The Deipnosophist

London's Tower Bridge during its construction

2012-01-27T05:00:00.000-08:00

Fascinating pictures, found only recently, of the Tower Bridge (London) during its construction. One example...

If you, like me, enjoy viewing photos such as these, then click on the link above. You will be glad you did! (Thank you to Harvey A.)
-- David M Gordon / The Deipnosophist

Who is Walter Cronkite?

2012-01-20T07:18:00.000-08:00

CNN’s John King opened yesterday's Republican 'debate' with a question about the allegations made by Newt Gingrich’s ex-wife that he wanted an "open marriage" etc. To which Newt Gingrich replied, "I am appalled that you would begin a presidential debate with a topic like that..."

What appalls me is the media's panty-waisted non-response. John King's immediate rejoinder should have been something along the lines of...

"Quite frankly, Mr Gingrich, you appall me. That you believe your record as a human being has no bearing on your abilities to be President is beyond the pale. Your arrogant disdain for anyone not you lacks any sense of proportion, decency, and regard for your fellow humans."

But, no, the media prefers to scurry back to their tower, above the fray, and pretend Gingrich's insult never occurred. It did.
-- David M Gordon / The Deipnosophist

Bad flight, great ad

2012-01-01T15:43:00.000-08:00

This ad will ick out many people, at least at its beginning...

But I find it hilarious. Perhaps you will as well.
-- David M Gordon / The Deipnosophist

(Global) Geography Quiz

2011-12-29T04:46:00.000-08:00

And not an easy quiz, at that. For example...

4. This continent's highest mountain is named for a hero of the American Revolution - who happened to be from Poland. Which continent? Bonus points if you can name the mountain.
33. Six countries use the rupee as their currency. How many can you name? We'll spot you India.

Answers included at the bottom of the page. No fair peeking!
-- David M Gordon / The Deipnosophist

Why WalMart/WMT?

2011-12-28T14:14:00.000-08:00

Another (complex) reason to be bullish on WalMart/WMT...

"Although Walmart’s $7.5 billion in Chinese sales receipts account for only 2 percent of the company’s annual revenues, its sales in China have risen substantially over the past decade. Sales in the United States, by contrast, have been shrinking. And as China’s retail market—the world’s fastest-growing—expands by 18 percent a year, Walmart’s executives smell the intoxicating scent of more growth to come. Equally important, if not more so, some 20,000 Chinese suppliers, or “partners,” reportedly provide Walmart with about 70 percent of the nearly $420 billion worth of goods that it sells globally each year. (Because of the complexity of the global supply chain, the percentage from China is hard to calculate.) China has become so crucial to Walmart’s supply chain that in 2002, the retail giant moved its global sourcing headquarters across the border from Hong Kong to Shenzhen, in southern China."

-- David M Gordon / The Deipnosophist

Smart or Stoopid?

2011-12-26T12:17:00.000-08:00

"Are you smarter or stoopider (sic) than the average person? Take this short IQ test (link below), and find out how you compare..."

A word or two of warning before you begin: the test is not solely of your knowledge but your knowledge measured against time. If I recall correctly, you have 8 seconds/question to respond.

Ready, then? Get set. Begin!

Oh, and have fun!
-- David M Gordon / The Deipnosophist

Season's Greetings

2011-12-25T05:43:00.000-08:00

Best wishes to you and yours!
-- David M Gordon / The Deipnosophist

Goodbye to All That: Reflections of a GOP Operative Who Left the Cult

2011-12-21T13:46:00.000-08:00

If I could assign a single article to read in order to describe the political world as I view it, this commentary would be it. Written by a recently retired Republican staffer, he nails the pathology of both the Republicans and the Democrats without simplistically equating the two. His analysis is straightforward, his language direct, and his many and varied insights prove spot-on time and again...

You know that Social Security and Medicare are in jeopardy when even Democrats refer to them as entitlements. "Entitlement" has a negative sound in colloquial English: somebody who is "entitled" selfishly claims something he doesn't really deserve. Why not call them "earned benefits," which is what they are because we all contribute payroll taxes to fund them? That would never occur to the Democrats. Republicans don't make that mistake; they are relentlessly on message: it is never the "estate tax," it is the "death tax."

Did I mention I like this essay? I do, lot. Read it!
-- David M Gordon / The Deipnosophist

The Hobbit: An Unexpected Journey

2011-12-21T08:34:00.000-08:00

Eleven months and three weeks from now.
-- David M Gordon / The Deipnosophist

Makes you want to go there

2011-12-19T05:52:00.000-08:00

Absolutely, breathtakingly beautiful place... and ad

See what I mean?
-- David M Gordon / The Deipnosophist

Risking death for...

2011-12-14T04:22:00.000-08:00

... mussels?!

"The people of Kangiqsujuaq in Canada go to great lengths to add variety to their diet of seal meat, venturing under the sea ice during the extreme low tides of the spring equinox to gather mussels."

Jaw dropping but brief (3 minutes) video you must watch...

"Jaw-dropping" for the video's beauty, but also the venture's inherent risk. A 30 minute window? Yikes!
-- David M Gordon / The Deipnosophist

Winter fun

2011-12-13T10:09:00.000-08:00

Riding a challenging course on a snowmobile, and then...

Keep watching. It gets better, more fun. For the viewer.
-- David M Gordon / The Deipnosophist

Thank you (again) to Harvey A.

Apple's iBooks v1.5

2011-12-09T04:48:00.000-08:00

Apple has updated its e-reader app, iBooks. The changes, in a word, brilliant! Better would be two words, non-brilliant.

You see, they implemented a night time reading theme, which works wonders. No longer does the iPad's backlight bathe you, and anyone near you, in its glow. The change, in essence, reverses the image: white type on a black backdrop rather than black type on a white (and ultra-bright) backdrop.

A few other changes: full screen and a greater variety of fonts.

I like the update. Download, and see for yourself.
-- David M Gordon / The Deipnosophist

The greatest card trick. Ever!

2011-12-07T05:21:00.000-08:00

See what I mean?
-- David M Gordon / The Deipnosophist

The folly of price AND time

2011-12-06T08:14:00.000-08:00

Hmmm, what happens if...
- Christmas comes, but not 1330?
- 1330 comes, but well before Christmas?
- 1330 comes, but well after Christmas?
- Insert here your favorite permutation

In other words, where are the contingency plans? You know, if this, then that; if not this, then this other.

Tom DeMark is a smart fellow - he knows and understands the markets well - so I suspect the journalist edited Tom's commentary to the headline-grabber.

Ahh, the folly of pronouncements. I prefer good old money management.
-- David M Gordon / The Deipnosophist

WOW!

2011-12-04T09:25:00.000-08:00

Impressive all...

But note the extraordinary last feat. I would say unbelievable, if I had not just seen it with my own eyes!
--David M Gordon / The Deipnosophist

How to get women to exercise

2011-11-10T15:57:00.000-08:00

Makes sense to me! :-)
-- David M Gordon / The Deipnosophist

The hunter sights his prey

2011-11-07T09:43:00.000-08:00

No words necessary...

Thank you to Harvey A. for showing the way.
-- David M Gordon / The Deipnosophist

Calvin and Hobbes... and children

2011-10-30T09:44:00.000-07:00

Any parent will appreciate the humor, if not the truth, of the cartoon.

Thank you to Harvey A for the share!
-- David M Gordon / The Deipnosophist

Siriously

2011-10-26T06:00:00.000-07:00

Yes, I intentionally misspelled the header, but for a purpose: To introduce this excellent article re Apple/AAPL's new (purchased) voice interface, Siri...

"Apple has just introduced voice as a major user interface and that its use of voice coupled with AI on a consumer product like the iPhone is going to change the way consumers think about man-machine interfaces in the future."

Change the way users interface with their mobile technology? (A generic heading because Siri paves the way for more devices from Apple.) You bet'cha. No longer do you use the device to communicate with other people and services, you have the device communicate with you. Remember all the cool devices in old science fiction stories? While many have yet to come true, the future is at hand... in your hand. And equally distributed.

btw, investors should note the article's penultimate paragraph...
"For Apple’s investors, the call for them to start paying dividends on their cash hoard is too short-sighted. Instead..."
-- David M Gordon / The Deipnosophist

Another test

2011-10-19T02:04:00.000-07:00

This one tests your knowledge of civics.

How did you do...? (I scored 32 of 33 correct, but my result is likely as much luck as true knowledge.)
-- David M Gordon / The Deipnosophist

Waisted

2011-10-17T07:58:00.000-07:00

The truth of empire waist...

See what I mean? :-)
-- David M Gordon / The Deipnosophist

Steve Jobs has died

2011-10-05T16:52:00.000-07:00

I never met Steve, knew him not at all, but feel deeply his loss. He changed my life. I bow my head in admiration and respect to a truly great man.

Credit to Jonathan Mak

Thank you, Steve. For everything. RIP.
-- David M Gordon / The Deipnosophist

The Vigilant Investor - A Review

2011-10-01T12:14:00.000-07:00

Back in 1999 and 2000, I participated in an online chat room dedicated to technology and technology stocks. It was a boom time for these companies, and the ease with which their investment recommendations and suggestions rose in price made participants feel empowered. "Who needs Wall Street?," they argued. Analysts were disparaged as "analists" and Wall St excoriated for its clueless and bumbling nature.

"Empowered," they claimed; I argued otherwise. Investing done with no due diligence raises Damocles' sword over their (and your) untested, unseasoned portfolios. My efforts were futile; the party in full swing. We all know what happened next.

"Due diligence" is a term used often; unfortunately, it means different things to different people. I argue that due diligence performed by and for investors is not bound by what and when to buy, but should you buy. And under what conditions should you sell? You must know, in advance, why you bought what you own, else run the risk of a market's wrath (aka, a bear market) - wondering suddenly whether you should buy (more), hold, or sell. (And flee as fast as possible.)

Pat Huddleston is an attorney, former Enforcement Branch Chief for the SEC, and founder/CEO of Investor's Watchdog, a company that conducts fraud investigations for pension funds, endowments, family offices, and individual investors. And now author of the new book, The Vigilant Investor

Pat adds a deeper layer of meaning and intent to the term, due diligence: to protect your portfolio, your life's savings, and you from investment scams and scammers, and even yourself. In story after story, Pat discusses the cons and tricks of which you should be wary, the typical profile of the con artists (they share similar lifestyles and types), and how your own sensibilities and personality helps make you susceptible; prey to their predatory nature. Pat states unequivocally,

"I know how scams and unethical advisers begin, how they operate, what contributes to their longevity, and what tactics they use to ensnare individual and institutional investors alike.”

In one story after another, Pat tells - often with colorful prose rich in its clever use of analogies, metaphors, and similes - of how investors have been bilked of their savings, how they continue to be bilked, and likely will be bilked into perpetuity. I am reminded of an aphorism from the 1970s re limited partnerships, "At inception, the general partner has the vision, the limited partners the money; at the end, the general partner has the money, the limited partners the vision."

Not on Pat's watch, though. After each chapter, he provides checklists that help the reader and investor avoid the emotional weaknesses or scams Pat discusses in the prior pages. And, at book's closing, Pat even suggests creating and fostering associations (or networks) of vigilant investors (AVIs, in Pat's abbreviation) that could communicate and inform each other; an InterPol of sorts but of/for/by investors.

Until then, Pat shares many lessons applicable for all investors:
* Trust, sure, but always verify, verify, verify. And verify the verifiers!
* Steer well clear of charlatanry.
* Watch out for conflicts of interest.
* Do not chase return or yield.
* Create a paper trail of all communication, complaints included.
* Learn that high pressure sales tactics are near synonymous with guaranteed loss of principal. (And principles.)
* And many, many more such facts and hints to avoid scamsters.

Your increasing portfolio value has you feeling empowered? Never forget the process of due diligence: why you buy what you buy, when you buy it, who sells it to you, and why they sell it. (If the investment's destiny is for an increased value, then why sell it now, to you...?)

Pat Huddleston's, The Vigilant Investor, belongs in the libraries of all investors everywhere. Not just filed away as a reference and resource, but read and read again; pages bookmarked, sections highlighted, the book readily available. Pages 12-16 alone, in which Pat recounts the tale of the "Geritol Gang," are worth the price of admission. Highly recommended.
-- David M Gordon / The Deipnosophist

Flying High

2011-09-28T17:07:00.000-07:00

"A time-lapse video taken from the front of the International Space Station as it orbits our planet at night. The movie begins over the Pacific Ocean and continues over North and South America before entering daylight near Antarctica. Visible cities, countries and landmarks include (in order) Vancouver Island, Victoria, Vancouver, Seattle, Portland, San Francisco, Los Angeles. Phoenix. Multiple cities in Texas, New Mexico and Mexico. Mexico City, the Gulf of Mexico, the Yucatan Peninsula, El Salvador, Lightning in the Pacific Ocean, Guatemala, Panama, Columbia, Ecuador, Peru, Chile, Lake Titicaca, and the Amazon. Also visible is the earths ionosphere (thin yellow line), a satellite (:55), and the stars of our galaxy."

-- David M Gordon / The Deipnosophist

A Gifted Man

2011-09-25T15:31:00.000-07:00

Check out the new TV show, A Gifted Man (full episode). First episode aired last Friday night, which time slot typically is the kiss of death. A real shame if again true, as the episode was the best hour of network TV I have seen in a very long time. The show holds great promise...

And excellent pedigree across the cast and crew: The show stars Patrick Wilson, Jennifer Ehle (Contagion), Margo Martindale (just won an Emmy for a year-long role in Justified), Julie Benz co-starred in Dexter, Pablo Schreiber co-starred in Season Two of The Wire. No surprise, though, as the show is produced, and the first episode directed, by Jonathan Demme.

Make a point to catch A Gifted Man; it will not disappoint.
-- David M Gordon / The Deipnosophist

What Will Apple Think of Next? 5 Ridiculous Predictions

2011-09-03T12:07:00.000-07:00

Clever. Funny. Even hilarious.

See for yourself.
-- David M Gordon / The Deipnosophist

[Trend] Lines and measured moves

2011-09-02T04:34:00.000-07:00

The article below is from my site dedicated to investments and markets, Investment Poetry, posted earlier this week...

Always helpful to circumscribe the market’s oscillations to keep those oscillations from surprising you. For example, the Nasdaq Composite/COMPX, in which I identify several items...

1) Support and resistance. Focus on the line at ~2600 – former resistance becomes support, and now, possibly, resistance again;
2) Measured moves. The distance in prices (~2600 to ~2875) is the same distance to 2325 (from ~2600), and the level from which the market bounced. (And should the COMPX break down beneath ~2325, the next measured move counts to ~2050, the lowest trend line drawn. NB: the points of support and resistance clustered at the price level.)

The takeaway is that measured moves, in tandem with support and resistance - and other technical studies not shown - identify turning points, however ephemeral. The second takeaway is that as price crosses the channel to seeming resistance at ~2600, risk increases. (“Seeming” means presumed resistance until proved otherwise, which would require a close well above 2600.)

Of course, unless you trade the indices, you do not buy the market; you invest in individual securities. Perform a similar analysis for your favored investment opportunities, and then overlay those charts with the market’s chart to identify the few opportunities that act stronger than the market. Many such investment opportunities exist today, as always.
-- David M Gordon / The Deipnosophist

The Man Who Walked Around The World

2011-08-25T07:31:00.000-07:00

A wonderful ad for Johnnie Walker whiskey...

I watch, and quickly lose the ad's technical magnificence to the beauty and majesty that fills the frame. And the desire to walk that trail. And, after a long day's walk, sit back with a glass of Johnnie Walker and a few good friends, and enjoy it all.
-- David M Gordon / The Deipnosophist

PS: Thank you to Harvey Abraham!

Ron Paul: Looking for Love

2011-08-16T04:57:00.000-07:00

In which Jon Stewart, host of The Daily Show, skewers the media for ignoring altogether Ron Paul's candidacy for President...

Now you might agree or disagree with Ron Paul's political notions and positions, you might even wonder abut Paul's seemingly perpetual candidacy for President, but, and as Stewart shows perfectly clearly, Ron Paul deserves the same respect the media accords the other candidates. Factor in his excellent polling results, and the media appears purposefully to ignore Ron Paul. And looks downright foolish (read: childish) in the process.

What do you think?
-- David M Gordon / The Deipnosophist

GOP SVU

2011-07-28T16:39:00.000-07:00

Jon Stewart nails it! And is extra clever in the effort...

The Daily Show With Jon Stewart

Mon - Thurs 11p / 10c

GOP - Special Victims Unit

www.thedailyshow.com

Daily Show Full Episodes

Political Humor & Satire Blog

The Daily Show on Facebook

Worth watching, no...?
-- David M Gordon / The Deipnosophist

Think you will find a great deal at the Borders clearance sale?

2011-07-23T09:38:00.000-07:00

Let me save you the trip.

