the most government business. And they would seem to be the ones that the best chances of prospering in this environment. So one would hypothesize that a proper study of political spending controlling for whether it was necessary because your company was in the radar, would be very a propos these days and would show a conclusion that is opposite from the picture that summarizes the article with Jamie Dimon shaking the Presidents hand who "was once one of the Presidents favorites" but is no longer the fair haired boy despite their enormous political contributions.

Jim Sogi writes:

The question whether payola for government contracts or regulatory
largess is or is not beneficial to the specific company making the payola, or to the economy in general is related to the broken window
syndrome.  Government spending, especially with Sandy, is repairing
broken windows.  There is no real benefit to productivity overall, thus no real benefit to the companies seeking this type of work or
largess. This might help explain Chair's hypothesis.

Nov

7

For hurricane preparation, a flashlight with rechargeable batteries that can be replaced is good to have. It is also essential to have a second back up flashlight since flashlights are unreliable and batteries corrode. A hand crank flashlight or a cheap flashlight with extra batteries might be good backups. Head lamps are very handy. We have one or two at all times for each of us. A Goal Zero solar battery charger is a good tool for camping, survival and hurricane preparedness.

I would also suggest water purification. The Aquamira tablets are a good backup emergency purification. Filtration systems are a good first response. Its surprising the water that can be treated to be potable and safe.

Nov

5

"Professional Fisherman? I didn't even know there WAS such a thing!"

There are many niches in the fishing world for a man to make a living.

There are:

Professional angers who compete in international fishing tournaments where the prize money can be $100k, plus side bets

Professional fishing captains who run the boats to fish for big game fish

Commercial fishermen who fish to sell to stores and restaurants

Professional guides who guide clients on rivers and streams to fish

People who own fishing stores, sell lures and info

Subsistence fishermen

Crabbers, lobstermen, oyster farmers

Farm fish in aquaculture.

Duncan Coker writes: 

I have a friend who has carved a nice life for himself as professional fishing river guide. His home water is the S. Platt in Colorado where he guides and teaches. Fishing and writing complement each other well. He has written several books on fly-fishing and is an editor at large for Field and Stream. They send him all over the world for stories which he dreams up, salmon in Scotland, rooster fish in Baha, tiger sharks off San Diego. Fishing and writing by fisherman have a long history. Some of the favorites on my bookshelf are by Hemmingway, Norman Maclean, MacQuarrie of the Old Duck Hunters, James Duncan's The River Why. It is good to have a backup plan. So if the fish aren't biting perhaps you can craft a good story about the day your fly box floated away on the first cast, or secretly borrowing your friends waders for two years, or instinctively yelling "save the rod" just as your wife slips into the rapids holding a brand new 6 weight.

Oct

25

In the style of Tufte, 3D charts can incorporate higher elements such as order flow, internals, volume, volume at price, depth, ad, highs, lows, news, relations to other instruments and other internal higher order info at price point by using color or shape or numbers themselves to indicate data or information at a glance. This effectively conveys multiple order information at a glance, rather than multiple tables. Some folks are chart rather than table oriented and info and relationships are easier visually in real time.

Oct

24

Did you ever think about how it's hard work to have fun. We're having a Halloween party, and it's a lot of work. I love to hike and camp, but it's hard work carrying all the gear. I love to climb mountains and ski down, but it's hard work. I love to surf big waves, but it's hard work to train for it. But I find the effort as enjoyable as the results.

Oct

12

Big Wave season is again here in Hawaii with 25 footers predicted. One big lesson I've learned the hard way is NEVER take the first wave. Between sets there is often a long wait and its easy to get over eager and go for the first big one. However, when the waves are big, there are usually 3 or more waves to a set, and if you don't catch the first one, which is usually not the largest, you are going to get caught inside and worked over badly. You end up right in the impact zone and the subsequent wave land on your head violently driving you deep underwater and spinning you around like you are in the washing machine, except worse. It's better to let the early ones go by. As maligned as wave theory is in trading, I definitely see similarities with surfing.

Oct

9

On a recent stop over in NYC, I walked the High Line, a beautiful and scenic park where the old elevated rail line on the West Side used to run to the meat packing district. It is beautifully landscaped, and provides stunning views of the city and river. The next day, doing a Kung Fu-wandering-about-the-earth-seeking-adventure-and-meeting-people, at random, we rented some bicycles in rode up along the Hudson River from the boat harbor up to the GW Bridge. When I lived there in the 70's it was waaay to dangerous to go through that area due to the gangs and the basketball courts. Now the paths are clean, tennis courts, joggers, bikes and female strollers with their babies promenade along the scenic riverside. Children play on swings in the parks. There is a little red lighthouse under the George Washington Bridge that I would see as a child on my way into the city and always wanted to visit. My childhood dream came true and when I got there by bike, a musician was playing his saxophone under the bridge and the reverberation echoed across the river and back. It's so beautiful to see NYC improve and become more beautiful. It's such a contrast from the popular but mistaken post apocalyptic scenarios. There was a funny scene after returning from Africa as I walked through Penn Station thinking to my self, "Gee, it's so clean here". I thought that was pretty funny remembering what a dump NYC used to be in the 70s.

Sorry to miss the Spec Party but I wish extend to Vic and to you all a wonderful weekend and event. I have to attend my mother's memorial service this weekend. I can't tell you all how much the Spec List, and Vic have meant to me and my family in my life, so will just extend my sincere thanks.

Oct

2

We've talked about vig on trades, but consider the vig on life events such as moving, divorce, death. Moving seems like an expensive proposition, 10% commission on house, moving, disruption, time off. Divorce probably has a 60% vig with splitting estate in half, commissions, forced sales, attorney fees, emotional loss. Death has a 110% vig, you lose everything and the transfer to the next generation has its expenses as well plus the emotional toll. Though not exceptionally successful in a career or anything else, I've been lucky not to have had to move or get divorced, get sick or die, yet. I've seen so many over the years go down in business, love, life, health: many more than have made it big. Perhaps buy and hold has some merit.

Ken Drees adds: 

There's a big vig cost on changing colleges or majors now vs. the past when the price of college was lower.

Oct

1

What are the common errors, the improprieties, the lack of attention to proper mores, the p's and q of trading that cause so much havoc and could be rectified with a proper formal approach? Here are a few that cost one fortunes over time.

1. Placing a limit order in and then leaving the screen and not canceling the limit when you wouldn't want it to be filled later or some news might come out and get you elected when the real prices is a fortune worse for you

2. Not getting up or being in front of screen at the time when you're supposed to trade.

3. Taking a phone call from an agitating personage, be it romantic or the service or whatever that gets you so discombobulated that you go on tilt.

4. Talking to people during the trading day when you need to watch the ticks to put your order in.

5. Not having in front of you what the market did on the corresponding day of the week or month or hour so that you're trading for a repeat of some hopeful exuberant event which never happens twice when you want it to happen.

6. Any thoughts or actual romance during the trading day. It will make you too enervated or too ready to pull the trigger depending on what the outcome was.

7. Leaving for lunch during the day or having a heavy lunch.

8. Kibbitsing from people in the office who have noticed something that should be brought to your attention.

9. Any procedures that violate the rules of the British Navy where only a 6 inch plank separated you from disaster like in our field.

10. Trying to get even when you have a loss by increasing your size and risk.

11. Not having adequate capital to meet any margin calls that mite occur during the day, thereby allowing your broker to close out your position at a stop while he takes the opposite side. What others do you come up with?

Jeff Watson writes: 

I don't know if it is an error or a character flaw, but freezing will create mayhem with your bottom line.

Alston Mabry comments:

"Do Individual Investors Learn from Their Mistakes?"

Steffen Meyer, Goethe University Frankfurt– Department of Finance Maximilian Koestner, Goethe University Frankfurt - Department of Finance Andreas Hackethal, Goethe University Frankfurt - Department of Finance

August 2, 2012

Abstract:

Based on recent empirical evidence which suggests that as investors gain experience, their investment performance improves, we hypothesize that the specific mechanism through which experience translates to better investment returns is closely related to learning from investment mistakes. To test our hypotheses, we use an administrative dataset which covers the trading history of 19,487 individual investors. Our results show that underdiversification and the disposition effect do not decline as investors gain experience. However, we find that experience correlates with less portfolio turnover, suggesting that investors learn from overconfidence. We conclude that compared to other investment mistakes, it is relatively easy for individuals to identify and avoid costs related to excessive trading activity. When correlating experience with portfolio returns, we find that as investors gain experience, their portfolio returns improve. A comparison of returns before and after accounting for transaction costs reveals that this effect is indeed related to learning from overconfidence.

Kim Zussman writes: 

Trading a market, vehicle, or timescale that is a poor fit for your personality, temperament, and utility, exacerbated by self-deceptive difficulties in determining this.

George Coyle writes: 

Speculation by definition requires some amount of loss otherwise the game is fixed. However, I believe loss can be broken down into avoidable loss and unavoidable loss. Unavoidable loss is, well, unavoidable. But in my personal experience (and based on pretty much all speculative loss I have seen or read about) all avoidable speculative loss is traced back to some core elements/violations: not being disciplined (many interpretations), getting emotional and all of the associated errors and mistakes that brings, sizing positions too big so that regardless of odds you eventually have to reach ruin, not being consistent in your approach (the switches), not managing your risk adequately either via position sizing or stop losses, finally you have to be patient for the right pitch whatever that may be for you. 

Jason Ruspini writes: 

A similar distraction comes from making public market calls.

Jim Sogi writes: 

The Sumo wrestlers' trainers in Japan are conscientious about avoiding mental strife in their fighters since it affects their performance. Sometimes when other life issues intrude, like getting up on the wrong side of the bed, it is better to refrain from entering a large position. You're off balance. How many times have I thought to myself, "I wished I had just stayed in bed this morning"?

William Weaver writes:

Mistakes I'm working on:

-execution error
-having too much size too early — the first entry is usually the worst
-not being able to add size when appropriate — need to add to winners; understanding when to retrade and why — why did the trade fail, was it me or the trade?
-not taking every trade
-need to adjust orders when stale
-not touching orders when not stale
-not getting excited about trades
-not holding until appropriate exits, especially winners — disposition
-not accepting the risk. Must accept the risk.

When we fear, we fail. But we cannot be courageous without risking overconfidence because it leads to recklessness (at least I cannot). So how to not fear and not be courageous at the same time? One of the best traders I know is indifferent to any trade, yet he is excited by his job. He also has (and shoots for) only 40% winners but simultaneously is profitable on a daily basis (and expects to be). These were contraditions to me 8 months ago, now they are just fuzzy in my mind and I understand them but cannot explain them.

Sep

27

Whatever you think of Agassi, there are several market lessons here, and Agassi must have either read the Chair's books or have been taking lessons.

"Quit going for the knockout, he says. Stop swinging for the fences. All you have to be is solid. Singles, doubles, move the chains forward. Stop thinking about yourself, and your own game, and remember that the guy on the other side of the net has weaknesses. Attack his weaknesses. You don't have to be the best in the world every time you go out there. You just have to be better than one guy. Instead of you succeeding, make him fail. Better yet, let him fail. It's all about odds and percentages. You're from Vegas, you should have an appreciation of odds and percentages. The house always wins, right? Why? Because the odds are stacked in the house's favor. So? Be the house! Get the odds in your favor."

-Agassi, from Open: An Autobiography

Victor Niederhoffer writes:

As usual Agassi has it all wrong–something that can be predicted from an ingrate from a family like his. The only one that can go for singles, that can grind is the house. The player should never grind.

Jim Sogi writes: 

Lions and hyenas use a similar strategy when they kill a buffalo or wildebeast. They group up and wound it. They don't go in for the kill. They let it bleed a while, weaken, then tear it up and eat it. Why risk injury when waiting works.

George Parkanyi writes:

What kind of a market lesson is that? "We'll let you stew on your margin call for a while– THEN we'll come and throw you out of your house." ; )

Sep

26

A la the Hobo, while in Arusha, Tanzania and Kampala, Uganda, and Amsterdam, Netherlands and NYC on a recent trip, I counted the number of people sitting around idle vs. the number of people busy going somewhere or conducting a business. The premise is that a lot of idle people lead to low productivity and low growth and vice verse.

In Arusha, there were large numbers of idle sitting around in groups of 5-7 or more not moving. In Kampala Uganda, there were very few, maybe 3 out of 100 sitting idle. In Amsterdam there were no one not moving, consuming, working. In New York there was maybe 1 out of 1000 lying derelict in the street, but none sitting idle. All were moving fast, consuming, working.

How does the Bustle Index test out? It's interesting to note that Uganda boasts one of the fastest growing economies with almost a 10% growth rate ranking 15th in the world. Netherlands has a -3% rate of growth ranking 193. Tanzania has a 7% growth rate ranking 31st. US has a 3% growth rate. (Figures from Wolfram Alpha rounded)

So much for the Hustle and Bustle Index.

Sep

9

It's the dry season in Tanzania. The rivers are low and the animals have to come to the river to water. The lions wait at a bend in the river where there is a steep hill near the water. The zebras approach the water. The lion waits for the zebra to get into the situation where it is boxed in by the river and the steep hill. The zebras two escape routes become boxed like in a chess box in. The river slows the zebras ability to bolt, and the hill prevents escape up the hill. The lions waits for the set up. The wait may takes hours or days. The lion only has about three days before starvation.

This strategy works for dry season and in low river water. Other strategies apply for different seasonal cycles. In the wet season the animals don't have to come to a small river, so the strategy must change.

Sep

4

Even though the Euro is $1.25, it appears things are cheaper in Amsterdam than New York or Hawaii. I thought things would be more expensive over her in Euroland.

                 New York  Amsterdam  Kona      LA

Beer                $4          €2                 $5        $8

Dinner for 5    $250      €80               $350    $160

Omelette         $15       €7

Coffee             $2         €2                 $2.50

Buds                            €10/g            $15/g  $20/g

Economic theory says inflation should show in currency exchange, but something else is going on with inflation and dollar and relative buying power.

People seem less stressed in Amsterdam, happier than NY and LA. There are almost no cars in Centrum area…all bikes and pedestrians and canal boats. It oozes charm.

Sep

2

I think politics can be quantified via game theory, a la Bruce Buena de Mesquita. But even simpler is Chair's idea that the data incorporates all the politics. Nothing new under the sun. Just stick with the facts, Ma'am.

Aug

15

The Perseid Meteor Shower occurred this past Saturday. The Earth passed through the tail of a comet. The meteors were slated to shoot from the constellation Perseus which appeared on the low northeast horizon in the evening. Lying in my cot wrapped in a -30 down sleeping bag in subfreezing temperatures at the 12000 foot level of Mauna Kea in Hawaii, the iPad Stargazer app pointed the constellations. It's always fun to learn new constellations. Cygnus is above Cassiopaea in the Milky Way which in turn is above Perseus and rise in order as the evening passes. We saw a fair number of meteors, but honestly it was so cold, I couldn't even stick my face out far enough to see much of the sky.

The constellations are patterns the mind makes out of random patterns of stars in the sky, yet for centuries they have been used to help navigate and orient lost travelers, tell time, seasons. It's an effective method.

Since charts of random sequences display patterns, I wonder if charts of markets, some of which are not random, properly analyzed and quantified, could be used for navigation and orientation purposes in the market. For so many the visual chart is more meaningful, more easy to understand and digest than tables, number series or verbal input.

Kim Zussman comments: 

Allow me to share some of my thoughts on star gazing.

A telescope is not useful for observing a meteor shower. You need dark skies (mountains or deserts away from city lights), a lawn chair or sleeping bag, a meteor shower, and your eyes.

The radiant constellation (Perseus, Leo, etc) isn't important as it is just the general center from which meteor streaks radiate.

Meteor "showers" are often disappointing as the frequency at peak is usually less than one per minute.

If you go to the trouble of traveling to a dark site on a clear night, in between meteors it is great fun to explore the milky way (our galaxy) with binoculars. 7 X 50 is good for this (7 power / 50mm aperture) because it has enough light gathering power to resolve thousands of individual stars with low enough magnification for hand-held mounting (larger binoculars need tripods).

The fun part is realizing how old the light from these stars is, and the likelihood of planets with life out there.
 

Aug

12

Many innovations changed the world and sometimes the person who first had the new technology garnered great power and wealth. In ancient Japan, a man with a sharp and strong sword ruled all those around him and was for the most part invincible. The first group with the stirrup who could shoot an arrow or wield a sword while riding surely began on the road to world conquest. Imagine the first man to invent a tool, fire, or a weapon. Those innovators surely reaped immense wealth and power. In each case those at a disadvantage soon found the weakness in the strategies used by the innovator, or weakness in the technology. Chair's algo's were innovative, and even now new ones seem to keep appearing by the quick footed. Bill Gates' and Paul Allen's programs were innovative and powerful for their day and timing with new computer chips made their strategy a huge success. Google's algo's still seem to rule and their cache of information is scary. As in the old days, the weaknesses are exploited discovered and the advantage weakens over time, or in cycles but not before resulting in great success, wealth and power.

Craig Mee writes: 

James, great insight. I suppose the question then may be are the inflammations of the current system greater than ability of the system to overcome and adapt? Are the internal inflammations getting so large that they may soon take absolute control and lead to death, no matter what the ability of the system to adapt?

Aug

12

Cold reading has much in common with market charlatans:

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

Jeff Watson writes:

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

Bill Egan writes:

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

Jim Sogi writes:

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

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

Aug

6

As a hedge fund manager you have nine assistants employed solely to give you advice. Each of the assistants has a different perspective on the markets. They are all good advisers, as any one of them improves your trading immeasurably. For example, the market has a 2 percent annual return, but with your skills you can generate a 10 percent return. If you also add the advice of any one of your assistants you can bump that return up to between 12 and 18 percent.

Over the last 12 representative years there have been times when the nine were universally bullish. But despite their unanimity the market did not always rise. Conversely, even in the protracted down moves of 2008, their bearishness was not unanimous. Put another way, there was always one or two that wanted to go long at the worst times. Yet each and every one over time provided great advice.

You would like to find a way to combine their advice to get even better results than by using any one alone. But that's not easy. Sometimes, adviser A is early, and late at other times on a move. Likewise with the other assistants. One simple solution would be to have them vote, but the performance result of the vote underperforms some of the individuals, although still better than not having any adviser.

*Note here that we are only considering return and not the risk taken to achieve that return. Risk should always be considered, but for the sake of moving along, let us assume that taking the advice of your advisors never increases risk and that their respective upside contribution to profits is directly proportional to their downside exposure to risk. That is, much of their positive return contributions come from reducing risk, which is what we have observed generally.

Now, let's suppose that these advisers are not people, but algorithms. That's actually better because as algorithms they can be combined in ways that individuals cannot. They can be viewed logically (on/off) as in the voting experiment, or they can be ranked by their actual values. If they have scalar values they should be normalized (given the same order of magnitude or scale). For example, you cannot compare the slope of the Dow Industrials with that of the S&P 500, as the former is an order of magnitude larger. But if you put them on the same scale (e.g. divided by price), you can easily compare them.

Normalization is exactly what you would do to your inputs if you were using a neural net, and you might be tempted to go the NN route. But NNs have problems; among them would be your inability to discover the actual combination of what worked best. You might say "who cares" as long as it works, but that philosophy does not have a good history. However there is a very good use for a NN, and that is as a trial. That is, if you are good at NNs (and most people fail), then you should by all means try. If the NN gives you good results, then proceed on your own to find a good combination without the NN. But if using a NN does not improve results for the experienced practitioner, then it is going to be very difficult to find a better combination.

But how do you combine them to your best advantage? Well, there's an app for that. It's called linear algebra. It is somewhat vertigo-inducing for most traders, because most of them are comfortable with things they can chart. For your average trader that means two dimensions; options traders tend to be comfortable in three dimensions. But with our illustration we are likely progressing to higher dimensions, and they are not chartable, although the problem's solution is indeed a chart, albeit a virtual one.