I went yesterday (Friday) afternoon, in the bid to find some phenomenal prices. After all, this is no mere clearance sale, but an all-out liquidation. Borders (BGP) will soon be no more.

And while I prefer not to profit from another person's misery -- all those employees suddenly cast adrift in a terrible economy that seemingly has no new jobs for anyone, however skilled -- this was a match made in heaven. Borders, after all, had gobs of my money spent there over the years; so fair is fair.

But Borders still calls the tune. Or so it thinks. 40% discount? Magazines only, where the markups are equally tremendous. Books? 10-20% (science fiction a miserly 10%, mysteries a more giving 15%).

C'mon, who do they kid? Certainly not me. Better discounts were always available online at Amazon and elsewhere, who always had the book in my hands within 1-2 days, and charged no sales tax; Borders (at least my neighborhood store) almost never had what I wanted, charged full cover price, would order it and possibly have it in 1-2 weeks. Oh, and charge sales tax.

Bill Gates famously said something to the effect that, with the advent of the Internet, middle-men had better offer a premium service or a better price. Borders offered neither, especially the past decade. That trend continues with this so-called liquidation sale: the better price is found online elsewhere. And I can find the precise item(s) I seek.

Go to Borders? Perhaps for a coffee... but for the sad fact that the coffee outlets are closed. And most assuredly not for any deal. Save yourself the trip.
-- David M Gordon / The Deipnosophist

US$: A hard row to hoe

2011-07-23T03:04:00.000-07:00

The € over the past many weeks and months has collapsed utterly in price and value against every currency but the US$. This non-collapse likely means that the US$ is weaker even than the €, which says something ugly about the US$ and, by extension, the USA.

But what precisely? No question the USA pursues a never-articulated but nonetheless damning policy of debasing its currency - pretty much from Day 1, when politicians learned it is much easier to foist our problems off on international holders. Even so, the USA as a political entity does not circle the drain as the EU seemingly does. And yet international currency investors and traders continue to shun the US$.

I get that it is easier for American companies to sell more product abroad, if our currency is cheaper (an item's price in dollars is cheaper). Such a policy calls into question our values, even our morals: If this is how we treat (value) our currency, what other crucial items do we debase and/or devalue? And I sure would like to see American company executives compete on a level playing field, one in which international buyers buy for reasons other than cheap(er) price.

Conversely, you and I feel the pain of the US$'s cheapening value each time we visit another country, where any transaction requires even more dollars to facilitate. "One can of Coca-Cola is $6...? You must be joking!"

Our national policy ushers in - arguably, even creates - our coming Era of Diminished Expectations, and our national Day of Reckoning.

Sad. It did not have to be like this.
-- David M Gordon / The Deipnosophist

Yoga and me

2011-07-08T02:16:00.000-07:00

[Cartoon courtesy of The New Yorker]

You see what I mean...? :-)
-- David M Gordon / The Deipnosophist

The Essential Phone Interview Handbook - A Review

2011-07-02T14:08:00.000-07:00

Paul Bailo's new book, The Essential Phone Interview Handbook, promises its readers, right on its cover, to "Master the faceless interview," to "Be prepared no matter when they call," and to "Protect your professional presence." In the end, the book is an easy read with good tips strewn throughout the book.

One negative for this book is that the author neither chooses nor targets his primary audience. This seeming lack of target audience might be Mr. Bailo's objective, to reach a broader pool of job-seekers, but in the attempt to say everything to everyone, the book loses its message by being too remedial/rudimentary for those who have held professional positions and/or those who are comfortable and carry professional confidence and demeanor.

A second though less grievous negative is too much repetition in the stories - from personal stories to "Story with a Moral" to "Something to think about" sections throughout the book. The stories are too similar to draw different lessons or meanings.

The author laid out the book well, from preparation before the interview, to during the interview, to following the interview. He offers several valuable tips:

* Record your voice (page 23). Great concept - understand what you like, how you sound, what fillers you may unconsciously project (um, ahh, you know - page 81), tone, and confidence.
* Ensure you use a land-line (page 39)
* Remove or deal with distractions and background noise (pages 30+).
* Confirm your appointment the day before your scheduled interview (page 61).
* Take notes during the call (page 118)
* After the call, reflect upon and analyze the call (page 171). What did you do correct? What can you improve?

Unfortunately, the author includes a few miscues. The example of how to deal with the distraction of a dog barking (pages 35-36) is one. His suggested response: "I'm sorry. I thought I had planned for everything - researching, practicing, and studying. One thing I didn't plan on was my neighbor's dog. Lucky for me, I'm very flexible, and I can easily manage the unexpected. Let's continue with our phone interview."

Huh? "Lucky for [you]"...? Perhaps not so lucky for the interviewer. Does this sound like a comfortable and confident person, whose talent precedes such a distraction? Would it not be better to say, "Excuse me, that is my neighbor's dog. If his barking distracts you, I can quickly move to another telephone to continue our important call." This reply could show that you also care that the barking might affect or distract the interviewer.

The author suggests you research for three days prior to your phone interview -- and lays out suggestions for each day. (p 49) He begins with, "Go to the library." Really? The most recent and valuable information on most firms is not necessarily located in a library, nor is it the most up-to-date. The author then ends with a note that just by going to Google for a search of the company does not reach the required depth of research. But at no time does the author suggest going to the firm's web site, or Hoovers, or other online resources, to research the company's mission, values, history, and culture.

Page 57 leads in with a tip to read about the national and international news the morning of the call. This would ensure that an interviewee does not fall into the same situation the author fell into where the caller described a speech in Europe (page 58) that he was unaware of and made him uncomfortable and embarrassed the rest of the call.

Hmm. Is the organization located in Europe or does it have business that would be affected by events there? Did this European president's speech notify the world that a new war was initiated, or a disaster struck that affects a large region? If not, why would this be relevant? Why would, "I have not yet read about the speech" make you fail the phone interview? Be realistic. Certainly consider news in the area of the caller, news that may affect the company, but you could not memorize the entire world's news to respond effectively to his scenario, unless you are already interested and regularly read this news.

Despite my quibbles, The Essential Phone Interview Handbook offers fine pointers for those job applicants who have yet to field a telephone interview.
-- David M Gordon / The Deipnosophist

How to select stocks for portfolio success

2011-06-29T17:11:00.000-07:00

Migawd, but this Wall Street Journal op/ed essay is hilarious!

"... My point is that I hate Apple. I hate that I irrationally crave their products, I hate their emotional control over my entire family, I hate the time I waste trying to make iTunes work, I hate how they manipulate my desires, I hate their closed systems, I hate Steve Jobs's black turtlenecks, and I hate that they call their store employees Geniuses which, as far as I can tell, is actually true. My point is that I wish I had bought stock in Apple five years ago when I first started hating them. But I hate them more every day, which is a positive sign for investing, so I'll probably buy some shares."

Who knew Scott Adams (Dilbert) is so funny? :-)
-- David M Gordon / The Deipnosophist

res ipsa loquitur

2011-06-25T14:30:00.000-07:00

Texting while driving...

Kills.
-- David M Gordon / The Deipnosophist

Nine Things That Will Disappear In Our Lifetime

2011-06-24T09:59:00.000-07:00

A doff of my cap to Harvey Abraham for sharing the information below!
-- David M Gordon / The Deipnosophist

Whether these changes will prove good or bad depends in part on how we adapt to them. But, ready or not, here they come...

1. The Post Office
Get ready to imagine a world without the post office. Post offices are deep in financial trouble, arguably unsustainably so. Email, FedEx, and UPS have just about wiped out the minimum revenue needed to keep the post office alive. Most of the mail is junk mail (catalogues, etc) and bills.

2. The Cheque
Britain is already laying the groundwork to do away with cheque by 2018. It costs the financial system billions of dollars a year to process cheques. Plastic cards and online transactions will lead to the eventual demise of the cheque... which plays right into the death of the post office. If you never paid your bills by mail and never received them by mail, the post office would absolutely go out of business.

3. The Newspaper
The younger generation simply doesn't read the newspaper. They certainly don't subscribe to a daily delivered print edition, which just might go the way of the milkman. As for reading the paper online, get ready to pay for it. The rise in mobile Internet devices and e-readers has caused all the newspaper and magazine publishers to form an alliance to develop a model for paid subscription services.

4. The Book
You say you will never give up the physical book that you hold in your hand and turn the literal pages. I said the same thing about downloading music from iTunes. I wanted my hard copy CD. But I quickly changed my mind when I discovered that I could get albums for half the price without ever leaving home to get the latest music. The same thing will happen with books. You can browse a bookstore online and even read a preview chapter before you buy. And the price is less than half that of a real book. And think of the convenience! Once you start flicking your fingers on the screen instead of the book, you find that you are lost in the story, can't wait to see what happens next, and you forget that you're holding a gadget instead of a book.

5. The Land Line Telephone
Unless you have a large family and make a lot of local calls, you don't need it anymore. Most people keep it simply because they've always had it. But you are paying double charges for that extra service. All the cell phone companies will let you call customers using the same cell provider for no charge against your minutes

6. Music
This is one of the saddest parts of the change story. The music industry is dying a slow death -- and not just because of illegal downloading. It's the lack of innovative new music being given a chance to get to the people who would like to hear it. Greed and corruption is the problem. The record labels and the radio conglomerates are simply self-destructing. Over 40% of the music purchased today is "catalogue items," meaning traditional music that the public is familiar with; older, established artists. This is also true on the live concert circuit. To explore this fascinating and disturbing topic further, check out the book, "Appetite for Self-Destruction" by Steve Knopper, and the video documentary, "Before the Music Dies."

7. Television
Revenues to the networks are down dramatically. Not just because of the economy. People are watching TV and movies streamed from their computers. And they're playing games and doing lots of other things that take up the time that used to be spent watching TV. Prime time shows have degenerated down to lower than the lowest common denominator. Cable rates are skyrocketing and commercials run about every 4 minutes and 30 seconds. I say good riddance to most of it. It's time for the cable companies to be put out of our misery. Let the people choose what they want to watch online and through Netflix.

8. The "Things" That You Own
Many of the very possessions that we used to own are still in our lives, but we may not actually own them in the future. They might simply reside in "the cloud." Today your computer has a hard drive and you store your pictures, music, movies, and documents. Your software is on a CD or DVD, and you can always re-install it if need be. But all of that is changing. Apple, Microsoft, and Google are all finishing up their latest "cloud services." That means that when you turn on a computer, the Internet will be built into the operating system; so, Windows, Google, and the Mac OS will be tied straight into the Internet. If you click an icon, it will open something in the Internet cloud. If you save something, it will be saved to the cloud. And you may pay a monthly subscription fee to the cloud provider. In this virtual world, you can access your music or your books, or your whatever from any laptop or handheld device. That's the good news. But, will you actually own any of this "stuff" or will it all be able to disappear at any moment in a big "Poof?" Will most of the things in our lives be disposable and whimsical? It makes you want to run to the closet and pull out that photo album, grab a book from the shelf, or open up a CD case and pull out the insert.

9. Privacy
If there ever was a concept that we can look back on nostalgically, it would be privacy. That's gone. It's been gone for a long time anyway. There are cameras on the street, in most of the buildings, and even built into your computer and cell phone. But you can be sure that 24/7, "They" know who you are and where you are, right down to the GPS coordinates, and the Google Street View. If you buy something, your habit is put into a zillion profiles, and your ads will change to reflect those habits. "They" will try to get you to buy something else. Again and again.

Something to Chew On

2011-06-18T04:58:00.000-07:00

Take this fun (and brief) pop quiz, so you "do not gross out the world."
-- David M Gordon / The Deipnosophist

Japan: three months after the quake

2011-06-17T05:04:00.000-07:00

Many startling, if not eye-popping, photos that reveal the truly Herculean task* the Japanese clean-up crews faced... and deal with.

The side-by-side (then and now) photos are inspiring!
-- David M Gordon / The Deipnosophist

*Akin to Hercules' cleaning of the Augean stables, in my fanciful interpretation.

Life is for the Living

2011-06-16T08:23:00.000-07:00

A new song, and inspiring video, from the Ryan Michaels Band...

Hey, I would still like the song even were Ryan not a friend!
-- David M Gordon / The Deipnosophist

Introducing: Creative Genius On-the-Go!

2011-06-08T05:04:00.000-07:00

A good friend and fantastic artist, Marty Safir - along with his wife and partner, Marjorie Sarnat - have developed a mobile app for the iPhone and iPod touch, called Creative Genius On-the-Go!

Description
Creative Genius On-the-Go! offers a fun creative thinking tool for busy parents who love to engage their children in imaginative enrichment activities. It's a convenient way to provide open-ended creativity for young minds with 150 quick and fun challenges, diversions, and scenarios that can be played anytime, anywhere.

Features
★ 50 What Ifs? - prompts the player to describe how the impossible may be possible
★ 50 Imagine That! - mind-stretching challenges that boost brainpower and zap boredom
★ 50 Wack-tivities - silly and fun diversions to get the creative juices flowing

It's received nice reviews so far. It is meant for children but appeals to "kids" of all ages.

If you have an iPhone or iPod touch and you're so inclined, please download the app (it's 99c), and, importantly, please rate it. This is very helpful because with the hundreds of thousands of apps available, the only way to raise its visibility in the app store is with a fresh stream of high ratings.

iTunes App Store link for more info and for purchasing

Pricing and Availability
Introductory price of only 99c

Additional Notes for the Curious
The activities are in the form of short, written prompts that children can play independently or with a friend or sibling. It also affords a great opportunity to have lively interaction together with the parent. These were all written by the highly prolific and creative mind of Marjorie -- there's no stopping her creative output. Marty developed the graphics and designed and oversaw development of the user interface.

I know that Marjorie and Marty will appreciate your support.

Thank you!
-- David M Gordon / The Deipnosophist

3 1/2 months later...

2011-06-08T04:42:00.000-07:00

Wow, time sure flies!

Okay, I could offer all manner of excuses and (even good) reasons for my disappearance, but none would change the fact that 3 1/2 months have lapsed since my last post.

I regret my absence, offer my sincere apology, and vow to return to (posting) form. Watch for new posts soon!
-- David M Gordon / The Deipnosophist

People ARE awesome!

2011-02-20T12:52:00.000-08:00

And the video below proves it!

-- David M Gordon / The Deipnosophist

Astounding, Amazing, Inspiring

2011-02-16T09:37:00.000-08:00

So worth the 3+ minutes to watch... and marvel.
-- David M Gordon / The Deipnosophist

OMG, it's me!

2011-02-06T09:14:00.000-08:00

Okay, not really, but it sure could be! In fact, that is John Pinette in his uproariously funny bit re food, diets, and endless buffets. And his punchlines only get funnier as he continues...

So maybe you gotta be me to get the humor of it all, but if you like food (too much) as I do, then I daresay you will be smiling a whole lot, if not laughing, by the time his gig is complete!
-- David M Gordon / The Deipnosophist

Rest easy with PacSafe

2011-02-05T15:13:00.000-08:00

What a pleasant surprise...

I had moaned on a travel website some months ago about two experiences:
1) That some years ago, while in Paris, my sister had 'locked' her backpack to the spare chair between her friend and herself while they sat at an outdoor cafe. Despite the extra effort, thieves created a distraction and still stole her backpack
2) A gang of toughs in Naples attempted to rip open my backpack... while still on my back! Keep in mind how large and broad I am, and their brazenness still surprises and impresses me.

I guess the fine folks at PacSafe read that post, and took action. They sent, gratis, their CourierSafe 100 with a brief note, "Here. Try this." So I did just that.

Color me impressed. While 'officially' a "laptop messenger bag" (for a laptop up to 15.4"), I used it for the past few weeks with my iPad. And even with my iPad in its jacket, the compartment had room to spare. The bag is intelligently designed: correctly sized interior pockets for just about every item you can think of: pens, cell phones, passports, travel documents, books, etc. All with their own velcro fasteners.

But the design ingenuity does not stop there, for PacSafe earns its name and reputation on the sanctity of its bags being:
1) Slashproof: With adjustable shoulder strap;
2) Snatchproof: Shoulder strap with built-in combination lock not only anchors the bag to a secure fixture but locks it there as well
3) Tamperproof: With lockable zippers on main compartment
4) eXomesh®: Slashguard in lower front and bottom panels
(Read the explanation for each item above on the company's website.)

But here comes the next pleasant surprise. Usually, a company will stint somewhere, somehow; up-sell you to make the package complete. The CourierSafe 100 was so spot-on perfect that I knew the design or implementation flaw was there; I just had to find it. Aha, the shoulder strap! Of course, it would be safe and secure (see above), but would it also be stylish and comfortable? Surprised again. Stylish? Check. And comfortable, with plenty of padding to cushion your shoulder during those sometimes interminable walks through airports, or elsewhere on your journeys.

Taking care is always its own reward, but PacSafe allows even careful travelers to enjoy their holiday without keeping both eyes on their bag 100% of the time. Now you can snap those photos while focusing your gaze through the camera's viewfinder; PacSafe has your back... er, bag.