Subsequent "chapters" (if the topic flies): Operations, Testing.

Jim Sogi writes: 

"But with our illustration we are likely progressing to higher dimensions, and they are not chartable, > although the problem's solution is indeed a chart, albeit a virtual one."

One of my first posts ever to the SL was Flatland, and the idea that multiple dimensionality is lost in two dimension charts which are typically used.

Easan Katir writes: 

Flatland, one of my all-time favorite books since I read it 40 years ago, offers insights in many arenas. Perhaps some enterprising ex-game coder would turn his attention to finance and provide charts where the point of view can be changed with a click. Will traders of the future be trading on an X-box-like device?

Aug

6

Digital music uses different algorithms that reduces the spectrum of pure sound to a small sampling. As a result the sound is always "hollow" and lacks the fidelity of live or even analog vinyl. Turning up the volume or boosting the bass doesn't cure the problem. I remember when we would spin the vinyl in the old days, everyone would get up and dance. There was more feeling. Some of the algos boost the prominent parts of the track and hide the back tracks. Things are lost.

In a similar way, IB uses some sort of algo to reduce the bandwidth of the order flow in order to keep prices current for execution. Investigation to determine if it is a proportionate reduction of the bid/ask order flow, showed it is not. Use of the IB data flow will screw up order flow calculations. Russ wrote about this some years ago. A lot is lost, but even in fast markets IB's price seem to keep pace pretty well. Its hard to tell when your broker quotes lag behind your data feed what is going and results in fills outside the apparent inside market.

Jeff Sasmor writes: 

A lot of what you hear has less to do with the digital process that's used to compress the audio but with preprocessing to make things sound better on ipods and such. Hard to believe? In the past I worked at a major NYC recording studio and we used to have tiny speakers so people could see what a recording would sound like on a junky transistor radio or an AM radio.

It's the compression and other processing that makes most of what you're complaining about. It's also dynamic range. On a standard CD you have 16-bit audio which isn't mpeg encoded or anything like that. But 16 bits is only 96 dB dynamic range which isn't enough for you to hear quiet sounds adequately without having loud sounds be distorted. So sound was routinely "compressed"; not in the sense of mpeg and aac (which are perceptual encoders) but rather dynamic range compressed to make quiet sounds louder and loud ones quieter. That's most of what people found objectionable when CDs were first introduced (and even now since the tech is more or less the same).

Perceptual encoders are not worth explaining in detail, but they throw out sounds you probably wouldn't hear as part of the process. It's actually sort of obnoxious…

Modern uncompressed audio at 24-bits, if encoded that way originally and not messed up by mpeg or aac or other processing is much better than vinyl with no clicks and pops.

But with all the emphasis on downloads and the fact that most people are listening on systems that can't reproduce much, and the other fact that most people don't care, 24-bit just isn't viable as a product.

Aug

3

Even granting the the Elliott stuff is garbage, the opposing linear forces of buyers against sellers subject to a vig forms wave like patterns. All other waves can be modeled. Why not market waves?

Leo Jia writes: 

I'd love to hear others' comments on this. My take is as follows.

The market waves are actually constantly measured and modeled by market participants. These people then use their models to conduct trades on the market. This very action, as performed by many, then causes the underlying market wave to change its attributes, which then fades the models in use and causes the people using the models to lose money. This gives many the impression that market waves can not be modeled.

Perhaps akin to Heisenberg's uncertainty principle, which was initially mistaken as the observer effect, the above view of the market might be misconstrued. The uncertainty principle was later understood to actually state the matter-wave dual nature of quantum objects, regardless of the observation.

Aren't market participants very similar to quantum objects in this sense? What is the dual nature of people? Can't we say greed-fear?

Jeff Rollert writes: 

I would argue the periodicity, or perhaps wavelengths, vary as do ocean wave patterns reflect long distance, off shore storms.

Long ago, I read somewhere that polynesian males hung over the side of boats naked, so their "sack" could sense current vs waves for navigation.

Perhaps the model should include waves and divergent currents.

Aug

3

When boxing, combinations of punches are much more effective at knocking out the opponent. Just a jab, jab, won't do much other than set up a combination. We had a good solid two days of light jabs. A good combination is a fake to the head, when the hands go up, punch to the stomach, when the opponent doubles over from the stomach punch a sharp upper cut to the chin will usually ring his bells as the head snaps back, and then a finishing round house to the side of the head is a good recipe for a knock out.

Markets are full on brawls, and combination moves like the Fed disappointment, then the EC disappointment today is a good combination that can ring the bulls bells and set them back on their feet and make them feel pretty unsteady. It's pretty discouraging to ride three legs down if you're caught on the first move, and can lead to a knock out if not careful.

Like Clint said in Million Dollar Baby, "Always protect yourself" even when the bell has rung. Funny business goes on in the aftermarket and overseas at night.

Mohammed Ali's "Ropa dopa" strategy was a masterpiece. Just put up the glove around the head and forearms protecting the stomach, and let the opponent tire himself out punching away. When the opponent is tired, fire him up. Market strategies might match this fighting method.

Jul

31

Are there any events these days that make people inordinately happy or sad. Perhaps these would influence the market? An event like an earthquake or a mass tragedy in a theater would seem to qualify. Perhaps there are classes of events that effect particular groups like flexions that cause them to be happy or sad that have a measurable effect also, like intervention by the EC, or the Fed. What do you think? Is it worth quantifying?

Rocky Humbert comments: 

Yes, there are such events. Flying a Boeing 767 into a tall office building is one such example.

Scott Brooks writes: 

Not sure this is an event, but…..the realization that massive fraud is occurring. For instance:

The Accounting debacle (i.e. Arthur Anderson, Enron, Worldcom, Global Crossing, etc.) of 2001.

The Mortgage Fraud Debacle of 2008.

Jordan Neuman writes:

The 2003 rally began with the freeing of Elizabeth Smart. Certainly the market was sold out, but I thought a collective sense of gratefulness served as a catalyst. But file this one under the difficulty of setting up the study.

Craig Mee writes: 

Potentially state dinners and the like, when the flexions are busy cleaning their shoes and are getting ready for another free meal. Maybe that's why silly season (late Nov through December) appears to do ok. Plenty of back slapping, industry awards and the like. Also maybe Oscars week (or award month) is a winning combo for listed movie stocks.

Jim Sogi adds:

Here's a couple of ideas. Use facial recognition software to detect a "smile" tune in all the security camera in the world, process for correlation. It's a bit big brother-ish, but there are cameras all over in cities now around the world.

How about using beer sales? Old Chinese proverb: If you want to be happy for two hours, drink wine; if you want to be happy for two years fall in love. If you want to be happy forever, take up gardening.

Track marriages.

Track gardening sales, or farming yields. It's said one of the few real producers of wealth is farming. Good weather=good farm yield=good production=happy markets.

Jul

31

On a recent trip to the Allerton Botanical Garden in Kauai the guide noted that the mango trees have recently gone through 3 seasonal cycles in one year when only one is normal. He had no idea why. Our mango tree did the same. The explanation here was the big unseasonable rainstorm that knocked off the flowers at the beginning of the season. Now we have ripe fruit, unripe fruit and flowers on the same tree. Chair often compares trees to markets. I wonder if unseasonable shocks (EU, Fed,) might have thrown off the seasonal tendencies in the markets, shortening cycles, or forcing cycles. The changing cycles are the hardest to understand.

Bill Rafter writes: 

That is not unique to mangoes.

Take grape vines for example. Generally the only fertilizer you should use on grapevines is a shovel-full of manure in the spring. My wife thinks we should have flowers in between the grapevines and occasionally will hit the vines with some spray fertilizer she is using on those flowers after midsummer. Relatively soon thereafter the vines put out some new flowers (although most people would not recognize them as such), which will bear fruit (grapes are mostly self-fertile). But the fruit won't have time to develop fully and is a waste.

Fig trees typically produce two crops each year. The early crop (called breva) has generally unworthy qualities, whereas the late crop is to die for. But if you wanted, you could fertilize the tree weekly and have figs all summer long. People with summer vacation homes tend to do that as they know they will not be around after Labor Day, when most of the big crop would come in. You could even fertilize yourself to a second crop of determinate tomatoes, which are "programmed" to bear one crop all at once.

I don't know how good that is for the respective plant because I don't do it. And the lessons for the market seem to relate to Quantitative Easing. Perennial plants (particularly fruit trees) need a dormancy period. If they don't get it, they produce poorly until they do. I believe the same is true with markets: you cannot preempt or "outlaw" the business cycle and expect the economy to respond favorably all the time.

Jul

31

I find this "bravery demotivator" interesting.

It means one should live truly, go big, live your dreams, follow your heart. If you do this, you won't die of stupidity. Many people have regrets on their deathbed of not following their dreams.

Most people don't think of their deaths, and consider it morbid if you do. But considering death makes life more precious. Each day is not the first day of the rest of your life, it is one less day left. Live it the best way you can.

As a side query: Is it possible or good to choose the time and manner of your own death? Death is rarely dignified, but is it better to die with dignity? Whose life is it?

For many, the baggage of others, of family, make death a struggle. At some point its better to let go.

Jul

26

There is a lot of corruption and dishonesty in the markets. The recent Nomura shake up on insider trading, the Libor manipulation scandal, Madoff, PGF, JPM. It seems endemic. People will always cheat and lie. It's only human. It's a cynical view, but the conclusion is unavoidable. Regulation doesn't seem to help much. The question is whether such dishonesty is built into the data, and whether it negatively affects the average joe. Chair's theory is that all under the sun is built into the statistics, the data and if the right questions are asked in the scientific method, information is available. Or does all the manipulation make it futile if one is not a flexion? Or is it, as Tim says, luck?

Craig Mee: 

James, I suppose a question is has this got any hope of diminishing or does the vested interest of the insiders to hold their station under deteriorating economic conditions drive this insanity to greater heights? Will people sell out their grandmother, (well, in this case their great great grandkids) and lock and load until the games not just up for them, but more importantly up for the arrogant, all and sundry.