Bottom line: PacSafe bags are functional, safe, and stylish. Oh, and comparatively inexpensive; the CourierSafe 100 is a mere $60 right now.
-- David M Gordon / The Deipnosophist

Getting Around

2011-02-02T03:02:00.000-08:00

Forget all about the Segway. Introducing...

I want flames on mine.
-- David M Gordon / The Deipnosophist

Market branchings manifest decision points

2011-01-29T16:34:00.000-08:00

Just now finished my review of the equity markets, an analysis I do each weekend when the lack of market activity provides me a clear mind and perspective. And while yesterday's decline was no surprise (with more decline to occur), I also expect typical seasonal strength to re-appear later in February that provides one last upside oomph into March/April. (The technical analyst's bane and lament: "One more rally!") Except...

Almost without exception, individual charts betray worsening technicals: most stocks begin to droop, many wilt, and a few have withered while still on the vine. Even Apple/AAPL, the portfolio darling for many investors, me included, likely has made its high trade for 2011 at $357. (After hours trade, post earnings report.) Perhaps the market rallies one final time into March/April, perhaps not. My unease comes from what might occur next for the markets.

Subscribers and regular readers know I have been raising cash for the past few weeks via liquidating my weakest holdings -- selling the comparatively illiquid stocks (bull market phenomena), the under-performing, those purchased as trades -- while maintaining my holdings in long term investments. But what does an investor do, what do I do, when the budding decline looks worse than I expected... worse than I prepared for. (30% cash at this moment.)

Please understand: I am no trader, but a long term investor. To quantify that difference, imagine a stock chart with price bars: you analyze intra-day price bars, if a day trader; you analyze daily price bars, if a swing trader. But as an investor with a time frame of 1 year and more, you analyze monthly price bars. Get the picture? Fewer bars = fewer signals. How much weight does an investor grant a given signal, irrespective of time frame? Combine that with my expectation that the high for 2011 would occur as an exclamation mark to the rally since the March 2009 low... and prefatory to a sizable decline, and you are up to speed with my dilemma: Buy, sell, or hold?

Well, okay, that dilemma is every investor's, not solely mine. And it prevails at all market inflection points. So I would like to clarify two more items:
1) While I often increase cash as a percent of my portfolio, I rarely increase it to 100%.
2) I raise cash as a method to swap over-valued for under-valued, risk for opportunity, not as a matter of attempting to time the market's oscillations. (Price = risk.)

But is this moment (the coming days and weeks) one of those moments? You know, like the summer of 2007 that led into the Crash of 2008? I look around and wonder, "What could go wrong (this time)...?"
● Perhaps another liquidity crisis?
● Another crisis of confidence (ala 2008) that rattled systemic confidence?
● The spreading unrest in the Middle East that demands systemic change? (The explanation provided by several market commentators for yesterday's market decline.)
● Renewed food riots, as commodity prices soar ever higher?
(Remember that, in a free market system, prices reflect the abundance or scarcity of an item; in this instance, a scarcity of food for the world's billions of people. And when do rising prices equal the canary in the coal mine?)
● Extreme weather conditions?
● Mass die-offs? (Already plaguing animals around the world.)
● You name the ill

My effort is not to hang the fabric of my concerns for the equity markets on the hook of geo-political problems (if this input, then that outcome); gosh, I am wrong too often (read: always) to claim any special insight. But I do wonder whether the coming decline (over the course of 2011) will be just another intermediate term correction, a speed bump on the road to higher highs... or of long(er) term proportions.

Which returns me to where I began. What portfolio decisions to make now? Especially for a person who transacts few buy decisions, and even fewer sells. I watch markets closely, trigger-finger ready to sell if markets and the world deteriorate and devolve anew. Which brings up one final question... What value is cash in a world gone haywire?

Your remarks welcomed.

Full Disclosure: Long Apple/AAPL
-- David M Gordon / The Deipnosophist

Circle

2011-01-26T16:54:00.000-08:00

Poetry does not get much better than the exceedingly fine example below...

Circle

Now are we saying goodbye?

I think so but can't be sure.

The last phone call but one

Left everything up in the air.

When you called last, did you mean

What you said when you said you meant

To say that this call would be

The last if I didn't call?

In fact, I'm not sure at all

If you called or I called you back.

And did you say "goodbye,"

Or I say "good night" and you

Say "Do you mean ‘good night'

Or ‘goodbye'?" I think it was you.

And what were you trying to do

When you said, "You said we're through?"

How could that be since you

Were the first to bring it up?

I don't think it's what I said,

Though you keep saying I did.

In any case, now that you know

That you know what I meant to say,

Why don't you say what you mean?

I mean if you mean to say

That the last call was the last.

I think that that would be best.

If something is finished, it's just

As well to get up and go.

If you're interested still to know,

I like a slate wiped clean,

And if you would pick up the phone,

I'd tell you what I mean.

-- Howard Moss

You really have to love Moss's technique: he used the poem's form and structure to help tell his story. Not familiar with poem structures? No problem; he lays it all out for you.

Really, quite brilliant!

-- David M Gordon / The Deipnosophist

A think ...

2011-01-17T03:33:00.000-08:00

test...

But no cheating!
-- David M Gordon / The Deipnosophist

Away again

2011-01-10T03:55:00.000-08:00

I will be away this week, and will return to my desk on Sunday, 16 January. (I will be traipsing through the parks of SW Utah -- Snow Canyon, Zion, Bryce, etc.)

Invest well!
-- David M Gordon / The Deipnosophist

A brief report of CES 2011

2011-01-07T10:52:00.000-08:00

CES 2011 covered all halls of the Las Vegas Convention Center, North, Central, and South Halls, and spilled over to the Sands Convention Center and nearby hotels. Estimates for first day attendance range from 120,00 to 180,000 people!

A few of the early arrivals on Thursday morning next to the main entrance to Central Plaza at Central Hall....

One small section of one hall seen from a transition area above...

North Hall is almost exclusively auto-related items, so the fully-outfitted (all the bells and whistles) cars typically pop up there; cars that appear in the the main halls (Central and South) must be something special indeed...

I was at the Sony booth -- well not a booth, for its display space was the size of 3 houses! -- for ~90 minutes; ogling all the magic and wonder, sure, but also investigating in-depth their new TV, the XBR 929. Too bad its glories do not make for an equally beautiful photo (different refresh rates, etc)...

NBC was there, which included representatives of their SyFy channel and CNBC. Mario Bartiromo after an interview...

What would be a display of wonder without beauty? Only this time, make it Beauty...

Beauty and the Beast (my friend, Kenn Bates, who snapped all photos but this one)...

CES 2011 struck an odd note for me. Compared to past years, pretty much everyone was there, but the whole shebang felt... subdued. No breakout products, no truly gosh-wow moments, no feeling of "I must have that item, now!" The shadow of Apple/APPL loomed large; many items were either me-too products (tablets, smart-phones, etc) or attempting to capture Apple's Halo Effect.

All in all, I am once-again glad I attended CES; certainly I left knowing more than when I started the day, even though no items of spectacular import leaped out at me to share with you. Of interest will be announcements from Apple's MacWorld conference later this month.
-- David M Gordon / The Deipnosophist

Away to CES

2011-01-06T04:49:00.000-08:00

At CES all day today.

Hope to post all about the exciting news, items, and many new gadgets I discover while there.
-- David M Gordon / The Deipnosophist

Snow! ... in Las Vegas?

2011-01-03T13:14:00.000-08:00

Desert? Global warming? Okay, winter. But snow in Las Vegas in January is very rare...

Come sun or snow, my Golden Retriever, his coat shorn, is always ready to play. His motto? "Have ball, will travel."

What a way to start the new year: with fun!
-- David M Gordon / The Deipnosophist

Separating rumor from news, opportunity from risk

2011-01-02T09:27:00.000-08:00

Market professionals rely on the clues that other investors betray, knowingly or no. Positive and negative divergences -- that is divergent action between a stock and its group, a stock or group and the market, and markets themselves (metals vs currencies) are one clue. Another clue is how a stock trades on rumors.

Consider two stocks (labeled 1 and 2) below (click on each chart to enlarge)...

Company #1

~~~

Company #2

Okay, you will quickly notice that each chart:
1) Includes daily bars since mid-2009
2) Ends on 30 November
3) Mimics the other, eerily so.

It is that last item I call to your attention: Two near-identical trading patterns... that ends, rather abruptly, come 1 December 2010...

Company #1

Company #2

Of course it would help were you to know the two companies; #1 is AT&T/T and #2 is Verizon/VZ. "Ahh," you say, "Now I get it!"

You probably do. Rumors abound that AT&T will lose its contract with Apple/AAPL for exclusive rights to offer the iPhone in the USA. But that rumor has been around for a good long while; what's different now?

One rule investors keep in mind is, "Buy the rumor, sell the news." It will be interesting to learn the news from Apple, AT&T, and Verizon in coming days and weeks. And the effect that news will have on their respective stock prices, now that the rumor of something has been priced in; arguably adequately so.

Full Disclosure: Long Apple/AAPL and Verizon/VZ.
-- David M Gordon / The Deipnosophist

A New Dawn

2011-01-01T06:11:00.000-08:00

What better way to start a new year and decade alliteratively signed as 1.1.11 than with Nina Simone's angelic, rhapsodic rendition of Feeling Good...?

And you gotta love Nina's scat!

Happy New Year!
-- David M Gordon / The Deipnosophist

Communication

2010-12-27T01:03:00.000-08:00

A meme, sure, but still way cool

2010-12-23T03:31:00.000-08:00

Statistics come to life when Swedish academic superstar, Hans Rosling, graphically illustrates global development over the last 200 years in a brief (fewer than 5 minutes) video...

Gosh, I love Hans's use and combination of Cartesian coordinates with scatterplotting to offer almost, although not quite, the z-axis I often suggest. Still a gorgeous visual display. Enjoy!

Happy Holidays!
-- David M Gordon / The Deipnosophist

Think you use your iPad and/or iPhone to its fullest capability...?

2010-12-21T04:30:00.000-08:00

Well, think again...

Happy Holidays!
-- David M Gordon / The Deipnosophist

The wonders of Danny MacAskill

2010-11-28T16:02:00.000-08:00

Danny MacAskill, the phenomenally talented bicyclist, has a new video. Check it out, as Danny is (almost) unbelievably good...

You might remember Danny's first video.

Thank you to Harry van Beuningen for sharing Danny's new video!
-- David M Gordon / The Deipnosophist

Happy Thanksgiving!

2010-11-25T05:49:00.000-08:00

And if your family is anything like my family, pictured below...

(click on image to enlarge)

... then I am on my way over for leftovers -- of which I bet there will be a lot! :-)
-- David M Gordon / The Deipnosophist

Of disposable leads, and new leaders

2010-11-21T06:47:00.000-08:00

To invest, even to trade, requires a risk of loss (of capital). And of ego, "I was wrong. How horrible!" So we each identify some analytical tool (fundamental, technical, valuation, top down, bottom up, etc) to derive some measure of comfort -- er, on which to base our investment decisions. Most analyses of the market, of opportunities, is of the worst type: they seem to offer insight, but really do not.

One part of my investing methodology is to select potential investment opportunities from among high growth, small cap companies. Not so easy to find small cap companies these days, even after the horrific bear market of 2007-2009: a low share price does not necessarily equal a small market cap. And news about companies disseminates more quickly to everyone at mostly the same time, which means largely that only from the gleanings can an investor discover a true small cap opportunity. A related part of my methodology, explicated previously, is not to invest in penny stocks; in fact, I stay away from stocks that sell under $15-20 threshold. And a second part of my investing methodology is to identify the stocks that perform the best within its group, its sector, and the market: the leaders.

My template is the high level consolidation (HLC), defined and described previously. Prices rise and fall, rise and fall, but remain bounded by the HLC. That pattern ultimately will give way in one direction or the other. The oddity is the expectation almost always is for the break to be down; what with the bearish news that typically prevails throughout the secular version of this pattern, the decline from the top of the range to its lower boundary, most people expect more of the same price action. The quirk, and our opportunity as investors, is that the break almost always is opposite the widely-held expectation.

Such as now. I have argued ad nauseum for 11 years now that the market is in a high level consolidation that would perdure for 15-20 years. Yes, things look perniciously ugly out there – as occurs during any secular HLC. I agree the news is horribly bearish. I agree fundamentals do not favor a sustained market rise. I admit I expect another damaging decline to occur sometime next year (2011). But, with the exception of the last item, this all is well-known. Markets factor into price future unknowns and uncertainties, not the knowns and certainties, which were priced-in long ago. Please explain Apple/AAPL's absolute and relative chasm of a valuation discount, if you disagree. Or explain the strength of the retailing sector, across all its constituent groups, for the past 18 months (since the March 2009 low) in the face of what we all knew was the most dire period for retailers in... well, forever. Even now, still; after all this out-performance.

We all, being human, are subject to all the fallibilities and foibles that reality engenders. The crucial recognition, to me, is to recognize that these sideways-trending periods come... and go. Sure, they could endure for weeks, months, years, even a decade or two, but it is our task to identify these periods and invest around their limitations. And the opportunities they create. So frustrated is okay, but never flustered. Assemble your list of possible investment candidates, and via the process of due diligence and market performance, which includes declines, continuously whittle the list to find those few opportunities that have potential to be long term investments.

So how odd is it that my new investment recommendation below violates one part of my investing methodology, share price? Not so odd when you consider it: the company is under the radar for most investors. Not for long, though. Only one reason I recommend this largely unknown company that offers excellent potential to be a successful, long term portfolio investment...

This post continues on InvestmentPoetry. See you there!
-- David M Gordon / The Deipnosophist

It’s Sunday Morning in Early November

2010-11-21T02:42:00.000-08:00

It's no longer early November, but it is still November, and I will love the poem below just as much no matter the day, month, or season. (I thought to quote this or that snippet as representative of the whole, but the entire poem is epigrammatic... and brief!)

It’s Sunday Morning in Early November

and there are a lot of leaves already.
I could rake and get a head start.
The boy's summer toys need to be put
in the basement. I could clean it out
or fix the broken storm window.
When Eli gets home from Sunday school,
I could take him fishing. I don't fish
but I could learn to. I could show him
how much fun it is. We don't do as much
as we used to do. And my wife, there's
so much I haven't told her lately,
about how quickly my soul is aging,
how it feels like a basement I keep filling
with everything I'm tired of surviving.
I could take a walk with my wife and try
to explain the ghosts I can't stop speaking to.
Or I could read all those books piling up
about the beginning of the end of understanding...
Meanwhile, it's such a beautiful morning,
the changing colors, the hypnotic light.
I could sit by the window watching the leaves,
which seem to know exactly how to fall
from one moment to the next. Or I could lose
everything and have to begin over again.
-- Philip Schultz

See what I mean?
-- David M Gordon / The Deipnosophist

Two Important Market Indicators to Watch

2010-11-13T07:19:00.000-08:00

Two Important Market Indicators to Watch

Gerald Appel

Marvin Appel, PhD, CEO

Signalert Corporation

Two simple short-term measurements have proved to be effective and reliable indicators of the risks associated with investing in the stock market. Following these indicators isn’t a way to get rich quick. But over time, they can help save you from being too optimistic and getting burned or being too fearful and missing out on potential profits...

· 10-day high-low average: This indicator tracks the number of New York Stock Exchange stocks hitting new 52-week highs in price divided by the total number making new 52-week highs and lows.

Example: If 100 stocks reach their highest prices of the past year and nine hit their lowest, then the high-low average is 92% (100 ÷ 109) -- where we were recently, down from 99% in early 2009.

Why it is useful. You want to be heavily in the stock market whenever this indicator is rising and hits 90% or more. That’s because more and more stocks are participating in the rally, investors are pouring money into the market and it’s gaining strength. However, when the indicator drops below 80%, it’s historically been a good time to reduce your positions.

You can find these figures each day at The Wall Street Journal online market data center (www.wsj.com, click on "Markets," "Market Data" then under "US Stocks," click on "New Highs & Lows").

· VIX: This is the ticker symbol for the Chicago Board Options Exchange Volatility Index, which is a popular measure of how much fear investors have about the future direction of the S&P 500.

When a large number of traders become fearful and sell indiscriminately, VIX levels rise. The index hit an all-time intra-day high of 89.53 on October 24, 2008. When market conditions improve, stock price movements generally become more orderly and the index declines. The end points of market declines are frequently signaled when the index rises to very high levels, perhaps 40 to 45 or more, and then turn down, indicating a reduction in market instability.

Why it is useful: A gradual decline from levels in the 20s or higher down to levels of 20 or below usually indicates a more stable stock market and may be a bullish signal. However, if the VIX declines to very low levels, perhaps 10 to 12, this often is an indication that investors have become too complacent, and it may be a bearish sign for stocks.

Example: The VIX dropped to as low as 10 in 2007, just a few months before the start of the 2008-2009 bear market. Recently, the VIX has been between 18 and 20, which generally indicates a stable market. Investors should get nervous if the VIX drops again to 10 to 12 or rises above 25. You can find the current VIX reading at www.cboe.com/VIX.

A wacky argument re economic theory

2010-10-29T05:37:00.000-07:00

... if ever there was one!

-- David M Gordon / The Deipnosophist

How do you spell economic recovery?

2010-10-26T08:03:00.000-07:00

Macro, micro; Austrian School, Keynesianism; supply-side, demand-side. Many methodologies, too many interpretations.

I know nothing of economics, which does not stop me from employing my own analytical process and interpretations. I merely watch for whether people spend. Easy as that. If people spend, new goods must take the place of the items purchased, which requires new orders from vendors to suppliers, up and down the food chain. Fairly simplistic, I know, but it works.

I visited London 12 1/2 months ago, and witnessed an obvious reluctance to spend; fewer people than typical were out and about, and those few did not spend. Even the tourists kept a tight fist on their wallets... In Fortnum&Mason (a high-end retailer, if ever there was one), a few hardy people (mostly tourists) shopped, but did not buy; the few who bought, purchased only an item or two.

And then my return visit to London last week. Teeming crowds of people jostled for space all up and down Regent and Oxford Streets. And elsewhere. Fortnum&Mason was elbow room-only with tourists and locals, and they spent. Oh, how they spent!

So the news that Britain's GDP grew 0.8% in Q3, twice as fast as economists had expected, is no surprise to me. Really, it is just more of the same.

Perhaps this recovery is all vapor, blown away by the mere exhalation of some fellow purportedly in the know. Then, again, perhaps not. This seems to be the nature of economic recoveries these days: vaporously thin, suddenly hyper-extended. Leave it to the know-it-alls who attempt to guide, if not manage, the economy... but who, really, know nothing at all.

Else why the surprise?
-- David M Gordon / The Deipnosophist

Christmas gifts - 2010 model

2010-10-26T05:37:00.000-07:00

-- David M Gordon / The Deipnosophist

On holiday

2010-10-10T05:50:00.000-07:00

Back in a few weeks. See you then!
-- David M Gordon / The Deipnosophist

Terrorism, Vigilance, and the Limits of the War on Terror

2010-10-05T08:21:00.000-07:00

I am about to depart for a holiday in Europe, so of course my ears perked up when the alarum sounded on Sunday. Stratfor's essay below helps make sense of it all.
-- David M Gordon / The Deipnosophist

Terrorism, Vigilance, and the Limits of the War on Terror
By George Friedman

The U.S. government issued a warning Oct. 3 advising Americans traveling to Europe to be “vigilant.” U.S. intelligence apparently has acquired information indicating that al Qaeda is planning to carry out attacks in European cities similar to those carried out in Mumbai, India, in November 2008. In Mumbai, attackers armed with firearms, grenades and small, timed explosive devices targeted hotels frequented by Western tourists and other buildings in an attack that took three days to put down.

European security forces are far better trained and prepared than their Indian counterparts, and such an attack would be unlikely to last for hours, much less days, in a European country. Still, armed assaults conducted by suicide operatives could be expected to cause many casualties and certainly create a dramatic disruption to economic and social life.

The first question to ask about the Oct. 3 warning, which lacked specific and actionable intelligence, is how someone can be vigilant against such an attack. There are some specific steps that people can and should take to practice good situational awareness, as well as some common-sense travel-security precautions. But if you find yourself sleeping in a hotel room, as gunmen attack the building, rush to your floor and start entering rooms, a government warning simply to be vigilant would have very little meaning.

The world is awash in intelligence about terrorism. Most of it is meaningless speculation, a conversation intercepted between two Arabs about how they’d love to blow up London Bridge. The problem, of course, is how to distinguish between idle chatter and actual attack planning. There is no science involved in this, but there are obvious guidelines. Are the people known to be associated with radical Islamists? Do they have the intent and capability to conduct such an attack? Were any specific details mentioned in the conversation that can be vetted? Is there other intelligence to support the plot discussed in the conversation?

The problem is that what appears quite obvious in the telling is much more ambiguous in reality. At any given point, the government could reasonably raise the alert level if it wished. That it doesn’t raise it more frequently is tied to three things. First, the intelligence is frequently too ambiguous to act on. Second, raising the alert level warns people without really giving them any sense of what to do about it. Third, it can compromise the sources of its intelligence.

The current warning is a perfect example of the problem. We do not know what intelligence the U.S. government received that prompted the warning, and I suspect that the public descriptions of the intelligence do not reveal everything that the government knows. We do know that a German citizen was arrested in Afghanistan in July and has allegedly provided information regarding this threat, but there are likely other sources contributing to the warning, since the U.S. government considered the intelligence sufficient to cause concern. The Obama administration leaked on Saturday that it might issue the warning, and indeed it did.

The government did not recommend that Americans not travel to Europe. That would have affected the economy and infuriated Europeans. Leaving tourism aside, since tourism season is largely over, a lot of business is transacted by Americans in Europe. The government simply suggested vigilance. Short of barring travel, there was nothing effective the government could do. So it shifted the burden to travelers. If no attack occurs, nothing is lost. If an attack occurs, the government can point to the warning and the advice. Those hurt or killed would not have been vigilant.

I do not mean to belittle the U.S. government on this. Having picked up the intelligence it can warn the public or not. The public has a right to know, and the government is bound by law and executive order to provide threat information. But the reason that its advice is so vague is that there is no better advice to give. The government is not so much washing its hands of the situation as acknowledging that there is not much that anyone can do aside from the security measures travelers should already be practicing.

The alert serves another purpose beyond alerting the public. It communicates to the attackers that their attack has been detected if not penetrated, and that the risks of the attack have pyramided. Since these are most likely suicide attackers not expecting to live through the attack, the danger is not in death. It is that the Americans or the Europeans might have sufficient intelligence available to thwart the attack. From theterrorist point of view, losing attackers to death or capture while failing to inflict damage is the worst of all possible scenarios. Trained operatives are scarce, and like any strategic weapon they must be husbanded and, when used, cause maximum damage. When the attackers do not know what Western intelligence knows, their risk of failure is increased along with the incentive to cancel the attack. A government warning, therefore, can prevent an attack.

In addition, a public warning can set off a hunt for the leak within al Qaeda. Communications might be shut down while the weakness is examined. Members of the organization might be brought under suspicion. The warning can generate intense uncertainty within al Qaeda as to how much Western intelligence knows. The warning, if it correlates with an active plot, indicates a breach of security, and a breach of security can lead to a witch-hunt that can paralyze an organization.

Therefore, the warning might well have served a purpose, but the purpose was not necessarily to empower citizens to protect themselves from terrorists. Indeed, there might have been two purposes. One might have been to disrupt the attack and the attackers. The other might have been to cover the government if an attack came.

In either case, it has to be recognized that this sort of warning breeds cynicism among the public. If the warning is intended to empower citizens, it engenders a sense of helplessness, and if no attack occurs, it can also lead to alert fatigue. What the government is saying to its citizenry is that, in the end, it cannot guarantee that there won’t be an attack and therefore its citizens are on their own. The problem with that statement is not that the government isn’t doing its job but that the job cannot be done. The government can reduce the threat of terrorism. It cannot eliminate it.

This brings us to the strategic point. The defeat of jihadist terror cells cannot be accomplished defensively. Homeland security can mitigate the threat, but it can never eliminate it. The only way to eliminate it is to destroy all jihadist cells and prevent the formation of new cells by other movements or by individuals forming new movements, and this requires not just destroying existing organizations but also the radical ideology that underlies them. To achieve this, the United States and its allies would have to completely penetrate a population of about 1.3 billion people and detect every meeting of four or five people planning to create a terrorist cell. And this impossible task would not even address the problem of lone-wolf terrorists. It is simply impossible to completely dominate and police the entire world, and any effort to do so would undoubtedly induce even more people to turn to terrorism in opposition to the global police state.

Will Rogers was asked what he might do to deal with the German U-boat threat in World War I. He said he would boil away the Atlantic, revealing the location of the U-boats that could then be destroyed. Asked how he would do this, he answered that that was a technical question and he was a policymaker.

The idea of suppressing jihadist terrorism through direct military action in the Islamic world would be an idea Will Rogers would have appreciated. It is a superb plan from a policymaking perspective. It suffers only from the problem of technical implementation. Even native Muslim governments motivated to suppress Islamic terrorism, like those in Egypt, Saudi Arabia, Algeria or Yemen, can’t achieve this goal absolutely. The idea that American troops, outnumbered and not speaking the language or understanding the culture, can do this is simply not grounded in reality.

The United States and Europe are going to be attacked by jihadist terrorists from time to time, and innocent people are going to be killed, perhaps in the thousands again. The United States and its allies can minimize the threat through covert actions and strong defenses, but they cannot eliminate it. The hapless warning to be vigilant that was issued this past weekend is the implicit admission of this fact.

This is not a failure of will or governance. The United States can’t conceivably mount the force needed to occupy the Islamic world, let alone pacify it to the point where it can’t be a base for terrorists. Given that the United States can’t do this in Afghanistan, the idea that it might spread this war throughout the Islamic world is unsupportable.

The United States and Europe are therefore dealing with a threat that cannot be stopped by their actions. The only conceivably effective actions would be those taken by Muslim governments, and even those are unlikely to be effective. There is a deeply embedded element within a small segment of the Islamic world that is prepared to conduct terror attacks, and this element will occasionally be successful.

All people hate to feel helpless, and this trait is particularly strong among Americans. There is a belief that America can do anything and that something can and should be done to eliminate terrorism and not just mitigate it. Some Americans believe sufficiently ruthless military action can do it. Others believe that reaching out in friendship might do it. In the end, the terrorist element will not be moved by either approach, and no amount of vigilance (or new bureaucracies) will stop them.