Jul

22

I recently got a pair of the Five finger shoes after reading Born to Run. I have never been able to run much at all: shoes didn't fit, feet, shins hurt, back hurt. The only time I remember running was in high school/college soccer, and cleats had no heels. The Five Finger shoes are comfortable and allow me to just run and run. It's very interesting. The calves get a bit more tired. The running mechanics are much different. There's no don't heel strike, rather the foot rolls down outside along toes and spread along ball in a rolling motion. The run feels more like a rolling shuffle than a stride. I've heard American Indians ran long distances like this with moccasins.

I've ordered a pair of custom made shoes from Russel Moccasins, they are Safari Boots and will be interested to get them. Takes five months for them to make the last and custom sew them. I've never had a pair of shoes fit right with flat feet, left foot bigger, wide toes. I can't see why now with 3d imaging a guy can't scan his foot, send computer file to to China, have the computer adjusted foot model push out slabs or pins to identically model the foot, and cut then sew a pair of custom shoes. Why not clothes for that matter? They might be hand sewn, but the pattern could be computer laser cut to fit.

Jul

16

The current issue of Outside magazine has an article called "Could You Survive" with 27 tips on how to survive a shark attack, a cougar attack, an avalanche, falling through ice, and a forest fire. The tips seem very relevant to how to survive in markets. But I don't know enough about survival and Hobo is far away I believe in Ecuador or Blythe and not likely to have access to this issue, so I appeal to the survivalists here to relate the good and bad tips to our field.

Jim Sogi writes: 

Surviving specific threats is very specific. With a bear, one does not fight back, but plays dead after the attack. However, before the attack one must counter charge and wave hands, yell make noise because the first few charges are bluffs. With a cougar, one must fight back with all you have. Prevention, avoidance and awareness of bears and cougars before an attack are even more important.

It's important to know the context in which the threat occurs and the nature of the threat. In terms of markets, its foolish to fight back aggressively at the top of a rapidly falling market. Its a different story near lows after a big fall in a consolidating bottom. That's one of the problems with a list of general rules. While they can be good rules of thumb, they might not apply in a certain specific situation. Beginners or the inexperienced tend to rely on simple rules and get into trouble by applying the rules in the wrong context. When the "rule" doesn't work then panic sets in, multiple mistakes are made and death ensues. Experts use different and more specific sets of checklists and know the context.

Tom Printon writes:

Deep Survival by Gonzales and Checklist Manifesto by Atul Gawade echo Jim's points, both make for good summer reads or re-reads.

Bo Keely writes: 

I ran this by bear, gator, snake & cougar wrestler naturalist Richard Fowler and he sent us this:

THE MAIN THING IS NEVER RUN FROM A WILD ANIMAL. THEY WAIT AND WANT THAT. UNLESS YOU HAVE A SHORT SPRINT TO A PLACE OF SAFETY, CAR, HOUSE, ETC. ALWAYS CARRY BEAR GAS. HOWEVER LONG DISTANCE WASP SPRAY IS BEST. BRING A GUN THAT STARTS WITH THE NUMBER 4 OR BIGGER, AND. ALWAYS SHOOT THE SHOULDER AREA OF AN ATTACK TO UPSET THEIR BALANCE IN THE CHARGE. THEN FINISH HIM OFF. 

Jul

12

I recently watched this incredibly fascinating TED talk by game designer Jane McGonigal on The game that can give you 10 extra years of life and wanted to share it here. 

Jim Sogi writes: 

Leo, thanks. That was really a great talk on positive actions and thoughts. It's amazing the different paths to positive life forces and meaning in life. There is incredible power harnessed in a game. Think of the fun family times together or with friends over a game of chess, cards, monopoly, or Scrabble. There's something more going on than just the game.

Easan Katir writes: 

Call me a grump, but counters please note the speaker asserts watching her video will extend the viewer's life by 7.68 minutes, but her video is 19.3 minutes long, resulting in a net loss of 11.62 minutes.

Jul

12

There are only 5 things you can speculate in categorically that have volume that is present in the World. Yes, there are those that will respond with other ideas but I tried to narrow such to the main categories. They are as follows:

1) fixed income i.e cd's and bonds
2) equities i.e stocks
3) commodities
4) currencies
5) antiques and collectibles

Yes, there exists derivatives on all those, they need not be mentioned because they are based on the root basis.

The category that is the least liquid and has the least volume is number 5.

The last Honus Wagner card was brought to auction in Maryland from a heir of a Catholic Nun. He profited and dispensed according to his preference.

Now we have an even bigger find.

This find not only carries the name Wagner, but Cobb, Young and Matthewson. The fact that it was stowed in the attic for a couple of generations is amazing considering the heat/humidity that helps in preservation versus the humidity of a basement that produces decay of paper.

The market to bid on such cards is far and few percentage wise across the globe. It will be interesting to track and see the results.

Ironically I know a heir named Mrs. Cobb that lives in C-ville, VA. I help her with her retirement income. She is a fan of her families name sake. When shared she was disheartened in that she wouldn't be able to add to her "two card" collection of her family name. She mainly wants to update the condition of her two cards from poor to good. She understands that she'll never be able to do such and that she is grateful to have such cards. Mrs. Cobb knows that the accomplishments of her husbands family is forever priceless and that she is just excited whenever it is brought up. She is one lady that I know understands speculation, risk v reward, and value. She also has a firm grip on thinly traded markets. I've pointed out to her numerous times that the verbage in her trust doesn't mention any of her cards that she owns that were handed down. She told me that her husband upon death gave her the instructions to make sure that the ashes of those cards were spread with hers as he was tired after all of those years with dealing with the compounding and expectations of their value. The trustee is working on adding it to the trust, but ironically she is reluctant to pay him for the new docs!

What treasures are in your attic? library? basement? safe deposit box?

Jim Sogi asks: 

JT, Is Ebay an okay place to sell my old 50's era NY Yankee cards? Do you sell them one by one? or lots? How do you value or price them? Is there info somewhere that's good?

Jun

10

Weather is a big factor in the success of a ski mountaineering expedition. Weather goes in cycles in large systems moving from west to east due to the rotation of the earth. The weather systems take a week, sometimes less ,sometimes more to play out. The coriolis effect causes the systems to spin and striate, often resulting in pulses of weather, creating small systems of mild rain or snow. Sometimes major systems blow for a week or more. When the weather is adverse its very important to have the ability, patience and time to sit out the bad weather and wait for good weather for your activity. Its bad to head into deteriorating bad weather. You could get caught in a life threatening situation.

The parallels to trading are many. The energy moves from West to East as the trading day moves from Europe, to Asia to the US. The market moves seem to have cycles moving in a week, sometimes in pulses, sometimes in severe moves. Its good to have a count on the current patterns. Its good to know when to sit out, and to have to ability to sit. Its one of the hardest things. Its good to have other things to do other than sit and watch a screen which can be harmful in many ways. Some of my best trades have been when I've taken off to go for a ski or surf for a day rather than brood over the screen. You come back refreshed, and hopefully with a nice profit for a day outside for a doubly rewarding day. I remember seeing the Chair in the middle of a huge trade out playing tennis… classic.

Jun

8

I really like Atul Gawande's writing and ideas. Failure is an interesting subject that's not looked at enough. The success stories always get the spotlight, the books, the movies, but part of it is just survivorship and luck. Tragic failure comes from making a whole series of mistakes in a row, and making a minor problem in to a major one. Your judgment is not as good under pressure and mistakes lead to others. Sometime multiple small mistakes lead to death as we saw in our previous discussions on the book Deep Survival.

Older people are cautious because they have failed. Many young people have not experienced failure, partly from being protected, partly just less exposure to random bad luck. It's as good as most major ideas, accomplishments are done by the brave, often young people willing to take the risk.

George Coyle comments: 

I'm reading a book called Great Failures of the Extremely Successful by Steve Young. It goes through perhaps 100 or more stories (a few pages each) about failure and how it helped various people from different walks of life. Some are great, others not so great, but the book is littered with facts (I am skeptical about some but regardless) about people who overcame failure and adversity. Whenever you have a bad day look up Abe Lincoln's road to the white house.

Larry Williams writes: 

Charlie Sheen is my new hero this guy bounces back from disasters better than anyone I have ever seen how can he go through that much humiliation and still go on stage…pretty amazing or great drugs… one or the other I suppose

Jun

4

An interesting list of favored stocks as of year end 1928 appears in Common Stocks and the Average Man by George Frederick, 1930.

Allis-Chalmers , American Can , Atlantic Refining , Fleishmann Co , General Motors , Liggett and Myers B , Montgomery Ward , Paramount , Famous Lasky , US Steel , Woolworth .

These were recommended for buy and hold, and the kind for George Baker, who made more in one day than all the gold miners in history, with his method of buying good stocks and holding them and living on interest. It is interesting to note, that as far as I can see, almost all of them went bankrupt or close to the same in the next 90 years.

The book by Frederick and the comparable one by Ralph Badger, a professor at Brown, (Badger on Investment Principles and Practices, 950 pages), although not 100 years old are both highly recommended as being much better and much more helpful than the average treatise of today, or 30 years ago, especially those like Graham and Dodd.

Steve Ellison adds: 

From the same era, I reviewed The Art of Speculation by Philip Carret on the dailyspec a few years ago. At the time I wrote the review, the phenomenon of "stocks carrying themselves" had not occurred in nearly 50 years, but that bullish condition did occur beginning in late 2008 and has been in effect ever since, as evidenced by the backwardation in S&P 500 futures. As Mr. Carret wrote, "Borrowed money is the lifeblood of speculation."

Jim Sogi writes:

I remember as a young kid my savings account at Seaman's Saving Bank paid 5%. I had a ceramic savings container for coins that was a merchant seaman in whites of the era. I vaguely recall that my stocks also normally yielded about a 5% dividend. My father's advice at the time was to use your rear not your head, and sit on the stocks. That must have been in the late 50's.

Funny thing is now, again, dividends seem almost attractive with SP yielding over 2%. Some utilities are yielding 4.5% and don't seem to have the volatility of bonds nor industrials.

Gary Rogan adds: 

It seems like the SP yield is way below its historical norms, so while
it has been rising it has a long way to go to make it all that
attractive.