It would follow then that the West will have to live with the terrorist threat for the foreseeable future. This does not mean that military, intelligence, diplomatic, law-enforcement or financial action should be stopped. Causing most terrorist attempts to end in failure is an obviously desirable end. It not only blocks the particular action but also discourages others. But the West will have to accept that there are no measures that will eliminate the threat entirely. The danger will persist.

Effort must be made to suppress it, but the level of effort has to be proportional not to the moral insult of the terrorist act but to considerations of other interests beyond counterterrorism. The United States has an interest in suppressing terrorism. Beyond a certain level of effort, it will reach a point of diminishing returns. Worse, by becoming narrowly focused on counterterrorism and over-committing resources to it, the United States will leave other situations unattended as it focuses excessively on a situation it cannot improve.

The request that Americans be vigilant in Europe represents the limits of power on the question of terrorism. There is nothing else that can be done and what can be done is being done. It also drives home the fact that the United States and the West in general cannot focus all of its power on solving a problem that is beyond its power to solve. The long war against terrorism will not be the only war fought in the coming years. The threat of jihadism must be put in perspective and the effort aligned with what is effective. The world is a dangerous place, as they say, and jihadism is only one of the dangers.

Terrorism, Vigilance and the Limits of the War on Terror is republished with permission of STRATFOR.

What I did when I was younger...

2010-10-04T18:50:00.000-07:00

-- David M Gordon / The Deipnosophist

Hilarious!

2010-09-26T03:39:00.000-07:00

Suffered enough with those Bluetooth-enabled voice recognition systems for your car? Imagine the same technology but in this situation...

Hat tip to Harry van Bueningen.
-- David M Gordon / The Deipnosophist

The best card trick... ever?

2010-09-22T08:18:00.000-07:00

James Galea...

Impressive!
-- David M Gordon / The Deipnosophist

Always good to laugh, no matter your age

2010-09-09T17:41:00.000-07:00

Mary Maxwell, a friend of the couple who founded Home Instead Senior Care in Omaha, was asked to give the invocation at the company’s 2009 Convention. Initially it seemed like a normal prayer, but it soon took a very funny turn. Her deadpan delivery and funny lines soon had the franchise owners rolling in the aisles. With the timing of a professional comedian, Mary shines a very funny light on the foibles of aging, to the delight of this audience of senior-care experts.

Thank you to Liz Cummings for guiding me to Mary Maxwell's light.
-- David M Gordon / The Deipnosophist

9/11 and the 9-Year War - Stratfor

2010-09-09T03:59:00.000-07:00

Very fascinating essay, and on many levels, by George Friedman, founder and President of Stratfor.

Recommended.
-- David M Gordon / The Deipnosophist

9/11 and the 9-Year War
By George Friedman

It has now been nine years since al Qaeda attacked the United States. It has been nine years in which the primary focus of the United States has been on the Islamic world. In addition to a massive investment in homeland security, the United States has engaged in two multi-year, multi-divisional wars in Iraq and Afghanistan, inserted forces in other countries in smaller operations and conducted a global covert campaign against al Qaeda and other radical jihadist groups.

In order to understand the last nine years you must understand the first 24 hours of the war — and recall your own feelings in those 24 hours. First, the attack was a shock, its audaciousness frightening. Second, we did not know what was coming next. The attack had destroyed the right to complacent assumptions. Were there other cells standing by in the United States? Did they have capabilities even more substantial than what they showed on Sept. 11? Could they be detected and stopped? Any American not frightened on Sept. 12 was not in touch with reality. Many who are now claiming that the United States overreacted are forgetting their own sense of panic. We are all calm and collected nine years after.

At the root of all of this was a profound lack of understanding of al Qaeda, particularly its capabilities and intentions. Since we did not know what was possible, our only prudent course was to prepare for the worst. That is what the Bush administration did. Nothing symbolized this more than the fear that al Qaeda had acquired nuclear weapons and that they would use them against the United States. The evidence was minimal, but the consequences would be overwhelming. Bush crafted a strategy based on the worst-case scenario.

Bush was the victim of a decade of failure in the intelligence community to understand what al Qaeda was and wasn’t. I am not merely talking about the failure to predict the 9/11 attack. Regardless of assertions afterwards, the intelligence community provided only vague warnings that lacked the kind of specificity that makes for actionable intelligence. To a certain degree, this is understandable. Al Qaeda learned from Soviet, Saudi, Pakistani and American intelligence during the Soviet occupation of Afghanistan and knew how to launch attacks without tipping off the target. The greatest failure of American intelligence was not the lack of a clear warning about 9/11 but the lack, on Sept. 12, of a clear picture of al Qaeda’s global structure, capabilities, weaknesses and intentions. Without such information, implementing U.S. policy was like piloting an airplane with faulty instruments in a snowstorm at night.

The president had to do three things: First, he had to assure the public that he knew what he was doing. Second, he had to do something that appeared decisive. Third, he had to gear up an intelligence and security apparatus to tell him what the threats actually were and what he ought to do. American policy became ready, fire, aim.

In looking back at the past nine years, two conclusions can be drawn: There were no more large-scale attacks on the United States by militant Islamists, and the United States was left with the legacy of responses that took place in the first two years after 9/11. This legacy is no longer useful, if it ever was, to the primary mission of defeating al Qaeda, and it represents an effort that is retrospectively out of proportion to the threat.

If I had been told on Sept.12, 2001, that the attack the day before would be the last major attack for at least nine years, I would not have believed it. In looking at the complexity of the security and execution of the 9/11 attack, I would have assumed that an organization capable of acting once in such a way could act again even more effectively. My assumption was wrong. Al Qaeda did not have the resources to mount other operations, and the U.S. response, in many ways clumsy and misguided and in other ways clever and targeted, disrupted any preparations in which al Qaeda might have been engaged to conduct follow-on attacks.

Knowing that about al Qaeda in 2001 was impossible. Knowing which operations were helpful in the effort to block them was impossible, in the context of what Americans knew in the first years after the war began. Therefore, Washington wound up in the contradictory situation in which American military and covert operations surged while new attacks failed to materialize. This created a massive political problem. Rather than appearing to be the cause for the lack of attacks, U.S. military operations were perceived by many as being unnecessary or actually increasing the threat of attack. Even in hindsight, aligning U.S. actions with the apparent outcome is difficult and controversial. But still we know two things: It has been nine years since Sept. 11, 2001, and the war goes on.

What happened was that an act of terrorism was allowed to redefine U.S. grand strategy. The United States operates with a grand strategy derived from the British strategy in Europe — maintaining the balance of power. For the United Kingdom, maintaining the balance of power in Europe protected any one power from emerging that could unite Europe and build a fleet to invade the United Kingdom or block its access to its empire. British strategy was to help create coalitions to block emerging hegemons such as Spain, France or Germany. Using overt and covert means, the United Kingdom aimed to ensure that no hegemonic power could emerge.

The Americans inherited that grand strategy from the British but elevated it to a global rather than regional level. Having blocked the Soviet Union from hegemony over Europe and Asia, the United States proceeded with a strategy whose goal, like that of the United Kingdom, was to nip potential regional hegemons in the bud. The U.S. war with Iraq in 1990-91 and the war with Serbia/Yugoslavia in 1999 were examples of this strategy. It involved coalition warfare, shifting America’s weight from side to side and using minimal force to disrupt the plans of regional aspirants to gain power. This U.S. strategy also was cloaked in the ideology of global liberalism and human rights.

The key to this strategy was its global nature. The emergence of a hegemonic contender that could challenge the United States globally, as the Soviet Union had done, was the worst-case scenario. Therefore, the containment of emerging powers wherever they might emerge was the centerpiece of American balance-of-power strategy.

The most significant effect of 9/11 was that it knocked the United States off its strategy. Rather than adapting its standing global strategy to better address the counterterrorism issue, the United States became obsessed with a single region, the area between the Mediterranean and the Hindu Kush. Within that region, the United States operated with a balance-of-power strategy. It played off all of the nations in the region against each other. It did the same with ethnic and religious groups throughout the region and particularly within Iraq and Afghanistan, the main theaters of the war. In both cases, the United States sought to take advantage of internal divisions, shifting its support in various directions to create a balance of power. That, in the end, was what the surge strategy was all about.

The American obsession with this region in the wake of 9/11 is understandable. Nine years later, with no clear end in sight, the question is whether this continued focus is strategically rational for the United States. Given the uncertainties of the first few years, obsession and uncertainty are understandable, but as a long-term U.S. strategy — the long war that the U.S. Department of Defense is preparing for — it leaves the rest of the world uncovered.

Consider that the Russians have used the American absorption in this region as a window of opportunity to work to reconstruct their geopolitical position. When Russia went to war with Georgia in 2008, an American ally, the United States did not have the forces with which to make a prudent intervention. Similarly, the Chinese have had a degree of freedom of action they could not have expected to enjoy prior to 9/11. The single most important result of 9/11 was that it shifted the United States from a global stance to a regional one, allowing other powers to take advantage of this focus to create significant potential challenges to the United States.

One can make the case, as I have, that whatever the origin of the Iraq war, remaining in Iraq to contain Iran is necessary. It is difficult to make a similar case for Afghanistan. Its strategic interest to the United States is minimal. The only justification for the war is that al Qaeda launched its attacks on the United States from Afghanistan. But that justification is no longer valid. Al Qaeda can launch attacks from Yemen or other countries. The fact that Afghanistan was the base from which the attacks were launched does not mean that al Qaeda depends on Afghanistan to launch attacks. And given that the apex leadership of al Qaeda has not launched attacks in a while, the question is whether al Qaeda is capable of launching such attacks any longer. In any case, managing al Qaeda today does not require nation building in Afghanistan.

But let me state a more radical thesis: The threat of terrorism cannot become the singular focus of the United States. Let me push it further: The United States cannot subordinate its grand strategy to simply fighting terrorism even if there will be occasional terrorist attacks on the United States. Three thousand people died in the 9/11 attack. That is a tragedy, but in a nation of over 300 million, 3,000 deaths cannot be permitted to define the totality of national strategy. Certainly, resources must be devoted to combating the threat and, to the extent possible, disrupting it. But it must also be recognized that terrorism cannot always be blocked, that terrorist attacks will occur and that the world’s only global power cannot be captive to this single threat.

The initial response was understandable and necessary. The United States must continue its intelligence gathering and covert operations against militant Islamists throughout the world. The intelligence failures of the 1990s must not be repeated. But waging a multi-divisional war in Afghanistan makes no strategic sense. The balance-of-power strategy must be used. Pakistan will intervene and discover the Russians and Iranians. The great game will continue. As for Iran, regional counters must be supported at limited cost to the United States. The United States should not be patrolling the far reaches of the region. It should be supporting a balance of power among the native powers of the region.

The United States is a global power and, as such, it must have a global view. It has interests and challenges beyond this region and certainly beyond Afghanistan. The issue there is not whether the United States can or can’t win, however that is defined. The issue is whether it is worth the effort considering what is going on in the rest of the world. Gen. David Petraeus cast the war in terms of whether the United States can win it. That’s reasonable; he’s the commander. But American strategy has to ask another question: What does the United States lose elsewhere while it focuses on the future of Kandahar?

The 9/11 attack shocked the United States and made counterterrorism the centerpiece of American foreign policy. That is too narrow a basis on which to base U.S. foreign policy. It is certainly an important strand of that policy, and it must be addressed, but it should be addressed through the regional balance of power. It is the good fortune of the United States that the Islamic world is torn by internal rivalries.

This is not dismissing the threat of terror. It is recognizing that the United States has done well in suppressing it over the past nine years but at a cost in other regions, a cost that can’t be sustained indefinitely and a cost that could well result in challenges more threatening than a rising Islamist militancy. The United States must now settle into a long-term strategy of managing terrorism as best as it can while not neglecting the rest of its interests.

After nine years, the issue is not what to do in Afghanistan but how the global power can return to managing all of its global interests, along with the war on al Qaeda.

9/11 and the 9-Year War is republished with permission of STRATFOR.

How Indices Work -- Excellent primer from David Blitzer

2010-09-05T14:06:00.000-07:00

How Indices Work

David Blitzer is a managing director and the chairman of the S&P Index Committee with overall responsibility for security selection for S&P’s indices and index analysis and management. Dr. Blitzer is the author of Outpacing the Pros: Using Indices to Beat Wall Street’s Savviest Money Managers (McGraw-Hill, 2001) and What’s the Economy Trying to Tell You? Everyone’s Guide to Understanding and Profiting from the Economy (McGraw-Hill, 1997)

Q: Let's start by talking about how the S&P 500 is composed.

A: It is 500 companies. We occasionally get phone calls, believe it or not, about how many stocks in the S&P 500. It's overseen and maintained by a committee of nine people, all of whom work for Standard & Poor's and McGraw Hill, our parent company.

We have a series of published guidelines and requirements for a company to be added to the Index. It has to be a US company worth at least $3.5 billion dollars, trade with adequate liquidity, have at least half the stock available in public float.

We look at what sector or industry it belongs to, to keep the balance of sectors in the Index very close to the balance in the market. And last, but certainly not least, it has to have made money. It has to have four quarters of positive earning using generally accepted accounting principles (GAAP) net income.

Over the years that has proven to be surprisingly important to the whole process.

What happens when someone reads that the S&P is up 10 points or down 10 points. How is that calculated?

The Index is what we call a value-weighted index, or sometimes called market-cap or market capitalization-weighted index. You take the market value of each company in the Index, and you add it all together, and you will get a number that is probably about $9 trillion right now.

Well, $9 trillion is sort of a big number to report every 15 seconds. In fact, by the time you get to the end of the number you've used your 15 seconds.

We divide it by a scaling factor called the divisor, and that gives you the value of the Index, 1,142 or whatever it happens to be. When you say the index is up, you take the value of all those companies – some go up, some go down at any given moment – the ones that went up outweigh the ones that went down, and after you scale it to a number that’s easy to handle, you come out with say 10 points, and maybe the Index has moved from 1,140 to 1,150.

You say that the companies are market weighted. What would be the biggest company in the Index right now, the most important company today?

The biggest one is most likely Exxon Mobile which is a giant US or global oil company.

So you have a company like Exxon at the top of the list, and they are up 3% in a day, and then you have one at the bottom of the list not nearly as important, and they are down 3%. So you've got two members, one’s up, one’s down, but they are not of equal importance to the index as a whole?

That's right. Let's assume the other 498 stocks didn't move, just to make it simple. Exxon mobile goes up 3%, and the number 500th company goes down 3%. The Index overall will be up, because Exxon Mobil's weight in the Index is going to be much larger. Its weight is probably 3, 3.5, or maybe 4%. The one at the bottom we’re talking about is a very small fraction of a percentage point.

You mentioned the S&P is the most widely followed the Index, but probably not the best known. The best known would probably still be the Dow Jones. Can we talk a little bit about how the Dow Jones differs from the S&P 500?

There are two big ways. The obvious one is the Dow has 30 stocks. We have 500. Quantity is not the answer, but with 500 stocks one gets much broader coverage of the overall market. And you know, you cover more, you're more likely to include stocks that either went way up, or way down, or did something else somewhat unusual.

The other way is the calculation. The Dow uses the same calculation method that they started using in 1896 when they did this on the back of an envelope, probably with a pencil and paper. They take the prices of the 30 stocks – not the value, but just the price – and they add up the number, and then they divide by a scale factor which gets them to their number.

So you can have two companies in the Dow, one may be worth 10 times the other one, but a one point rise in either company will have the exact same impact on the Index.

The other thing about the Dow, just because the way the arithmetic works out, is the number they divide by turns out to be very small. It's actually a little less than 1/5. So a one point move in the Dow by a stock, any stock, will be a five point move in that Index.

Or maybe more to the point, if 10 of the Dow stocks do nothing, and the other 20 each go up say two points, those 40 points are going to echo into a 200 point move in the Dow Jones. And a 200 point move in almost any Index is going to hit the news wires in a big way, and get people probably more excited than they really should be.

The Dow is equally weighted, unlike the S&P which is weighted by the actual market value of the company. Let's suppose a stock in the Dow has a price of $150, and another one with a price of $15, and you have a two dollar movement in each of those, does that two dollars have a different impact on the Dow overall?

Yes. If the $150 stock went to $152 which is a tiny little fraction of a percentage, and the other stock at $15 went to $17, this is a big move in percentage terms. Those two moves have the exact same impact on the Dow. Two points on the stock would be about 10 points in the Dow.

So you're getting movements that just depend on whether a stock is priced at $15 or $150, which really has nothing to do with the underlying value of the company.

Whereas in the S&P 500, it’s how much the value of the company has moved that determines the impact on the Index, and that's one of the reasons why we believe that market weighting gives you a much better door to understanding what's going on in the stock market. A big reason to follow indices is to understand what's happening in the stock market overall.

Some of the media coverage you hear occasionally says that we should buy a company, because it might be added to the Index. So could we talk a little bit about the underlying thinking to that?

Look at the S&P 500 and the amount of money that’s managed to track the Index, in exchange trade of funds, Index funds, pension funds, and other institutions whose investment strategy is to replicate the Index.

If a stock is added to the Index or taken off it, do they have to replicate that change?

That's right. They have a commitment to replicate the Index. The totality of that money is something well over a trillion dollars. If you go through the arithmetic of what that means, then for any stock in the Index, about 10% of the outstanding shares are going to be held by this collection of Index replicators.

So if we add a stock to the Index, and let's assume for a moment it's not in any other Index we run at the present time, over a period of a week between when we announce it is going in and when it actually goes in (because we make announcements five trading days in advance), about 10% of the stock is going to get bought up.

It has to happen. This is a very large buyback program. To give you some frame of reference, a corporation running a buyback program buying back its own stock will buy back a half percent to 1% of the outstanding shares in a quarter of a year, 13 weeks.

So these replicators are doing 10% in a week versus 1% in 13 weeks. The stock goes up. Typically it will gain 5, 6 or 7% over a week maybe two-week period. It will gradually give that back over the next three to six months, so this is not a permanent all-time rise, although it is very exciting. If you knew in advance what we were going to do, and we play this very, very close to the vest for obvious reasons, and you traded options, it would be even more exciting, but it would probably be trading on inside information unless it was just a lucky guess.