Of course given what "they" have done to the fixed yields they are
pretty attractive but sooner or later as we all can feel the fixed
yields will not stay low or negative even in Denmark and Switzerland
forever.  If they find a way to leave the dividend taxes alone, no doubt
sooner or later the yields will come back to historical averages, so I
don't think SP is attractive on that basis.  I do firmly believe in
sitting on stocks for a long time.  The point that was recently made
about all the old favorites having gone BK has a counterpoint: if you
diversify enough into high yield stocks, a small but noticeable
percentage of them will be bought out every year and that combined with
the stream of dividends will overcome the BK factor over the years.

As far as the bank savings accounts are concerned, I remember fondly how the banks and s & l's were engaged in a rhetorical war over, was it, 1/8th of a percent mandated difference? "You could spend that 1/8th of a point crossing town" was what one commercial said. It's pretty crazy how they "deregulated" the banks but left this one innocuous little Fed behind the scenes and now all savings yields are 0 and all the banks of note are TBTF. To me the moral of the story has always been: if you have FDIC in place all "deregulation" is a joke, but somehow the joke isn't funny to those guys and they don't like talking about moral hazards. You don't even get toasters these days.

May

30

A friend recently recommended Hungry as the Sea by Wilbur Smith. Smith is a great writer of epic historical fiction with complex plots, rich and full blooded characters, great action, graphic sex and violence which fit in perfectly with the stories. Warlock, a novel of ancient Egypt, is the second in a series.

Monsoon, also second in a series, is a swashbuckling novel of sailing in the 17th century that Chair would love and which I highly recommend to him, follows the Courtney family over the years through their adventures in Africa. Warlock and Monsoon have battle scenes with strategies and tactics worthy of study both in large scale battles and in hand to hand fighting techniques.

The stories are totally absorbing page turners perfect for traveling or vacation reading. Highly, highly recommended, and some of the best time wasting reading of all time. Very enjoyable. You can order hardbound versions for $.03 if you can wait that long.

May

30

Love of a son or daughter
Love of your wife
Love of a parent
Love of knowledge
Love of life
Love for your fellow man
Love of food
Love of power or money
Love of competition
Love off ports and thrills
Love of nature

All you need is love.

May

11

This winter it didn't rain here for nearly four months or more. Everything was dry, crispy brown. About a week ago it started to rain, and its rained almost everyday. Surprising how a big complex system such as weather can run such a long trend of just one pattern with almost no variation. Even random samples with a small drift can make very long runs. Same thing happened this spring in the market, a four month trend with pretty much the same thing everyday. Then all of sudden it changed as well. It's interesting how trends can just turn all of a sudden.

May

7

Walking is one of the best forms of exercise. Better yet is walking uphill which causes higher cardio rates, and even better yet is climbing up mountains. Running seems to cause many injuries. The recent book, Born to Run, is an interesting look into running injuries caused by modern running shoes.

There is a move to more flexible or barefoot type shoes for running. A number of years ago, Carlos Castaneda wrote of the high involved in walking long distances. 20 minutes of walking is good, but it can easily be done for 6 hours. New Yorkers appear trimmer due to more walking than their western counterparts who drive everywhere.

The car culture is destroying the walking. Walking is very meditative and relaxing, healthy, safe, cheap. Highly recommended. Good shoes, a hat and a walking stick are helpful. Its good to bring some water on a belt or hydration pack.

Alan Millhone writes: 

Hello Mr. Sogi,

My late friend Dr. Tinsley loved to take very long walks. I carried his magnetic checker board and as we walked he would chat with me and play blindfold Checkers. He was trim and in very good shape to play at tournaments and matches for long grueling hours. I miss him.

Regards,

Alan

Apr

30

Cycles, from Jim Sogi

April 30, 2012 | 1 Comment

On a recent ski mountaineering trip to the Alaska Range, the guide said to me that the recent AMGA guide's association newsletter had an article about the Chinese Year of the Dragon and how that way of thinking might affect mountaineering decisions. He scoffed at this. I explained that the study of cycles is important to get a larger perspective on detailed studies. The Chinese system has a repeating twelve year cycle. Whether or not it is significant is not the point, rather what is important to understand is that life and the earth go through long term cycles over a period of years. Weather and snow have long term cycles. An entire season such as this drought season for snow in the Rocky Mountain and Wasatch ranges may have a weak snow pack leading to dangerous avalanche conditions the entire year. That is a cycle which if ignored could lead to dangerous short term decisions to go skiing on a snowy day, when in fact the whole year is bad. The entire year was a record snow season for Alaska. The entire spring in Alaska was a anomalous cycle of clear steady weather and perfect snow where risk was low.

It is important to recognize longer term cycles in markets. This entire spring was a bull cycle with no pull backs and low volatility. We are in a range or consolidation cycle now. Last fall was a bear high volatility cycle, for lack of a better term. In hindsight cycles are easier to see. The trick is to recognize them in progress. This can only be accomplished with the idea of longer term cycles in mind to recognize the conditions that exist during the various cycles.

The weather reports have a number of model they use to have the computers predict the weather. They use as inputs some of the larger global weather conditions. In finance, there are some long term large scale models like the FED model using interest rates, rate direction, TED spreads, to predict and model the market and economy. The weather forecasters have global satellites to use. Finance people look to Europe and Asia to see if bad finance is working its way through the global markets around the globe.

Phil McDonnell comments: 

There is a well known Pacific Decadal oscillation. Basically there is always a cold spot and a warm spot in the North Pacific. Sometimes it is near Japan and sometimes in the Gulf of Alaska. Currently it is cold in the Gulf of A and Seattle weather is responding. There is no warming going on here.

Here is an intro to these cycles. 

Apr

30

For visually oriented learners especially, like me, there are two techniques for remembering things and names. For things, say, in a room, make a mental picture of a grid or shelf, and mentally place each thing in a room and make a mental snapshot of the "grid". That helps remember the things. For names, associate the name of the person with an image of a thing. For example say you meet Mr. Tokimoto. Think…"big toe…car key…little toe…" Put that image in your head. Next time you see Mr. Tokimoto you'll remember your big toe, your car key and trigger his name in your mind.

Apr

29

I've been reading some good pulp fiction recently. Stieg Larsson's The Girl with Dragon Tattoo series is much better than the movies. It's a page burner with a driving plot. Wilbur Smith's Hungry as the Sea and Those in Peril have adventure, cheap thrills, improbable characters, but are great time wasters. Suzanne Collins' Hunger Games series is really touching in parts for young adult fiction, and is great vacation reading. Buy all three at once, cause you'll burn through them at one time.

All great escapes if you're inclined and have a little time, and the worst of them is so much better than even the best Hollywood crap.

Reading is truly a miracle where you look at little black marks and are transported body and soul to another world.

Apr

29

In the Franklinian spirit: My computer in my car went out; quote at dealer $2000. Forget that. Price at on line junk yard for same part $100, and $150 to install. My wife cracked the rear view side mirror in the other car. Dealer quote $550. Price for same part at on line partstrain.com $39. My body shop guy put in on in ten minutes, no charge.

They're ripping you off, and there are much much cheaper alternative out there. Time to deal with it is even less than hassling with dealers.

Chris Tucker comments: 

There is another issue related to this as well. Most people are terrified of doing any serious work on their own vehicles, either because they don't want to get dirty or because they are afraid they won't be able to figure out what to do or how to do it. Auto mechanical issues can be very intimidating. But there are tremendous resources available today that can make even the most daunting task much easier to complete.

The power window on my truck stopped working a few weeks ago and I took the door apart to see if it was something obvious. No such luck. There is a thick plastic sheet that covers most of the inner workings and I was very hesitant to pull it off as I wasn't sure how to get it back on securely. And I had no idea what to do once I got it off. So I did what most DoItYourselfers do these days — I turned to Youtube. I didn't just find out how to replace the motor and associated mechanism (its a contraption called a regulator that raises and lowers the window) - I found very detailed troubleshooting advice and diagnostics. In addition I found a complete step by step video of the removal and installation procedure on my exact door. Several of these videos are made by part selling companies and I managed to locate the part through one of them cheaper than I was able to find anywhere else.

I have always changed my own oil but when my mechanic failed to secure the bolts that held on the brake caliper on my last car I decided I should do my own brakes. There are some things you MUST know to work on brakes, but you can find them all easily online. Working on your own car can be time consuming though, especially if you have to learn a lot about the repair - so I will tackle some jobs and defer to my mechanic for others.

Jim Sogi adds: 

Youtube is a great resource. I learn complicated guitar parts by watching folks play it on video. I found a reference for a famous international guide for a recent ski mountaineering trip to the Alaska glaciers on you tube. There is stuff there that is current and informative, in addition to all the garbage.  

Feb

24

Here's an interesting Schilling article that Real Estate has 20% down to go due to unlisted foreclosures, separation from investing/ownership, and 40% underwater with another 20% drop in price.

However, the real estate cycle is notoriously fast when it takes off, so trying to time it is hard to do.

Victor Niederhoffer comments: 

If, if, if. I've seen this reasoning on bonds from a million sources over the last 5 years. If bond yields go up, or go back, it would cause this destruction or that catastrophe. But people in the bond field know as much about the course of the yield curve as anything in the world, indeed they're much more versed than the stock market people. And it just takes a few Grosses or Soroses or DeRosas or dozens of others to set prices exactly where they should be taking account of all future contingencies. In short, the yield curves today provide an extremely accurate forecast of future fixed income yields. The experts, the DeRosas take account of the likely change from easing to tightening and when, and what a impact that will have on everything in their current forecasts. To predicate a trade on the idea that bond yields at 3% or 2% are ridiculously low is to go against the greatest experts in a field the world has ever known, et al.

George Zachar writes:

Unfortunately, the bond mavens today are forced to gauge not the real economic context of the forward curve, but the internal dialogues of Bernanke and Dudley. With the Fed manhandling the yield curve from tip to tip (and TIPS too), the price signaling attribute of the treasury market has vanished.