That's the case when you add a stock to the Index, just buying pressure from institutions and ETFs forces the price up short-term. Does the same apply when you take a stock off the Index that the price gets pressed down?

It does, but it’s much harder to calculate. The data are much thinner for a couple reasons.

First of all, something like two thirds of the exits from the Index are caused by M&A activity. So the stock that's coming out and being acquired in a merger, the price is predetermined by the terms of that merger.

And has already been pushed up?

It's already had its run up at the very beginning of the transaction process. There are other cases where when we take it out because it has fallen on very, very hard times. It clearly no longer makes any sense in the Index, and the selling happened months ago, not right now.

So while there probably is a short-term decline in a stock when it comes out, it’s much, much harder to measure and gauge. There are much less data. There are a lot of special circumstances that would be very hard to disentangle.

If someone is online and they see that you've just announced that you are adding a stock to the Index, should they rush to their broker to buy it?

First of all, we make our announcements at 5:15 PM Eastern time so the markets are officially closed. These days you can trade anything, anytime, anywhere, but the markets are very thin when it comes to 5:30, 6:00, or 6:30 in the evening. So it would be a little bit dicey to do that. But more so, this is a short-term play, and if you are into fast and furious short-term trading, you place your bets and take your chances.

If you're a long-term investor, and if you look at the long-term history of the US stock market and indeed of most developed stock markets, they have sideways periods. They have sustained periods where they don't seem to advance, and we are unfortunately in one, though hopefully coming to the end of one.

But over the long haul, markets do very well. As a long-term investor, the strategy to replicate an Index turns out to be very successful, in large part because it’s incredibly cheap.

I want to talk about some of the sectors in the S&P, where they've been in the past, and where they are today. Let’s start with the financial sector. What's the average importance over time for the financial sector in the US stock market?

The average importance has probably grown over the long term over the last three or four decades. Currently it's in the high teens. At its peak it was probably 20 to 25%, in roughly 2007. Clearly it came down very sharply with the financial crisis, as a huge number of large banks cut their dividends and a couple of very large public companies literally disappeared.

But what surprises many people is that the past decade, from the market bottom in 2002 to the peak in 2007, while financials are very important, they weren't incredibly dominant. It was not a financial repeat of the Tech boom. It was a broad-based improvement in the market over those five or six years.

Talking about the Tech boom, where did the Tech sector peak in terms of its importance in the US stock market?

The Tech sector was almost a once in history event. If you go back to about 1994 when it started, technology was around 8% of the Index. At its peak it was probably a third, 30 to 35% of the Index.

Today it's down to 15 or 16%. It's been moving up lately, and doing somewhat better. Probably in the long-term it will have a strong position. I'm not sure it will get back to the one-third level though.

One of the debates when it comes to investing is value versus growth. Those tend to be the two alternative approaches. What does your track record show in terms of the investor experience using a value approach versus a growth approach over the long term?

Over the long term, value tends to outperform, not year-by-year by any means, but over the long sweep of time. Value builds and maintains what appears to be a sustainable lead on a totally long-term basis. Value stocks tend to have higher dividends and are more likely to have dividends than growth stocks, and that's a big part of their long-term benefit.

But really the only time that growth seemed to suddenly surge ahead briefly was at the very end of the 1990s. At the peak of the technology boom, growth stocks were heavily dominating technology and appeared to be unstoppable. We know as a result of what happened shortly after the beginning of 2000, they were stoppable.

You mentioned dividends just a moment ago. Can you point to long-term data in terms of the investor experience focusing on companies that pay dividends compared to those that don't?

Yes. We put together a list a number of years ago which we continue to maintain, and what we nicknamed Dividend Aristocrats. These are companies in the S&P 500 with a record of at least 25 years of increasing their cash payout to investors.

So not only were they paying dividends or maintaining their dividends year-by-year, they were actually increasing their payout. There are not too many of them, and we've lost a lot in the last few years to other issues, but over the long term on a total-return basis, these stocks do very nicely.

Last fall I had a chance to interview Jeremy Siegel at Wharton. In his most recent book, Why the Tried and the True Beats the Bold and the New, one of his suggestions was that new companies get added to the Index after they've had the best period of their run-up, and investors actually are often not served by buying companies after they are added to the Index. What is your perspective on that?

Two things stand out, one particularly regarding Jeremy Siegel and his research.

He did some work a few years back for which we provided a lot of the background data, looking at the companies that were in the S&P 500 in March of 1957. This was when the Index moved from being 90 stocks, as it had been in ancient days, to being 500 stocks as it is now.

He studied how those companies did. His argument was that the original 500 actually outperform some of the ones that went in and out of the Index. There were a lot of particular stories in that period of time. So I'm not sure it's a general result, but it was a fascinating piece of work.

More to the focus of investors today, the S&P 500 is the large-cap stocks at the top of the market. Below that in size is a mid-cap Index of 400 stocks, and below that is a small-cap Index of 600 stocks.

The small-caps tend to be very exciting. There are some wonderful stocks there. There are some less wonderful stocks. They’re a little more volatile, and because they are small they are a little bit riskier typically.

The 500, as Jeremy Siegel suggests, are solid long-term good ideas, but they may have passed some of their high-speed growth.

Sitting in the middle turns out to be the mid-cap Index, and while obviously the past is no indication of the future, over the long haul since the mid-cap Index was created in the early 1990s, it does seem to have this attractive balance between the more rapid growing, more exciting, more dynamic smaller stocks, and the more secure larger stocks. It seems to get the best of both worlds.

For an investor who listens to Professor Siegel and doesn't want to own just the biggest stocks there are, but wants a little more interest and excitement, I would poke around and look at the mid-cap 400 among other things.

That sounds like an interesting idea, and one I think that many people hadn't thought of. Is there a risk that of that the 400 mid-cap companies you'll get the 20 or so that excel, that really become home runs, and then they grow to the point that they move off the mid-cap Index onto the 500? So will investors lose the growth once they've met that threshold and are no longer in the mid-cap Index?

Looking at the three indices, a large proportion of the stocks going to the S&P 500 come out of the mid-cap.

The way we maintain the indices, a stock can only be in one Index of the three at a time. It can't be in multiple indices. A company that outperforms or grows faster than most other companies will move up in size, and if it continues to do so, it will move to the top of the mid-cap and it will become a reasonably good candidate to be moved to the 500.

There's certainly no guarantee. Number one in the mid-cap by size is no more likely than number five, or number 10, or number 15, to be moved into the 500, although clearly the top 50 to 100 are probably more likely than the bottom hundred.

The one aspect that makes it very intriguing is the following.

I mentioned earlier that a stock going in the S&P 500 gets a short-term bump up. So let's say we announced tonight at 5:15 that a stock is going to come out of the mid-cap and go into the 500 after the market closes a week from today, which is the typical time frame.

For this week, which is when it gets a lot of that bump, it is in the mid-cap Index. It is not in the 500. At the end of this week it will get moved into the 500. So if you were sitting on the mid-cap, you got the bump. It goes into the 500, and over the next two, three, or six months it gradually drifts down and gives back what we're calling an “artificial bump.” It's already in the S&P 500, which is another reason why the mid-cap might be an interesting thing to take a look at.

The Bears' Argument

2010-08-26T09:18:00.000-07:00

Articulate, well-spoken, even makes sense...

Part 1:

Part 2:

But how well known is the argument for even Tony Robbins to propound it...?
-- David M Gordon / The Deipnosophist

Trends within trends

2010-08-23T06:28:00.000-07:00

Are equity markets headed higher or lower? Either direction, what periodicity? Is that periodicity meaningful to your, and your portfolio's, time frame?

No question; confusion reigns. It is ever thus, however, when the market's primary direction is sideways. Sideways? Well, yes, if you step back far enough to see the market has traced a trading range for the past ~13 years, as it builds either a base or top. For the Dow Industrial Average, 7000 and 14,000 bound the range; for the S&P 500, 750 and 1500 are the boundaries. A 50% decline from 1500 to 750 or 14,000 to 7000 is painful, and qualifies easily as a bear market for most investors; for me, it is a high level consolidation (HLC). All the trading within the range can induce fright or elation, but amounts to noise and carries little significance. These high level consolidations appear quite regularly.

And every few decades, the equities market suffers through a secular variety of this pattern that typically endures for 15-20 years. (Single point: 16 years.) Many professional investors differ as to this pattern's inception; typically, from the high prefatory to the first 50% decline. I prefer to start counting from the breakout that is immediately tested subsequent to the breakout and then again during the 50% decline. Which dates the inception of this HLC since Q1 1997, and leaves ~3-5 years more work before a breakout or breakdown finally occurs. Too, the market trades (tags) the outer boundaries of the HLC only a handful of times during the HLC; all other trading occurs within the boundaries.

Rather than utilize pattern recognition, most investors, whether by choice or innocence, deal with news flow and pronouncements:
1) For every market move, the media must ascribe a meaning and a motive;
2) Market pundits pronounce the market's direction, rarely correctly but always willingly.

My interest is not to disabuse these pundits from making their predictions, only to encourage you to ask how those predictions and pronouncements effect your portfolio decisions. For example, Robert Prechter, an incredibly intelligent fellow whose notion of Socionomics is a direct descendant of Isaac Asimov's more interesting notion of Psychohistory, argues that the prevailing social mood today, ugly, paves the way for a materially lower market. Unfortunately for Prechter (and his followers), he has argued the same call for Armageddon -- and not just financial Armageddon, but societal Armageddon -- for the past 30+ years, while the market instead has climbed higher 15x rather than decline. Other investors point to their discrete data sets to argue for a bull market. I argue that until the market breaks out of its HLC, there can be no true bull or bear market. Careful, now, I care not at all for statistical analyses that state a decline of 10% is a correction, and 20% is a bear market; to me a bear market is a sequence of lower highs and lower lows, beneath a determinable break point. Until then, the boundaries form a base or top, its action expected. Yes, I know I have argued the HLC before (and repeatedly). Makes little difference, though, for the only other professional investor I know who shares this perception is David Rosenberg (Gluskin Sheff). Perhaps surprising, because most people view David to be a perma-bear. Their loss for not reading his commentaries carefully or diligently.

Oddly, perhaps paradoxically, but always profitably, during and throughout the market's secular high level consolidations, emerge new sector or group bull markets (as I denote the term): higher lows and higher highs to all time highs, and then some. This separate peace is where I live (invest). The trick, though, is to identify the leading groups and themes. And then time your investment purchases and sales to align with the general market's oscillations. So I slice the market into smaller epochal slices of one month, and base my expectations for the market on that thin sliver of time. Why one month? Because it equals one bar on a monthly basis chart.

Among market commentators, Tim Villano excels at recognizing the market's squiggles. Just this morning, Tim stated,

"Major sentiment surveys describe high levels of pessimism in the marketplace, and technical data continues to argue for an interim (intermediate term -- dmg) bottoming process. It would be unusual for the tape to break down or fall apart from the type of sentiment and technical readings currently seen. It would be difficult to sell the stock market short when the majority of participants, as described by the major sentiment surveys, are bearish. Under similar circumstances, I have seen the tape trade lower briefly or shake out more participants, but I cannot recall witnessing the beginning of a sustained declined from the type of sentiment readings present today."

Tim's comments always are more nuanced and balanced than the brief snippet above betrays, but the snippet above ably, if indirectly, argues my point: Do not fear the market; instead, trust yourself to make the right decision, the hard decision, when necessary. Which means pull your ear off the ground listening for the hoof-beats of history hurtling towards you. Listen, if you prefer, to your favorite market commentator -- but never forget to fit his or her predictions and pronouncements within your portfolio's needs.

50/50 that the market today builds an intermediate term base -- which grants equal odds the market instead could be building an intermediate term top. Increase the odds in your favor by buying the lower boundaries and selling the upper boundaries, until and when the market finishes its HLC and stakes a definitive, meaningful, and new trend. To my eyes, an intermediate term base within the market's secular HLC appears to build, and has the data to confirm such a likelihood. That said, demarcations of support must halt further declines beneath certain levels. Until proved otherwise, I seek to identify the new leaders, and invest at appropriate moments. (Never sufficient solely to identify the leader, and then purchase willy-nilly -- unless your time frame discounts wild swings in price.)

Full Disclosure: Specific investment opportunities, and their timing, discussed on Investment Poetry.
-- David M Gordon / The Deipnosophist

Oh, to be young again

2010-08-21T16:55:00.000-07:00

I mean really now, kids can do THIS...?

Their talent defies credulity... or my ability. Fun to watch, either way. (I love the kid who finds a new way down the stairwell at the ~1:10 mark!)
-- David M Gordon / The Deipnosophist

Hey, Google!

2010-08-18T03:35:00.000-07:00

Dear, Googleplex,

I typically am all in favor of updates, upgrades, and even major changes, so in general I support your recent efforts to improve GMail and Chrome. Certainly, their new, streamlined look leaves more room for the user than the products' form ever really required.

However, and sad to report, the Google products no longer sync to my Apple devices (iPhone and iPad). I have been in contact with various representatives from Apple, in person and via telephone, to repair the problem and end up frustrated. Their usual response: Apple supports Microsoft's products, not Google's. How is that for irony?!

The specific problems:
1) Google Contacts do not sync (upload), not at all;
2) Older GMail messages do not sync (upload);
3) Google Calendars do not sync (upload) completely, missing many items or entire calendars;
4) Bookmarks do not sync at all. (I import my favorite sites to Safari from Chrome, but the sync accepts only the bookmarks bar!)

It took me a while to realize these problems all began within the past 2 weeks -- when you tweaked Chrome and GMail. Until that time, the syncs worked perfectly fine on my iPhone and iPad. I would bet my recent experience is no different than other users; we all likely suffer from the new incompatibility between Google's cloud-based products and Apple's devices.

Please effect the changes necessary to make these products work as they always did, perfectly fine. Certainly I would appreciate your efforts to tweak the recent changes, as I rely on your many excellent products just as much as I do Apple's devices. Thank you.

Your fan,
David M Gordon

Fast Track Networking - A Review

2010-07-25T16:12:00.000-07:00

Fast Track Networking by Lucy Rosen with Claudia Gryvatz Copquin, is a worthwhile read. This "how-to" guide takes the work out of networking and optimizes a networker’s comfort and success.

Rosen’s suggestions come from years of trial and error. She impressively built her first women’s networking group in New York in the mid-80’s. Rosen notes that rewards abound for a person who connects professionals unconditionally.

Her analogy of networking with dating could not be truer. Every reader can recognize the correlation of attending an event where you know few people, if any, to first date jitters. Rosen provides the readers with easy ways to overcome these fears, and also reminds us how patience has its rewards.

The book focuses on tips for better networking with some great takeaways:
● Do your homework in advance of the networking event
● Get your elevator speech down to 30 seconds, but don’t sell your business
● Listen attentively
● Genuinely try to get to know others
● Don’t mingle for more than 10 minutes with any one person
● How to dress for success
● How to better position yourself in the room, and better ways to work a room
● Easy examples of how to break the ice in introductions (page 51)
● Best networking questions to get the other person talking (page 52)

Rosen discusses the importance of first impressions, and follow-up. She highlights other professionals' stories of how their work translated to improved sales and stronger branding and reputation.

You can never know too many people and Rosen guides you on managing your contacts in "circles of ten." The formation make sense and provides a professional with a semblance of organization to their contacts, with tips on proper maintenance of relationships through regimented contact and the use of social networking.

While her successes in networking stem from the 80’s, this book and guiding principles are up-to-date and relevant to today’s networking world. I recommend this book to any person who seeks to strategically and successfully build his or her business.
-- David M Gordon / The Deipnosophist

Google/GOOG: Predator or Prey?

2010-07-18T13:49:00.000-07:00

This blog began 5 1/2 years ago amid my oft-repeated recommendations to invest in Google/GOOG... but even before those recommendations were my private entreaties elsewhere. Google went public in August of 2004, but investing in its shares at that time was neither layup nor a popular decision: The PLAYBOY interview with the company's co-founders published mere days in advance of the company's IPO angered the SEC for violating a few rules and the company's unusual IPO did not ingratiate the company with powerful Wall Street interests. Many people feared the shares would founder, if not sink, post-IPO.

But a good story never keeps a good stock down for long. And Google had a good story. They kept it quiet, hidden, enshrouded in secrecy and whispers for as long as they could but the IPO busted open just how profitable the company was. And because the company took another non-traditional step of no quarterly guidance to Wall Street, the combination proved profound: secrecy + powerful revenues growth = surprising earnings gains. The stock rose accordingly.

A few people questioned the company's torrid growth, centered on whether Google was and would remain a one trick pony. (Its one trick being search.) In the quest to increase and diversify its revenue stream, the company bought many other companies, both large and small, integrated those purchases sometimes well but more often poorly if at all, offered many new products to its users -- so many new products to so many users, in fact, that its product line became unwieldy with diffusion. (I have registered my own complaints; Google's products that I deem core to my life have become near intolerable with their unreliability to the point that I almost no longer use them.)

Google definitely suffers growth pains -- although most companies would love to suffer growth pains even remotely similar. At some point, though, Google must begin to monetize the many strands of spaghetti they have flung at the wall, and not rely on their one stupendous cash cow, search. Perhaps its new great success will be the Android operating system for mobile, which became a rapid and surprising success. Perhaps Google finally will calculate a method to capitalize on its massive purchase of YouTube. Or DoubleClick. Or AdMob. (This list of purchases could really lengthen the page, so I will stop here.) Not to neglect the home-grown opportunities: GMail, which was so startlingly fantastic when revealed, and now the company allows to whither on the vine. And so on.

Google's revenues have finally decelerated from their torrid pace of growth, as the critics argued, if for no better reason than the Law of Large Numbers, but the company's earnings now pay the price for lazy management, negative growth YoY, as reported last week. Such an event is a cardinal no-no for a growth company; it calls into question your nature as a growth company. Part of the problem at Google, I suspect, is management's utter trust that revenues and earnings would continue to out-pace CapEx and SGA into the knowable, and unknowable future. A difference exists between budgeting and hewing to a budget and spending willy-nilly with the expectation that a revenue stream will continue ad infinitum. Of course, I am not privy to executive level discussions at Google -- it is possible they have another trick up their sleeve.

I have been thinking about this all for the past few years, but it all came to a head this weekend when I read this brief report by Eric Savitz...

THE OTHER BIG EARNINGS REPORT last week came from Google. It modestly beat Street expectations at the top line, but missed by a few pennies at the bottom line, as expenses exceeded Street expectations—reflecting in part the fact that the company is bulking up again, adding nearly 1,200 people in the June quarter alone.

While Google (GOOG) has struggled to generate significant revenue outside the mainstream search-ad market, it nonetheless grew revenue 24% in the latest quarter, while ratcheting up its cash position to $30 billion. Google trades for 17 times expected 2010 profits, and 15 times 2011 estimates.

No question, there are tough issues for Google, but it remains one of the best plays on the continued growth of Web content and commerce. Concerns seem well-reflected in the stock; through Thursday, Google was down about 20% this year. For buy-and-holders, this looks like a nice entry point.

The crucial misunderstanding, and one shared widely, is Savitz's penultimate sentence in his final paragraph, "Concerns seem well-reflected in the stock; through Thursday, Google was down about 20% this year." My problem is
1) Friday's wild down day changed the calculation to 25% down for the year from 20% in one fell swoop, which effectively demolishes Savitz's argument that the "concerns are well reflected in the stock." Oops.

Also, and more important, is the notion that
2) Because a stock is lower since some artificial date (in this instance, 1 January), everything is somehow okay for investors to take the leap, and invest. But this confuses cause with effect; effect with cause.

Investing is rarely, if ever, a static endeavor; more typically, it is a dynamic process. Imagine the arcade game with the ducks moving by from left to right but now, they also move up to down, diagonally, and always randomly. And, who knows, perhaps you might move as well. It becomes more difficult to settle the cross-hairs on such a moving target, no? Welcome to the world of investing. Eric Savitz's perspective is... well, quite one-dimensional, though instructional.

You can see investors' indecision easily via the merest glance at Google's chart, especially its weekly basis (the better to capture all trading data since its IPO). An identifiable area pattern builds in that periodicity, a rather large area pattern that carries some measure of significance. A better, more valuable harbinger for investors might be obtained from incorporating such a birds-eye view, rather than one so artificially epochal as since 1 January.

This post continues on Investment Poetry.
-- David M Gordon / The Deipnosophist

Apple, Steve Jobs, and the French Revolution

2010-07-13T09:32:00.000-07:00

Haughty attitudes and high-handed treatment of customers can go only so far before the peasants revolt. Although likely apocryphal, Marie Antoinette's phrase, "Let them eat cake" inspired a revolution... and a few beheadings. Tetchy people; testy times.

Seems the zeitgeist today is not much different. And when the much revered Apple Inc rushes to market its faulty iPhone 4G, and its users and customers complain complain complain, and complaints home in on its bad antenna, Steve Jobs notoriously says, "Let them eat cake." Er, actually Consumer Reports helps Steve realize he means, 'Let them have duct tape!' (At least it rhymes.) I can see how Steve was confused.

But this new news that Apple Inc is thin-skinned? I, mean, c'mon! Even Microsoft, in its heyday as the Evil Empire, never stooped this low.

And let's not mention the entire Gawker episode in which Apple had the police bust in the apartment door of the journalist who had the pre-release version of the iPhone 4G. Whoa, chill out, guys. You're becoming Appholes, in Jon Stewart's memorable term. You run the peril of fomenting a riot against... yourself.
-- David M Gordon / The Deipnosophist

Investment ideas

2010-07-13T05:46:00.000-07:00

I often receive the question, "Whence come your investment ideas?" (Well, the question is phrased not precisely like that, but its objective is the same.)

Of course, all investors share the same well-spring, the public markets. (Private equity and venture capital, to name only two other investment markets, obviously have different characteristics.) Styles abound, but two predominate: value and growth. Value investors seek to purchase $1 of assets at a present day discount. Growth investors seek to purchase $2 of future value based on presumed continued growth for today's $1 present day price. (Simplistic definitions, these.)

From that starting point, the layers of complexity begin; for example, Warren Buffet melds growth and value into a unified whole, although he leans toward value. He ignores the technology sector altogether, partly because he claims not to understand it, but also, I believe, due to its tendency to have torrid growth... that does not endure beyond a few years, which does not comport with his time frame. (A crucial point.)

But the complexities become even more boggling for the investor: With so many possible investments, which to select? Rule out one style (for example, select growth, or vice versa), and then limit your universe only to growth stocks. Great, that leaves ~20,000 stocks. Now what? Penny stocks or institutional stocks? A bet on growth is a bet on the future, and because the future is unknowable, each asset class enjoys equal opportunity to succeed. (Well, perhaps in an egalitarian universe.) Filters would be of use: a minimum number of shares traded daily, a minimum share price, whatever. Or William O'Neill's CANSLIM.

Your objective is to:
1) Identify the leading theme for the market's next up leg;
2) Whittle the list to a manageable few;
3) Know, really know, those few companies that pass your filters;
4) Know, really know, the often subtle tells of each stock's trading action that are precursor to big moves in one direction or the other, which you could identify because you do not monitor a list 100s of names in length.

What you do not want to do:
5) Buy old names. A former growth leader that no longer grows is no longer a leader, and its shares certainly will be no leader; avoid it like the plague.
6) Buy yesterday's cycle's winners. Why purchase for your portfolio an investment that has a ceiling as to high it could rise?
(These two items are similar, but not the same.)

Investing is difficult (enough); you, as investor, are presented with multiples of reasons why you should not buy, or not hold, your winning leader of an investment. So you do not buy, or you sell, or worse you trade out of it. ("I will re-purchase on the dip." A dip that never comes.) Why complicate matters? Find your core truths, simply expressed as your investment objectives and risk tolerances ("To make money!" is insufficient), and then the investment style and asset types you prefer, adjust the filters to your liking, and then enjoy some measure of success.

Slightly more to investing than this simple, simplistic bit, of course, but it is a good beginning.
-- David M Gordon / The Deipnosophist

A rocket-ride to Hell

2010-07-05T18:10:00.000-07:00

To begin, a snippet from David Rosenberg (Gluskin Sheff)...

Is it the correction that is unusual, or is it the fact that in a matter of 12 months, the S&P 500 managed to shoot up 80% — and amidst the weakest recovery in real final sales in recorded history? The few times that the market had ever rallied so sharply off such a deep interim bottom were both in the 1930s, and we saw a pullback of around 40%. So, the reversal of the past three months very likely has further to go, and, sadly, many market participants are still not braced for it. The old buy-the-dip habits die hard.

The 12% slide in the market in Q2 wiped out $1.6 trillion of paper wealth off the books. In a particularly ominous sign, the 3.7% decline in the S&P 500 this past week stood in stark contrast to what we usually see this time of year because seasonally, the equity market rallies three-quarters of the time heading into the fourth of July festivities — the 4.6% decline so far this week stands in stark contrast too.

Taking the year as whole, with the S&P 500 off nearly 8%, this goes down as the worst first half to any year since 2002. That year, if you recall, was an aborted recovery as opposed to a classic double-dip; however, it didn’t really matter because a market priced for over 3% and got basically near zero growth in the second half of that year, did not bottom until October...

You cannot complain that I did not warn you, though; in fact, I bored you to tears with my frequent warnings throughout December 2009 and Q1 2010. Bottom line: The market built a top during Q1 2010, and broke down during Q2. I stated almost as often that the oil sector would be especially weak due to technical factors inherent in its own group and sector chart, and would lead the market lower because of its 15% weighting in the S&P. It has done just that, and then some -- but, even so, who could have known about the downside outlier that BP represents, which exacerbated the sector's and, by extension, the market's decline?

For equities, this moment, here now, is difficult, troublesome, perilous... and exhausting. I quote market analyst par excellence, Tim Villano:

The high-probability trade to new lows has occurred; ES 1020 hit easily, and the 1005 mark tested. These lows have the appearance of a daily, wave-5 movement.

As an investor who watches each tick, it is difficult not to apply some greater meaning from the market's one-way trajectories, especially now with the predominantly negative ticks. How could the market's rocket-ride to Hell not mean the economy sucks and that people will lose their jobs and thus be unable to pay their bills, which will cause a feedback loop that only worsens the downward death spiral in the markets and the economy, and back to the markets, feeding ever-deeper declines?

See what I mean? But often, market action has no greater meaning; its import is for the market and not the economy, although 2008 is an obvious and notable exception. The responsibility lies heavy on the investor, as always: Is a given moment one of (heightened) risk or (increased) opportunity? Is this moment one of (heightened) risk or (increased) opportunity?

Yes, good questions. And what about this one: What transpires next for the markets? Find out on Investment Poetry where this post continues and concludes.
-- David M Gordon / The Deipnosophist

The 24 Types of Libertarian

2010-07-05T10:49:00.000-07:00

Pretty self-explanatory... and very funny!

[click on image to enlarge]

-- David M Gordon / The Deipnosophist

You say potato, and I say...

2010-06-27T12:25:00.000-07:00

So many methods to investment success, so little time. Simply, simplistically, an investor could view the investment landscape either as
a) top-down
b) bottom-up

The former (top-down), in essence, involves a prescriptive view that begins with geo-politics, filters down through national and local politics, economics (global and local), finance, companies, markets, sectors, groups, and stocks. The latter (bottom-up) is mostly similar, but in reverse order. The primary difference between the two, for me, is that the former makes pronouncements and attempts to fit the market's square peg into the investor's round perspective (or pronouncement), whereas bottom-up investors allow the markets to 'speak' to them, they 'listen' to the message the markets convey.

When I identify a company and its stock as possible leaders, I confirm that status via seeking similar strength in its group and sector. For example, after I identify xyz as a possible leader, I then attempt to identify whether other company's shares in the same group out-perform by a similar measure; if yes, I seek some measure of out-performance in its sector. (Please understand, the broader the group -- individual stock --> group --> sector --> market -- the less the out-performance, an argument in favor of concentrated positions: more risk = more reward.) This group and sector analysis confirms my thesis in favor of the winning investment opportunity, not vice-versa.

I never view the world and say, "Everything sucks, the world is going to hell, but it is a good time for ordnance makers. Buy their shares!" You willhear me say, and often, "He is smarter than anybody, but not smarter than everybody." This quote sums my view of investing. The consistently successful investor acknowledges the enduring power of the markets, which can and will grind him, his ego, and his portfolio to dust long before it acknowledges he was correct after all. Perhaps.

Which is why, correctly or no, I choose to view the markets from the bottom-up; my view is clear, unclouded, rarely confused. And I can allow the profound power of the market to help guide me to enduring and consistent investment success

This post concludes on Investment Poetry.
-- David M Gordon / The Deipnosophist

Trial subscription for InvestmentPoetry

2010-06-17T07:38:00.000-07:00

InvestmentPoetry is my second blog, which provides practical, real time investment and portfolio recommendations. (As contrasted to The Deipnosophist, which teaches the mechanics and processes of the markets.)

Subscriptions to IP typically are available in one year periods and cost $250 (per year) only, but I receive requests for a trial period at a reduced rate, so I offer the following subscription:

● $100 for the balance of 2010, or 6 1/2 months. (Offer good through the 4 July holiday weekend.)

Please contact me for complete subscription details.

To your investment success!
-- David M Gordon / The Deipnosophist

How to Save the News

2010-06-10T04:57:00.000-07:00

It becomes a thing not worth knowing when everyone knows it already. And such is the case with the news media, especially newspapers, which "[E]veryone knows Google is killing..."

But as this article makes perfectly clear, Google, in fact, does everything it can to keep it alive, if not revivify it altogether...

The challenge Google knows it has not fully coped with is a vast one, which involves the public function of the news in the broadest sense. The company views the survival of “premium content” as important to its own welfare.

An excellent article worthy of your attention.
-- David M Gordon / The Deipnosophist

A working thesis

2010-06-06T13:31:00.000-07:00

The equity market's dynamics are always up to the investor to interpret, but its recent negative dynamics continue. Simply, simplistically, and solely: prices rise on diminishing volume, prices decline on increasing volume. The outcome from this particular dynamic, historically, has not been good or positive. To state it mildly.

So what's the problem...? This dynamic has been in force since the low and reversal of March 2009, it worsened off the low of early-November, and became truly ugly since the low of 5 February 2010... and yet the market shrugs off this dynamic, and proves itself resilient, if not also refuse to reassert its broad and wide decline. Of course, Friday's session, as broadly negative as we have seen of late, caused the market to breach finally ES 1080, which quite possibly changes its dynamics, although not yet its direction (as I stated in an earlier reply). At least, not necessarily and not yet; with its current placement after Friday's daily and weekly close, this next week should prove... fascinating; its arrival laden with ominous signs of imminent doom.

My investment methodology relies heavily on market action for insights as to which opportunities appear best situated at any given moment, so the past few months have proved personally damning. Readers and subscribers have abandoned this site because they seemingly prefer short term reward over the intermediate term's mounting risk. (Certainly it is not because I have been proved wrong!) But to invest now, and for the past several months, is, in essence, to play the momentum game (aka, the greater fool theory) -- and momentum with especially horrible dynamics. The decline that began in April might cause these investors to reassess risk, and should they and remove their buy orders, then flash crashes such as we saw on 6 May might become a recurring experience. To prepare you for this event(uality), I described in a previous post this phenomenon of a vacuum of balancing orders that foster the set of circumstances necessary to avoid these sudden air pockets.

The market's changes of trajectory help cause a shift in perception, of perspective; a new parallax view. So Apple/AAPL's chart action of the past 2 months transmogrifies to top from base, and suddenly you see that Google/GOOG began its decline on 4 January, fully 3 1/2 months prior to the market's peak. The question for many stocks now becomes whether the 200 day sma will stem deeper declines.

I took some heat last week for the chart above (updated through Friday's close) for having misidentified the right shoulder, or the neckline, etc; justifiable criticisms, if possibly incorrect. What the commentors do not know is I (attempt to) identify trends and their changes in anticipation of market action; the neckline I identify is nothing more than a working thesis. Although it also (increasingly) appears to be a correct thesis. Time will tell. But what will time tell us...?

This post continues on InvestmentPoetry. See you there!
-- David M Gordon / The Deipnosophist

The Essential Performance Review Handbook - A Review

2010-06-06T06:20:00.000-07:00

Sharon Armstrong, in her book, The Essential Performance Review Handbook, bottom-lines the goal of the performance appraisal process:

"... these formal interactions between employees and their direct supervisors point out employee's strenghts and weeknesses, and include assessing the achievemnt of previous goals and setting new ones for the employee to work toward... Ideally the performance review is constructive, separate from discussion of compensation, and contains no surprises. It should reflect a series of discussions or mini-reviews that have been conducted throughout the year." (p 14)

Unfortunately, that ideal perspective is more goal than reality; realistically, most employees would argue their experience with the review process differs. Most employees do not get regular and explicit feedback from their managers and, consequentially, feel blind-sided by their manager's assessments.

The fact is that most large firms hold dear the appraisal process -- for fear of litigation by its employees from suits of unfair treatment, termination, discrimination, or harassment. By preparing and confirming delivery of a performance review in writing, companies hide behind the process as their ability to document status of work and goals, areas of problems, areas of strengths. Whether the employee agrees or not, the company has its documented file... just in case.

Despite my cavil, Sharon Armstrong shares crucial guidance and pointers throughout the book:

Excellent:
● Fine overview of the employee's and manager's feelings towards this process. (p 15)
● Guides both a supervisor and employee as to why a good performance appraisal process can be important. (p 17)
● Exceptionally useful self-assessment tests, as most people who answer truthfully will find they are not where they expect themselves. (pp 18-19)

Good:
● Clever, relevant quotes begin each chapter.
● Forms section at book's end offers many appraisal samples.

Room for improvement:
● Armstrong relies on three idealized character types to illustrate issues and potential solutions. The characters are not typical. Most employees in the workplace are average; they have strengths and weaknesses that do not fit into these idealized situations. The author took the easy way to zoom in quickly and easily on crucial matters.
● Most of the information Armstrong provides or shares can be found on-line, and free.

Truth:
● While the author provides insights as to legal issues of employment and touches on importance of performance reviews to protect a business against legal action by an employee, legal problems drive performance review process at most companies. (Chapter 8 - "Keep It Legal!")

Overall:
The Essential Performance Review Handbook offers a balanced overview of the Human Resources performance appraisal and review process; as such, it is a good book for beginners to the performance process, for small business owners looking to develop a process, and for new managers. And an excellent primer for all employees, whether you are the supervisor who performs the reviews, or the employee subject to review. Recommended.
-- David M Gordon / The Deipnosophist

The market today

2010-06-02T04:44:00.000-07:00

From a letter to clients I wrote only 31 days ago...

"Moreover, the market's current position and posture argue for an intermediate term decline. Assuming forthcoming events prove correct my analysis (a decline to SPX 900-850), the possibility looms for a deeper decline based now on a weakening backdrop. But one step at a time. I would be remiss if I were not to mention my conviction that the leveraged short ETF, SPXU, will redeem your patience, and your portfolio, many times over. Markets never are mono-directional forever, oscillations against the prevailing trend do occur, and the current market has many reasons to decline, short and intermediate term..."

May 2010 proves to be the worst monthly decline since February 2009 and the worst month of May since 1962; SPXU, in turn, roared higher. The question now is, "What and where next...?" To that end, I study the chart of the SPX...

The ominous Head & Shoulders top identified previously -- and whose crucial trend line (the drawn neckline) the market stubbornly refuses to breach. At least to date. The pattern since March 2009 is not a pretty picture -- if you rely solely on its look; other factors come into play, though -- sentiment, market internals, money flows, geo-politics, etc -- that to rely on one item is folly. Nonetheless, many gauges and metrics align with a bearish tilt.

Easy to imagine many scenarios:
● Equity markets plummet now;
● Markets trade sideways for a few weeks or even a few months before breaching the neckline;
● The markets stabilize, and the feared correction is more time and shallow price than deep price.

So I exercise patience while I also search for signs of the true break. Easy to imagine my tactics whichever way the market breaks:
● Down -- buy more SPXU;
● Up -- immediately reverse course (cover SPXU and go long)

As of this moment, I still believe the market's intermediate term (the next ~4-6 months) trajectory is down to SPX 900-850, arguably lower. No matter the outcome, the onus remains upon me to identify now those stocks that manifest as excellent long term investment opportunities. Which is largely how I spend my market days: Identifying the new leaders and the true market direction.

I hope you are equally as happy as I am confident that the decision to increase cash to a dominant percentage of your portfolio was the correct choice. The market appears exceedingly treacherous right now, and for the next several weeks and months. Certainly, the systemic peril has never been greater, 2007/2008 included, the opportunities never fraught with more risk than now.

Full Disclosure: Long SPXU.
-- David M Gordon / The Deipnosophist

The markets' coming squiggles

2010-05-19T05:59:00.000-07:00