We are likely years away from private capital allocators fully resuming their role as impartial price setters for money. And there's a real risk the cronies will never be pried loose.

Ken Drees writes:

I heard one of my mood of real estate indicators loud and clear the other day, ironically on the am radio. The banter back and forth was why renting is better than owning, even though the price may be higher to rent.

radio person a: Why should I tie myself down with a house, if I lose my job I can't move?

person b: Right, its easier to just rent and move.

The job environment needs to bottom and improve before housing can turn–Rocky's 2014 guess is as good as any for a bottom based on soaked up supply.

Fred Crossman writes: 

We are in an unprecedented period where the world central banks, instead of suggesting work and saving as a remedy to excessive debt, offer the effortless remedy of federal programs, massive printing, and more debt. Is it ironic, as we reach new market highs, that the biggest per cent mover today (not SHLD, which is up on worse than expected earnings but a shot at more creative financing) is a diet drug that eschews exercise and dieting but instead offers a pill for the same result?

Dec

15

Have you seen this article about the top 5 regrets of the dying? It is a must read. 

Gary Rogan writes: 

I really liked all of them, except based on everything that I know I disagree with the statement that "happiness is a choice". Irrational fears are not a choice, depression is not a choice, and neither is happiness.

Gibbons Burke writes: 

Well, happiness is dependent on one's attitude, and in many cases, you can choose, control or direct your attitude.

My theory is unhappiness and depression happen when reality does not live up to one's expectations of what life is "supposed" to be like. I think the key to happiness is letting go of those expectations. That action at least is within an individuals purview and control. There is an old Zen maxim: If you are not happy in the here and now, you never will be.

Russ Sears adds:

I think most irrational fears and depression stem from the unintended consequences of one's choices or often, the lack of decisions, such as little or no exercise. However, I believe many of these choices are made when we are children, and we do not fully understand the consequences. Many of these bad choices may be taught often though example by adults or sometimes it is just one's unproductive coping methods that are simply not countered with productive coping methods by the adults in their lives. I think some people are more prone to fall into these ruts, but most of these ruts are dug none the less.

Jim Sogi writes: 

The regrets are perhaps easily said on the deathbed but implementing these choices in life is very difficult. Many can not afford the luxury of such choices. When there is no financial security hard work is a necessity. Such regrets are not much different than daydreams such as, oh I wish I could live in Hawaii and surf everyday. The fact of the matter is that the grass always seems greener on the other side. Speak to the lifestyle guys in their old age. Will they say I wish I worked harder and had a career and made more meaning of life than being a ski bum or surf bum? 

Gary Rogan responds: 

What you say is true about the effects of exercise. But that's just one of many factors that are biochemical in nature. Pre-natal environment, genetics, and related chemical balances and imbalances are highly important in the subjective perception of the level of happiness. There are proteins in your brain that effect how the levels of happiness-inducing hormones and neurotransmitters are regulated and there is nothing you can do about it without a major medical intervention. Certainly some choices that people make affect their eventual subjective perceptions through the resultant stresses and satisfying achievements in their lives, so the choice part of it can clearly be argued. My main point was that by the time the person is an adult, their disposition is as good as inherited. They can vary the levels of subjective perception of happiness around that level through their actions, but they are still stuck with the range, mostly through no fault or choice of their own.

Since a few literally quotations on the subject have been posted, let me end with the quote from William Blake that was used before the chapter on the biological basis of personality I recently read:

Every Night & every Morn

Some to Misery are Born.

Every Morn & every Night

Some are Born to sweet Delight.

Ken Drees writes in: 

I believe that you must put effort towards a goal and that exercise in itself begets a reward that bends toward happiness. It's the journey, not the end result. You must cultivate to grow. A perfectly plowed field left untended grows weeds–the pull is down if nothing is done.

Russ Sears adds:

It has been my experience with helping others put exercise into their lives that few teens and young adults have reached such a narrow range that they cannot achieve happiness in their lives. This would include people that have been abused and people that have a natural dispensation to anxiety. Their "range" increases often well beyond what we are currently capable of achieving with "major medical intervention". As we age however our capacity to exercise decreases. While the effects of exercise can still be remarkable; they too are limited by the accelerated decay due to unhappiness within an older body's capacity. Allowing time for our bodies is an art. Art that can bring the delights of youth back to the old and a understanding of the content happiness of a disciplined life to the young.

Peter Saint-Andre replies: 

Horsefeathers.

Yes, hard work is often a necessity. But hard work does not prevent one from pursuing other priorities in parallel (writing, music, athletics, investing, whatever you're interested in). Very few people in America have absolutely no leisure time — in fact they have a lot more leisure time than our forebears, but they waste it on television and Facebook and other worthless activities.

Between working 100 hours a week (which few do) and being a ski bum (which few also do) there lies the vast majority of people. Too many of them have ample opportunity to bring forth some of the songs inside them, but instead they fritter their time away and thus end up leading lives of quiet desperation.

It does not need to be so.

Dan Grossman adds: 

Jim Sogi has a good point. The deathbed regret that one didn't spend more time with one's family is frequently an unrealistic cliche, similar to fired high level executives expressing the same sentimental goal.

The fact is that being good at family life is a talent not everyone has. And family life can be difficult, messy and not easy to make progress with. Which is perhaps one of the reasons more women these days prefer to have jobs rather than deal all day with family.

Being honest or at least more realistic on their deathbeds, some people should perhaps be saying "I wish I had spent more time building my company."

Rocky Humbert comments:

I feel compelled to note that this discussion about deathbed regrets has been largely ego-centric (from the viewpoint of the bed's occupant) — rather than the perspective of those surrounding the deathbed. I've walked through many a cemetery, (including the storied Kensico Cemetery) and note the preponderance of epitaphs that read: "Loving Husband,"; "Devoted Father," ; "Devoted Mother," and the absence of any tombstones that read: "King of Banking" or "Money Talks: But Not From the Grave."

Notably, Ayn Rand's tombstone in Kensico is devoid of any comments — bearing just her year of birth and death. (She is, however, buried next to her husband.) 

In discussing this with my daughter (who recently acquired her driver's license/learning permit), I shared with her the ONLY memory of my high school driver's ed class. (The lesson was taught in the style of an epitaph.):

"Here lies the body of Otis Day.

He died defending his right of way.

He was right; dead right; as he drove along.

But now he's just as dead, as if he'd been wrong." 

Kim Zussman writes:

Is an approach of future regret-minimization equivalent to risk-aversion?

Workaholic dads have something to show for their life efforts that Mr. Moms don't, and vice-versa.

If so, perhaps the only free epithet is to diversify devotions — at the expense of reduced expectation of making a big mark on the world or your family.

Nov

30

"How Paulson Gave Hedge Funds Advance Word"

Paulson tips hedgies over lunch in '08.

Jim Lackey writes:

Looks like it just happened again. Last week an EU bank was in trouble… Monday they gap it to the moon on the relief nothing went under…and today the news.

All of this mumbo reminds me of Rocky's experiment on unemployment Fridays. Even if you know the number or have the inside scoop, do you have the whole story and or can you predict the markets move, since who else already knows?

My day trader's guess is too few knew about today's news… or we wouldn't have gone 10 over open prices. I used to let these things bother me. Now I just say, now you know…. Now you know why I gravitated to the counters. Win, lose, or draw, do your best.

Nov

29

While lounging on the beach this beautiful Thanksgiving weekend with friends we did the following questionnaire from the back of Vanity Fair Magazine. It proved very thought provoking not only for friends' answers but thinking of one's one ideas in a new way. The following is quoted in its entirety from the vanityfair website. It reminded me of the list's and the junta's questions from Ben Franklin

The Proust Questionnaire The Proust Questionnaire has its origins in a parlor game popularized (though not devised) by Marcel Proust, the French essayist and novelist, who believed that, in answering these questions, an individual reveals his or her true nature. Here is the basic Proust Questionnaire.

1. What is your idea of perfect happiness?
2. What is your greatest fear?
3. What is the trait you most deplore in yourself?
4. What is the trait you most deplore in others?
5. Which living person do you most admire?
6. What is your greatest extravagance?
7. What is your current state of mind?
8. What do you consider the most overrated virtue?
9. On what occasion do you lie?
10. What do you most dislike about your appearance?
11. Which living person do you most despise?
12. What is the quality you most like in a man?
13. What is the quality you most like in a woman?
14. Which words or phrases do you most overuse?
15. What or who is the greatest love of your life?
16. When and where were you happiest?
17. Which talent would you most like to have?
18. If you could change one thing about yourself, what would it be?
19. What do you consider your greatest achievement?
20. If you were to die and come back as a person or a thing, what would it be?
21. Where would you most like to live?
22. What is your most treasured possession?
23. What do you regard as the lowest depth of misery?
24. What is your favorite occupation?
25. What is your most marked characteristic?
26. What do you most value in your friends?
27. Who are your favorite writers?
28. Who is your hero of fiction?
29. Which historical figure do you most identify with?
30. Who are your heroes in real life?
31. What are your favorite names?
32. What is it that you most dislike?
33. What is your greatest regret?
34. How would you like to die?
35. What is your motto?

Jul

29

Guaranteed they will wait until the last minute. The tactic will be to give the bill to the Senate and the President at the very last minute in order to put them under the gun to avoid the blame. The game the D- Senate is playing with the Republican House is that under the rules as I understand any differences in the House and Senate bills will be worked in a Committee and bypass many of the deals made in the house. Negotiation, brinksmanship in a complex and far reaching environment. Its unfortunate that they have used the markets and public as fodder. The breath holding would be comical if so much were not at stake. Its the old make 'em wait in the lobby, your mother would be ashamed ploys.

Jul

24

It has been interesting to see in the course of these negotiations how every dodge and feint from the Zacharian and Remusian play book has been used so frequently. We have seen "Your own man" and "don't throw me in the briar patch" many times, and "you're the one that broke it up" and "You're taking care of your interests much better than I'm taking care of my interests" and "here's a gift to star the negotiations (the golf game)" et al.

I haven't seen commented or named by Zachar however, "I'd like to go through with your deal but my sister in law is opposed to it". By this I mean, that "Rand Paul and the tea party boys will not vote for any deal that has a tax increase" or "Nancy Pelosi and the Women Senators will not agree to any reduction in social security".

What we need is a systematic classification of all these negotiation techniques so we can catalogue them as they come out. At the head of the list is "what will happen in Asia if we don't agree to increase the service rates?" Or "what we need is another 500 point drop before the service rates go up". The stock market plays a role, and I also like "the bond market went down for the first time in 3 weeks amid fears that a deal (a service rate increase) was not reached." Forget about the fact that it's within a point of a yearly high.

The Goddesses of the market look down upon us and have a belly laugh at our foolishness as we sway. That's for sure. But can money be made by seeing through all these snares and delusions?

Well in retrospect, we know that the stock market when it's down much is merely being used as a tool. But how to withstand the 20% drop of oct 2008, as it is used for its evil purposes?

George Zachar writes:

Negotiation tactic taxonomy appears to be a developed field. Check out these articles.

negotiation tactics


How to beat dirty negotiation tacticts: 10 tips

How to overcome the top ten negotiation tactics

negotiationtactics.net

Jim Sogi lists some of his own negotiation tactics:

1. Higher authority. The absent person with authority needed to approve(ie the wife, the husband, the underwriter, the supervisor at the car lot, the rank and file in Congress. Classic negotiation gambit. I'm on your side, and I'm with you on this, but I have to convince etc etc.

2. You're really killing me on this deal. I'm losing my shorts on this. My kids are going to go hungry.

3. I really like you. I want to help you make this deal. You look like a good guy.

4. Ok we have a deal, but there is one last detail I'd like to discuss…

5. A really good one is when you have a deal, but then the negotiations just start . Oh we'll have to change delivery, the supplier just called and there's a strike, oh there's a slight problem with that model, oh the bank just called on the financing and…etc etc

6. First or second round….I'm laying all my cards on the table here, and here is my absolute maximum authority.

7. The nuclear option: if you don't accept this deal the sky will fall down.

8. Make him an offer he can't refuse. The Godfather.

9. Stall stall stall when time is asymmetrical making one party ("O") look really bad.

10. Your mother would be ashamed of you. The voters will be ashamed of you. Your boss will fire you.

11. Listen I just got fired, my cat died, my pick up truck just broke down and my mother died. Can you pleeeeze give me a little slack here?

12. Nibbling. Oh can you throw in gas, free trip, delivery, warranty, extra this that etc etc.

13. Silence.

14. Negotiating against yourself. You'll have to do better than that.

15. The hypothetical. If I was to offer you x, would you consider that a good offer?

16. Bracketing. I'm not going to give you a penny more than x. That's the beginning and bottom of the scale.

17. The red herring. I'll give you x and y for z, but would be willing to give you just x for z-1. (form of bracketing)

18. Reluctant seller. (Brer Rabbit). 

19. That offer is an insult, a slap in the face.

20. Keep 'em waiting. Soften them up at bit. Let the salesman sit in the waiting room for about an hour. Let the car buyer sit for about a half hour while the salesman and manger talk about golf.
 

Jul

21

Tone is as important to music as pitch. You've heard a new violin player playing the notes on the chart but the tone is awful. Yo Yo Ma plays sweet modulating tones. Focusing on just price without regard to tone leaves out relevant and important information.

The market has tone. Quiet, jumpy, weak, anxious, thin, bullish and dense internals. The environment, political, news, economic, social, international also establishes a mood and tone to the market that cannot be ignored except at your own risk. The prior tone is also relevant as music is not discrete tones and notes, but a integrated statement over time. Emotion is the main vehicle of music and also with the markets.

Tone both creates emotion and is the result of emotion. Voice carries emotion: The cry of a baby, the angry tones of politicians, the whine of the complainer each has distinct tonal qualities. The tone carries meaning and has persuasive force. The question is how to quantify it or even qualify it to learn the meaning in the market.

Emotion also has established patterns: Denial, anger, acceptance; fear, capitulation, numbness; catastrophe,catharsis; infatuation, love, boredom, hate. If tone both reveals and creates emotion, understanding the tone of the market will reveal its emotional state and reveal its emotional stage giving a clue to the next phase.

Jordan Low writes: 

The yogis believe in seven chakras in the human body, each corresponding to one of the seven pitches, each corresponding to a different emotion. The stages of grieving you describe go from lower chakras/pitch to higher.

Soros reacts in his gut, which is one of the lower pitches — probably a survival type of emotion. The tone probably is the intensity of the energy at that chakra — I am thinking market volume. We are probably saying the same thing — I find it interesting but am adding quite little.

BTW, the chakras also correspond to the colors in the rainbow, red with the lowest frequency is below.

Laurence Glazier writes:

For these reasons I find alternating attention between composing and trading congruent, as they are carriers of emotion at different scales.

From my point of view the Elliott Wave framework fits well, being a sequence of eight stages whose final three are labelled A, B, C. As I often use a fractal structure in music, that is another similarity. I may be slow, but it has taken me years to internalise patterns which are lately becoming clearer to see.

Yesterday I put sixty years of the S&P into Advanced GET. The astonishing rise from the doldrums must, in part, be a distortion reflecting the love of printing money, but even were this transcribed from dollars to ounces of gold, I think the ascension of computer followed by internet technology would show how much these developments have added to the wealth of the world.

As I move between Monthly, Weekly and Daily views, the software messes up the precision of my placement of wave counts, and I am thinking to move the whole thing into a graphics program, with the different scales, whether grand or minuettes, callable up via layers. This would help me watch day by day what's going on, a work of art within an art program.

It is impossible to experience in full a piece of music from a short excerpt, and I think likewise the Market, with all its waves and eddies, needs attention from up close and afar.

Also, the rainbow, the universal belief that there are seven colors in it may stem from Isaac Newton's assertion, which was based on his mystic ideas about numerology.

However if you look at a rainbow and count, it is not clear whether blue, indigo and violet are really three colors or two. Also the yellow band is very narrow, though often depicted as equal to the others.

I think context in time is part of what the Market (like a human being) experiences, so as well as volume one might want might look at moving average based indicators, and fractal perspectives.

Laurel Kenner writes: 

Mr. Sogi is exploring an endlessly fascinating topic with his exceptional lucidity and depth of experience. Great performers play the heartstrings by varying tone within phrases. (They also vary dynamics and duration of individual notes in phrases.) They learn how to do this by spending years with master teachers and figuring things out on their own. That's why synthesized music can sound only like an approximation of the "real thing." Because the market is a bazaar of human voices, expressing workaday practicalities, aspirations, fears and strategies, I don't think it's unduly anthropomorphic to look at it as a great performer. And while some of a great performance is spontaneous, much involves muscle memory that training has made reflexive, and must therefore be susceptible of being "sussed out."

Rocky Humbert writes: 

There's an old game/tv game show called "Name that tune". The gist is that competitors would try to identify the title of a song by hearing only the first X notes; the winner would correctly name the tune in the fewest notes. Human memory being what it is, it was possible to name many popular pieces and classical symphonies by hearing only the first measure of a piece.

However, if one picked a RANDOM measure from somewhere in the middle of the same piece, it was vastly more difficult to identify the title correctly with the same consistency.

This is a reflection of how our memories work; and this phenomenon may have relevance for people looking for patterns in the middle of time series — as opposed to the beginning and ends of time series.

Alan Millhone writes: 

Hello Rocky,

My old friend and top Master checker player, Karl D. Albrecht from Michigan was walking around the playing room full of players at the Tennessee tournament. As Karl walked by many games that were being played into the mid-game he could by sight and memory accurately tell you from what checker opening each board position originated. I found this remarkable.

Regards,

Alan 

Jul

18

The Blue Ray disk is a classic really bringing back a golden era in music. Grace Slick looking and sounding great with Jefferson Airplane, Jimi Hendrix burning his guitar, Mamas and the Papas, Simon and Garfunkel, Janis Joplin, Ravi Shankar, The Who, Otis Redding and more. Definitely one of the best concert films.

Also, Rock and Roll Hall of Fame: 25th Anniversary is one of the best concert movies ever on Netflix streaming with Stevie Wonder, Simon and Garfunkle, Aretha Franklin, Sting, Jeff Beck, Lou Reed, Metallica, U2, Crosby Still Nash, James Taylor, Jackson Brown, BB King, Smokey Robinson, Little Anthony and the Imperials and more, more more. I wish the 4 Seasons were on too. How mackerel! What line up. Great performances, great mixing and sound and staging. Nice bookend to the Monterey Pop video with current performances of many of the same bands.

 

Jul

13

Part of the new game seems to be to make each favorable price last for such a small nano-second that it's impossible for a person not a champion video gamer to place an order. Thus the only way to get those favorable prices is with the limit orders. And because of the unlimited capital, ability to borrow at zero, bailout investments, purchase of all non-performing assets at favorable prices from the tarps, ability to pledge non-performing assets at face value, and placement of their physical facilities at the exchanges themselves, and programs and technology and rebates that give them the first crack and priority at any limit price level, you can't compete with the cronies and banks on the limit orders. So it's catch twenty two. Only a Sholem Alechem could appreciate the impossibility of this situation. You can't compete unless you wear official clothes, but if you wear the official clothes, you're a flexion or worse.

Jim Sogi writes:

Despite all the flexions' advantages, if your order is in queue ahead of theirs at the right price, you should be able get your fill before theirs. I don't see how their advantages, other than money and info, prevent you from placing that order ahead. Even the long string of 50 lot orders 100 lot order shooting like machine guns won't necessarily stop a price move or be at the right time or price. I try to see their size and position as a disadvantage, making them slow movers, dinosaurs, and having specific weaknesses that ought be able to be taken advantage of. This is the the tactic used by the Taliban, the VC, the Insurgents in Iraq, when fighting a more heavily supplied, heavily connected, better financed foe. They used stealth, night raids, hit and run, ambushes, and hide during heavy action periods.