Yes, I know all about the 'news' coming from Europe, England and Germany especially, that targets short-selling. (Really, the short sellers themselves.) No, none of it surprises me; please recall my comment from Monday's post, "... a future in which governments impose confiscatory taxes against ‘evil’ investors (of all types and time frames), which begets more selling to pay the tax" seems clearly in play. Unfortunately, and as I argued, the short-sellers represent not the problem, merely its symptom. (Short sellers do represent liquidity, something the markets scream for, so the Europeans efforts amount to shooting themselves in the foot.) The true problem is the spend spend spend philosophy of politicians, who effectively prove to be spenders, not managers. Whatever happened to the concept of thrift?

The markets follow, almost lockstep, the trajectory of the US$... although it thinks it follows the ongoing travails of the €. But that's okay, the net effects remain the same: Wild oscillations in all markets, especially during overnight sessions, with its lesser liquidity. But what of today, and the near future -- will the market crash here, now, as some market prognosticators suddenly believe?

This post continues on InvestmentPoetry. See you there!
-- David M Gordon / The Deipnosophist

Today's reality: Potential systemic failure or system failed?

2010-05-16T14:52:00.000-07:00

Which came first, the chicken or the egg?

Apply that puzzle of philosophy as metaphor to global economics and financial markets, and we all wonder whether equities truly move in advance of economic fundamentals or react to them. Too many swings and oscillations occur to name this or that price swing as distinct from any large economic or financial news item.

In today's speed-of-light world, grave concerns increase re the sanctity of markets and economies, and markets react immediately, devastatingly. Or do markets' renewed declines anticipate follow-on weakness? The economic and financial problems the world faces are no secret; we all know them. What we do not not know, yet, is the fallout from all our past misguided policies and pursuits (by both business and government) and the maladroit attempt to control, top down, the consequences of past bad decisions and actions.

In The Lessons of '92, I alluded that bad decisions beget bad actions, which often create negative consequences. Market speculators smelled blood as a result of the bad policies and actions made by the Bank of England and the UK government, and dove in to the banquet. In The True Objective of All That Money I pointed out how welfare nations everywhere find themselves on a cliff's edge, with one foot dangling and the other sliding toward doom. And now the world finds itself on the cusp of a crack-up boom. (This article ably explains Ludwig von Mises' notion, and the terrifying nature of its consequences.) In essence, not good.

I, and other commentators, could argue (winningly) that the global financial system does not face possible systemic failure; in fact, the system already has failed. You need look no farther than last week's embrace by the EU of the detested nuclear option: the European Central Bank's (ECB) decision to purchase government bonds issued by euro zone members, thus abandoning their long-held resistance to such a move. And which action follows on our (the USA's) many bailouts of the past 2+ years, from which directives, policies, actions, and bailouts the Europeans recoiled with shuddering horror. "Welcome to the (debt) party, Europe! By the way, the hangover is a bitch."

What the Western world attempts today is as misguided as it is noble: to spend money it does not have, to create from thin air the paper necessary to 'cover' the new deficits, to paper over past errors with more paper, to issue more debt to fund existing debt. Oh, and to give to everyone everything he or she wants: jobs, holidays, health care, a car in every garage and a chicken in every pot. (NB: the protests in Greece will come soon enough to a piazza or square, or street, near you.)

For various reasons, parts of the world are immune to this outbreak of the debt contagion: the Middle East (for reasons cultural and religious) and South East Asia (because those nations endured their own version of this financial mess in 1997/1998, and came out for the better). China remains a question mark; the nation has gazillions of liquid reserves, but most of those reserves are in US$ denominated assets (Treasuries, the $ itself), which could wither to zero in an all-out financial storm. The Chinese know and fear this possibility, so the nation hastily diversifies into real assets -- which satisfies one step of Mises' crack up boom: "Everybody is anxious to swap his money against 'real' goods..." Pay attention to what China does with its excess reserves, continues to do, now and in the future.

Global markets reflect this concern, amid mounting doubts as to how governments regard their sovereign debt, and treat their debt-holders. (Servicing debt, especially with more debt, is a bitch!) China's markets peaked months ago, as did the European markets; they all are in the throes of their price corrections. The US markets... well, let's just say the rally since March 2009 is suspect. Chart below is of the S&P 500:

Note a trend that loses upside momentum; note, too, a possible head & shoulders top. (I ignored the integral component of volume, largely because volume has diminished throughout the recovery rally.) This particular, and potentially powerful, pattern remains a work-in-process, so its realization remains anticipatory; it requires a right shoulder (arguably complete) and a breach of the neckline (identified) to confirm. The double-arrowed line measures the potential for the pattern, ~160 S&P points from the breach, a potential decline to ~910-870. (The same level I pointed to for the past several months, well before this pattern showed up on the chart!) Several stair-steps lower must occur first, though, to validate the bearish scenario: 1125, 1110, 1100, the identified neckline, and the 6 May low of 1065.

What could go wrong with the bearish expectation...?
● No right shoulder forms;
● No breach of the neckline (~1070-1065);
● An accelerated rise from a pattern failure. (No pattern is as bullish as a failed H&S top!)

I could argue that the 6 May low represents a climactic low, which would put paid to the entire expected decline (albeit that expectation was for 900-870, not 1065); certainly the data reached oversold levels. Even were that the case, however, climactic lows typically are tested, sometimes repeatedly. Worse, US equity markets trade 'heavy' and a decline of one week, however seemingly climactic, is insufficient to erase all the technical divergences and negatives built up over the past 6 and 15 months. One possible scenario, of which I could limn many, is a sideways range between 1175 and 1075 that endures for several weeks or months -- before the breach beneath the neckline finally occurs in late-summer (August/September time frame). Only time, and the accumulation of new data, will tell the true tale.

Please recall again the post, The Lessons of '92: speculators will sell short an item they deem has a lesser value than its prevailing price. This means speculators could, would, and do sell short sovereign debt, sovereign currencies, even sovereign governments. (Oh, hello, Goldman Sachs -- arguably today's equivalent of Switzerland during WW2; purportedly neutral, but if they can make a buck, then Grandma also is for sale...) The intent of the new positions that occurred on Thursday and Friday of last week could be to test the EU's mettle and intentions. (viz, the EU's $1 trillion commitment of paper and jawboning.) I know not what actions governments will effect in the attempt to bind, or even banish, speculators. Not difficult, though, to imagine a future in which governments impose confiscatory taxes against 'evil' investors (of all types and time frames), which begets more selling to pay the tax. Until resolute action of some form occurs (best would be reining in our individual and collective expectations), currencies weaken, debt prices decline, and investors (even investors!) sell equities. Actions, reactions; sequences, consequences; selling... and more selling? Perhaps the sudden vacuum of no bids on 6 May will soon reoccur, regularly so. Caveat emptor. The game of musical chairs continues. Fun, eh?

The markets finally will break, up or down. What occurs today, before the break, is the usual comparative and relative swapping vs absolute sales (or buys): trading this weaker currency for that stronger currency one (say, the arguably devolving Euro for the strengthening US$), selling short this sovereign debt and going long that sovereign debt, selling short this or that equity or equity market and going long another equity or equity market. This all is the province of hedge funds in their original form (short this/long that), and bespeaks an ongoing process of correction, not bear market; nor the end of days. The bottom could drop out, though, at any moment; certainly the warning signs, economically and financially, begin to dot and dominate the landscape (charts).

I predict nothing. My role as portfolio manager and market commentator is to lessen risk and increase reward. So I seek the new investment themes and the new leaders: those sectors, groups, and companies that not only will ride out the (coming) storm but should succeed, if not excel. Of course, between then and now lies the Land of Uncertainty, and the possibility of lower share prices.

Fascinating topics (global economics / finances, and markets), to be sure; I could continue for a good while longer. Frankly, it all is rank speculation; at least, at this moment. Will the world muddle through (again)? Will markets stabilize, and rise? Will Charon still demand his fee for ferrying us to there from here? In what form will that coin be?

It pays to be ready for all contingencies:
1) Equity markets stabilize, and then rise anew
2) Equity markets plummet, but recover
3) The world (as we know it) ends

I prefer to focus my attention on items 1 and 2 for the obvious reason. I will do just that on InvestmentPoetry, with specific recommendations, in addition to a deeper discussion of the topics I presented above. As always, your comments and insights are welcomed and appreciated.
-- David M Gordon / The Deipnosophist

Fat Finger or Perfect Storm? You decide

2010-05-11T16:20:00.000-07:00

I laugh easily these days (Hey, we must keep our wits about us!), but Jon Stewart really nails it with this clip...

The Daily Show With Jon Stewart

Mon - Thurs 11p / 10c

A Nightmare on Wall Street

www.thedailyshow.com

Daily Show Full Episodes

Political Humor

Tea Party

Next time some person explains market moves, or anything for that matter, and that person resorts to cliches, ask yourself, "What insight did I really get...?"

Thanks for the laugh, Jon. I needed that!
-- David M Gordon / The Deipnosophist

The lessons of '92

2010-05-11T09:10:00.000-07:00

A reader asks, "Please spell it our very plainly for those of us with history deficit disorder, what were the lessons of ‘92?"

Back in the 1980s, hedge funds became laden with lots and lots of money; too much money to utilize their tried and true tactics. To deploy all that new money, a new perspective was required, a global perspective. And thus arose the macro funds. I have forgotten many of the names but you likely recall a few: Mark Strome, Julian Robertson (Tiger Fund), etc. And, of course, George Soros (Quantum Fund).

Several of the macro funds decided correctly that England did not measure up to the ERM’s standards. To wit, the European Exchange Rate Mechanism (ERM) enforced specific measures by which each nation must abide; the Pound Sterling clung tenaciously above its agreed lower limit, but the fundamental situation betrayed that it should not. The macro funds smelled blood in the water and shorted Pound Sterling. They had calculated that the Bank of England (BoE) lacked sufficient reserves to combat their short sales (what with leverage, etc), and if and when the BoE responded to their short sales, it only worsened and weakened the BoE's position... which, in turn, further strengthened the macro fund managers' belief of the Pound Sterling’s fundamental weakness. They piled in: one fund after another, and one position after another. And when that was not enough, they used the inherent leverage in the futures contracts to short even more Pounds. All the while, the BoE kept jawboning the currency markets. The BoE’s position: the Pound must not weaken.

The BoE never did commit fully to backstopping its position... until early-September 1992, and by then it was too late. On the fateful day of 16 September 1992 (Black Wednesday), the Conservative government and the BoE gave up the attempt, and the Pound Sterling tumbled. Big time. Media blared the news with huge headlines, “George Soros, the man who broke the BoE!” and “George Soros, the man who made $1 billion in one day!” What the media had forgot, or never understood, was that Soros had been grievously underwater on the position; in fact, ~$2 billion in the red when the calendar flipped to 1 September 1992...

The lessons?
1) Fundamental shorts trump technical shorts
2) Stay with your conviction (easier for Soros with his track record than Dr Burry, et al)
3) Do not let anyone or any institution frighten you out of your conviction and position

The situation today is eerily similar to Britain’s in 1992. In an excellent, and exceedingly well-written essay, Robert Samuelson encapsulates the true problem, "The welfare state's death spiral..." Samuelson also posits, "There are no hard rules as to what's excessive, but financial markets -- the banks and investors that buy government bonds -- are obviously worried."

Well, yes, but that is an understatement. Investors might be leery, but speculators and traders smell blood in the water. Again. So, in a replay of the events of 1992, they short the currencies and sovereign debt of the countries in the worst fundamental position. I mentioned previously, and as Samuelson articulates, this problem afflicts welfare states everywhere (Japan, England, and the US), but especially those countries with an aging demographic. Especially hard hit, though, is Europe, because its monetary confederation never did give rise to the cultural and political hegemony many European leaders believed would occur.

Will the speculators learn from Soros' success, and repeat that triumph? Or will they panic?After some initial jawboning, the EU learned its historical lesson (England and the BoE in 1992) and committed $1 trillion to its behemoth effort of crushing the speculators. So far, the EU’s effort looks golden.

Will sovereign debt and national currencies tumble in price and value due to speculators' short sales? Will the effort to crush the speculators (further) bankrupt the welfare nations? Answers await to all of these questions, and other questions unasked. And, as with the impoverishment Soros' success inflicted on the English, however ephemeral, so too will the fallout from this story afflict us all.

Your comments and remarks welcomed, as always.
-- David M Gordon / The Deipnosophist

The true objective of all that money

2010-05-10T05:43:00.000-07:00

Okay, so "the European Union (EU) unveiled a staggering €750B ($966B) plan to save the eurozone from a debt contagion crisis. These funds include €440B in loans from eurozone nations, €60B from EU emergency funds, and €250B from the IMF. The money will be available to rescue eurozone countries that become financially distressed. Additionally, the ECB will take the step of buying government bonds, previously considered the "nuclear option" of the euro defense measures under consideration... AND the Federal Reserve has reopened a credit line to send dollars to Europe."

The guns are all out, and firing. The immediate result: initial reversals of last week's action. Equities rally globally. Straying from predictions, we all should ask ourselves: Who or what does all this money target? My reply: It rushes to bandage over the symptoms of the problem, but fails to solve the problem itself.

● The problem: profligate spending by everyone, but especially governments and paid for with debt, ever more debt.
● The symptom: careening debt and equity markets as investors increasingly recognize the con game.

So investors, especially those who recall September 1992, sell short government debt and equities in a huge game of chicken; in doing so, markets decline and havoc results. (Viz the headlines from last week.) In essence, the EU targets this $1,000,000,00,000 ($1 trillion) against speculators. The true problems remain. And who believes those will be dealt with correctly, forthrightly, transparently?

We shall learn soon enough who recalls the larger lessons from September 1992.
-- David M Gordon / The Deipnosophist

INSIDE OUT by Barry Eisler -- A Review

2010-05-09T19:43:00.000-07:00

Some authors arrive on the scene fully-formed, other authors build his or her writing career with each new novel; Barry Eisler, interestingly, is a little bit of both. But if ever an author were born to write a specific novel, Barry Eisler is the author and Inside Out is the book. Both it, and he, are that good.

Make no mistake, Inside Out is not just a thriller with a conscience; a topical thriller, to coin a phrase. Arguably a cliché, but "ripped from today's headlines" would be an especially valid comment...

But the establishment is bigger now, more entrenched. The Roosevelt and Truman expansions were ratified by Eisenhower. Kennedy's and Johnson's abuses were ratified by Nixon. Bush Jr's extraconstitutional moves have all been ratified by Obama. It's a ratchet effect. There hasn't been a federal law in the last sixty years that's done other than increase the government's power and influence, and the power and influence of the corporations that manage the government by extension. The leviathan only grows.

"You're saying it can't be beaten?"

Hort laughed. "You can't beat the oligarchy. You can't beat it because the oligarch has already won. The establishment is like a virus that's taken over the organs of the host. Now it acts as a kind of life support system, and if you remove it, the patient it battens on will die... The establishment is a creature whose first priority is ensuring that if you try to remove it, you'll wind up killing the host.

Ahh, you say, what does that section say about anything, topical or otherwise? Read on past the snippet, though, and it begins to make sense: Eisler weaves terrorism throughout the novel's plot -- as do many thriller authors -- but also our nation's response to terrorism, and whether our reactions are right and just, or righteous and over-the-top. Few thriller authors do that, which is understandable. Why move beyond two-dimensional characters that offer nothing more than to move the plot along? Putting characters through their paces never seemed to satisfy Eisler. No, he has shown repeatedly an interest in setting high-bar challenges for himself and his books -- at the peril of losing readers. His novels reflect this growth, as they have morphed from thriller plot with interesting expositional asides, to characters sufficiently three dimensional that they are more than a grab-bag of characteristics, to external events that shape and form the characters, and their reactions to the events that shape them.

Eisler returns to characters from Fault Line: Ben Treven, his boss, "Hort" Horton, et al. (He also hints at a convergence of Ben Treven's and John Rain's story arcs in future novels.)

No Eisler novel is complete, though, without the tradecraft his readers enjoy...

She walked him to the door. He opened it and took a quick glance through the crack -- first right, then sweeping left as he opened it wider. Everything looked all right. The gardener and his truck were gone. Other than that, nothing had changed since he'd arrived.

"My husband used to do that," she said from behind him, her voice cold.

He stepped out onto the stoop and glanced back at her. "Well, I don't want to end up like him."

"Like him" would be presumed dead. Difficult to discern from the snippet, I know, but the brief section quoted above does more than move the plot along, it actually informs Ben Treven's character; it helps explain why he is who he is.

The characters become almost secondary, though, to the anger that increasingly motivates Eisler's plots. While taking care not to be polemic, Eisler reaches for the brass ring -- the Olympian heights of John LeCarre and Graham Greene. The rara avis of auctorial talent in the service of literature that assumes the guise of thriller. With Inside Out, Barry Eisler almost but not quite shares the same lofty heights with those two Olympians. (Had he seized the grand opportunity he set up so brilliantly... Perhaps in his next book, though.)

Despite the near-miss of the brass ring, Inside Out (available 29 June) showcases Eisler's increasing talent as author: he broadens and deepens his auctorial style, and edifies his readers while he also entertains them. Inside Out is a real page-turner of a novel. Highly recommended.
-- David M Gordon / The Deipnosophist

Last week's market action: prologue or dénouement?

2010-05-09T13:47:00.000-07:00

Equity markets decided to put on their own show of fireworks, two months ahead of the calendar. And what a show it was! At one point, the Dow Industrials dropped by ~1,000 points, its largest ever one-day point drop.

In light of that crazy action, you are told to "Use limit orders!" Please recall my post, Market Volatility, Liquidity, and You, in which I point out the primary difference between order types:
● Market orders assure an execution, but not a price
● Limit orders assure a price, but not an execution
● And neither type of order protects your portfolio from the shenanigans floor specialists can, will, and do play, especially during "fast market" conditions, such as occurred on Thursday and Friday. (Please re-read that post for more understanding re this topic.)

A brief recap below of my market scenario and what actually occurred:
● US$ rises powerfully (if ephemerally, in a world of fiat currencies), in a flight to safety. Correct, to date.
● Interest rates rise in the US, possibly globally. Initially correct, but subsequently incorrect. (A global flight to safety bid US Treasury prices higher, yields lower.)
● Commodity prices pressured by a rising US$. Correct.
● Share prices of commodity producers under pressure. Correct.
● A ferocious, even "hellacious" price decline in equity markets. Correct, in its initial phase.

Investors anticipate events, not react to them. As such, you likely want to know what I think will occur next, so I hope to see you on Investment Poetry, where this post continues, with specific recommendations and follow-on discussion.
-- David M Gordon / The Deipnosophist

2010-05-09T11:43:00.000-07:00

In recognition of the (expected) fireworks that occurred last week in global equity markets, a little balance provided by the brilliant, and brilliantly pithy, poem...

Up and Down

Beverly Rollwagen

I don't know anything

for sure unless I look it up,

but sometimes I can figure

things out if I write them

down. So it's up and down

all day long. It's a good life.

Better than back and forth

or in and out which I find

constraining. I have up

and down in balance and

with my mother's death

have discovered the true

meaning of before and after.

I will comment re the equity markets soon...
-- David M Gordon / The Deipnosophist