That brings me to the next subject. The record of prices in charts provides a good record and good memory. It appears helpful to set orders in relation to prior price action, as there is both a record, and a memory at those particular prices. That record may not necessarily appear in the raw price data alone as visibly. Every statistics text you have recommended said eyeball the data for interesting relationships. Why not use that record in addition to prospective price expectations which don't give good specifics of price, but more typically of time/yield.

Jul

13

PPPD. I'm going camping the Montana Rockies carrying ultra light gear later this summer. Food is a substantial percent of the load. The problem is to carry enough food but not too much that you don't eat it all. One method of computing food needs is pppd. As a rough measure it ends up being about as accurate as calorie counting, and a lot easier. So I thought why not try use it at home. An average person on a camping hike will use about 1.4 pppd, more or less based on size, metabolism, level of activity, temperature. At home, without continuous activity the amount should be less. A simple scale will avoid the common and pernicious miscalculation of portion size. The proponents claim that the calories and nutrition needs will generally balance themselves out, as few will eat all butter and chips.

I know without asking that many of you battle weight issues and overeating. I offer PPPD as an easier way of counting accurately consumption. I'm going to try it myself though I am at my perfect weight. It can also avoid wasting food and money.

Jul

11

In Reminiscences of a Stock Operator there is a scene where a tout runs up the the Commodore and says buy such and such stock. The Commodore phones his broker and says sell 10K, then says sell 10 more. Tout goes, "What are you doing, I said Buy!, not sell". Commodore says, I need to see how the market is taking the orders.

Does it make a difference how your orders are being filled? Are they gobbled as price passes thru as if you weren't even there, or does it nibble nibble at the order and partially fill, or does it touch and fill, or does it sit on price touch, touch, not fill, then fill? Do these variations even make a predictive difference in what happens in the near future?

On an a somewhat unrelated matter, the drop this morning was interesting in that it didn't have the panic drops and sell, rather a very very broad based slow decline with over a 30:1 ratio of NYSE downvol to upvol for almost the entire period. That seemed unusual. Marty Zwieg had some prior era contra trades based on the high ratios which don't seem to apply in the current market.

Jul

8

CNBC is calling this a short squeeze rally. Is it? They say short interest is high. Is it? 100 points in 9 days! Gold, crude, Nik, all back up.

Jul

7

What is a bull market trend like? What are the characteristics that define it and differentiate it from the preceding bear move?

1. The big violent up move off the bottom.
2. The relentless move up against steady selling pressure.
3. The absence of any pullbacks.
4. As it tires, the slowness of the ticks and the lack of up and down motion, low absolute volatility.
5. Broad participation by both sellers and buyers.
6. Regular new highs, higher lows.

What are the other characteristics? What is the dividing line between the bear and the bull market both on the bottom and on the top? The $64 question.

Craig Mee adds:

Maybe also the release of some large pressure valve that had its foot on its throat, and the reluctant push lower from the beginning of the decline (especially when looking at near term correlated inter market relationships).

Jun

24

In Beyond Candlesticks, Nison describe the record session using daily bars where new highs are made.

Traditionally 8 or 11 new highs signified and extended market.

The record lows is somewhat different as Russ recently pointed out.

Intraday is be different again, but higher dimensions than just price change alone can add info.

Jun

20

I don't know much about options, but can anyone explain to me why expiration days seem to have lower ranges and absolute volatility? I haven't quantified this but that's my impression and I read something about it. Are there figures for biggest option strike. I've heard stories of why this might have some sort of effect on underlying price. Thanks.

Sam Marx answers:

One of the reasons is what is called "pinning" where stocks close to their strike prices will trade around that strike price and get pinned to it. This is not true in all cases but occurs often enough to decreases stock swings.

There have been scholarly studies on this and you can read more about it in the book Trading Options at Expiration by Jeff Augen.

Phil McDonnell adds:

I do not actually know if expirations have lower volatility and reduced ranges or not. But IF it is true it may have something to do with pinning. Pinning has been identified in several academic studies as being a real phenomemon. Basically it involves the stock closing at or on a given nearby strike price which happens to have a large open interest. Essentially the stock gets stuck trading at the round number with greater likelihood than on other days.

Option strategies such as sold straddles, calendar spreads, butterflies all reap their maximum profit at a particular strike. So the incentive could be there for flexionic manipulation. Or it could simply be a product of all the competing cross currents which occur on those days.

Sam Marx replies: 

It has been tested and reported in academic studies.

As a starting point I refer you to Trading Options at Expiration by Jeff Augen.

Jun

20

For sailboat racing, good conditioning comes from ripping up hundred dollar bills in a cold shower with the lights off. I'm thinking something similar for trading.

A Letter from the President of the Old Speculator's Club, Jack Tierney: 

While this is an accurate observation, it's applicable solely to the owner. Those of us who spent our springs, summers, and falls "crewing" didn't suffer similarly from the experience. On the contrary, when offered a boat of our own at a "give-away" price, we politely declined– the perceived glamor far exceeds the reality– just as Wall St. movies are generally completely off the mark when picturing the "ease" with which fortunes are amassed.

Jun

19

There's a plethora of articles recently published that discuss the possibility of the sunspot cycle going into hibernation for awhile and a new Maunder Minimum (Period of decreased solar activity lasting ~70 years or more that caused a "Little Ice Age") taking place. There are articles here, here, and here that discuss a new solar minimum. Already this possibility is being politicized by the global warming crowd and articles are saying this, this, and outright falsehoods in this article.

There are many comments based on opinion and no science, like this one swirling around that said, "A new Maunder-type solar activity minimum cannot offset the global warming caused by human greenhouse gas emissions," wrote authors Georg Feulner and Stefan Rahmstorf, noting that forecasts by the Intergovernmental Panel on Climate Change forecast a maximum 4.5 degree Celsius rise by this century's end compared to the latter half of the 20th century. On that last partisan note, I expect that if there was a new solar minimum, the sun would have a solar flux of 11% of it's peak value and 50% of it's average minimum value. During that period, sunspot count could approach zero and average solar output could drop by 0.9-1.3%, going way below the solar constant. A solar minimum could be a big deal with a huge planetary climate disruption. Thinking ahead by looking to the past, one notes that Oats, barley, beets, other cold weather crops and "Ancient grains" all had an increased planting range during the last Maunder Minimum. Other crops like wheat, rice, and tropical crops had a shrinking planting range.

Jim Sogi comments:

This just shows how facts can be picked to substantiate any thesis. The verity, relevance, reliability, conflict of interest in any particular fact or its origin may affect its reliability and thus the strength of whatever conclusion is being drawn. These factors can also be used to spin facts to support spurious conclusions. Irrelevant facts often determine outcomes of decisions based on their emotive content or recency. These are well known heuristics. I know this probably better than anyone on this list. We see scientific studies by drug and food companies misused to promote their products. We see facts misused by the propagandists of the power elite to distort the truth. Thus the use of facts is not the only road to truth. The use of reflection, thought in the absence of fact can be useful and productive.

Vincent Andres writes: 

Thus, as long as the IPCC satisfies its true clients, it can– like its clients– completely ignore the critics. They are valueless, unimportant and powerless. That is what it has learned-– the classic "mind over matter" trick. It doesn't mind and we don't matter. That is the way modern government works, and the IPCC is part of it– as this brazen example shows.

May

25

Regrettably for the many traders out there that watch such things the 100sma is intersecting directly with the 1308.50 gap.

Victor Niederhoffer writes: 

As those of us who strive in the futile effort scratch out a living by taking advantage of microscopic moves know, the market had a terrible excursion down overnight to the dreaded 1300 level stopping at 1302.5, and then gracefully as grandpa martin would say, climbing back to 1313, —– what does it all mean is a excursion down just above the round number, a danger sign, or a sign of strength.

Hard to test this without refining the data so far that it becomes statistically meaningless. But it's an interesting question that could be generalized in many different directions. 

Jay Pasch writes:

It is beneficial to have learned here the undesirable nature of stops and to sleep in the buff.

Jeff Rollert replies: 

That was not the visual I needed before my second cup of coffee…

Jim Sogi writes:

A couple of sidenotes…

Just around the close, certain brokerages changed the margin requirements certainly wiping out a number of players and causing some of the airdrops in the night as certain large positions liquidated. Secondly, it would be necessary to examine not only 24 hour data, but look to see which countries were manipulating the markets while NYers slept. The idea here is that the overnight markets or foreign interventions are becoming more and more important. Note the existing unfilled gaps that the day markets have not been able to fill for a while now. The same condition existing a few weeks ago in reverse as well. The night session is not a thin as it used to be. Still if you could, why not move things around at the margin for your own gain. 

May

6

Would you attribute the decline to knowledge that the man who doesn't like to spike the ball is 100% likely to become boss and increase the service rates for fairness, or the positions of the chief terrorist are being liquidated, or the spillover declines in metals and commodities and oil and oats down 5% is affecting stocks, or my favorite disillusionment, that the father figure above all next to the scholarly former Princeton chair has shown his spots, and they are black, and new info will be disclosed by the temporarily disgraced and discarded right hand man, and that this creates the loss of a father figure et al.

Gary Rogan writes:

100% is way too high. Both predecessors had over 90% popularity at their respective warrior moments of glory but it didn't last at one for the first one, and only barely for the second one.

He is resorting to deliberate confusion about releasing the photos just to prolong this for a few more days. He has done a lot of damage to the meme that his not of this place, but only temporarily. In just a couple of weeks he will face a renewed assault. He'll be winning on the gas price then and talking that up, but there is nothing he can do about unemployment: there is a feedback mechanism in place, the higher his chances are the higher unemployment will go.

Victor Niederhoffer writes:

Exactly the latter point you make. But what does intrade say now?

Gary Rogan writes: 

Well, even that is only at 60.9, but I have not found its predictive power meaningful so far in advance. Two days in advance it's really good because people with access to some hard data or are doing the cheating are moving the numbers, but now it's just as susceptible to the temporarily enthusiasm as an average man on the street.

Jim Sogi writes:

The Princeton pundit did say the spike in commodities was going to be short lived a few days back. Remember also the advice to buy stocks the day before the low. It may be worthwhile not to discount them at their word on these things because they have a lot at stake and are willing to do anything to stay in power.

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