



Ron Schoenberg writes: 


But I'm forced to respond to this post.




Stefan Jovanovich replies:








Jaime Klein replies:




Gary Rogan responds: 






Mr. Krisrock writes:









T.K Marks writes:



Charles Pennington writes: 


Stefan Jovanovich responds:







Peter Saint-Andre writes:



Gary Rogan responds: 


T.K Marks writes: 




At least it's supposed to be.




I tried Yahoo's new search engine in my professional field (infrastructure) and it generated good, useful sites and data. I am going to start using it to complement Google. If many others arrive at a similar conclusions, could be a problem for GOOG.



From Norman Vincent Peale's Treasury of Joy and Enthusiasm:

1. Engage in a business for which you have a talent.
2. Secure a suitable locality for your business.
3. Stick to your business. Do not assume that just because you are a success in one field that you can be so in any.
4. Be economical; not parsimonious, nor stingy, but never go into debt.
5. Be systematic. No man can succeed in business who neglects the strict observance of a system in his business.
6. Advertise. Have a good article and make it known in some way to the public that you have such a thing for sale.
7. Be charitable. It always pays a businessman to perform acts of benevolence.
8. Be honest. Honesty is the best policy. A man who lacks honesty will soon lack customers for his goods.

Jaime Klein writes: 

Interestingly, P.T. Barnum himself has a bad reputation. He used to work only in the early mornings, spending the rest of the day drunk, and his business was based on fake curiosities. But his century-old advice is still the best in its class. 



 One of the big financial businesses of the 19th century was to buy cheap Latin American sovereign debt, and then enforce payment by use of gunships. Apparently, the system is back, and its opponents too.

The Paris Club of official creditors decided to prevent aggressive investors buying poor countries' debt at a low price and then suing to recover large sums of money. There is growing irritation among international development agencies and NGOs over the actions of "vulture funds", which buy up discounted debt, often of developing countries, and then sue the government for more money than they paid. The emergence of litigation by vulture funds is forcing some poor countries to use spare money to settle debt claims, angering the other creditors who have written off the debt.

A British high court judge ruled in February that Zambia must pay the investment firm Donegal International a much larger sum than the $4million it had paid for the country's debt. The International Monetary Fund, World Bank, and Western creditors wrote off a large part of Zambia's debt in 2006.

I remember reading that among many others, Turkey and Venezuela's debt was recovered by these methods. Theodor Herzl offered to settle Turkey's debts for a charter of South Syria, then a Turkish province.









Results of the 10-year audit:


How could this happen? Well, that's very easy:



Jaime Klein writes:





From Scott Brooks:




From Craig Mee:

I accept these results, however…



From Kim Zussman:

Similar but less quantitative self-assessments:





Jack Tierney adds:




Abe Dunkelheit adds:









Charles Sorkin writes:





Jaime Klein writes:








A Note from the President: 



















I now yield the field for at least a year.

The President further adds:

Scott asks a good question and, frankly, I don't know how to answer it. But I believe we have reached a point where we have to admit that governments and their offspring are poorly run. And though the threat of government interference is always real, the current state of government, especially at the state level, could actually prove beneficial.

For example, Macquarie and another outfit leased the Indiana Skyway for 75 years for $3.85 billion. It's estimated the companies will recoup their investment in 17 years and make an additional $21 billion over the remaining 58 years.

There has been talk of Daley also leasing the Illinois Tollways. Two days ago, Illinois announced it was leasing its lottery for $10 billion. These will be huge income generators for years. Likewise, Tennessee and several other states sold their future cash flow from the Tobacco settlement for discounted sums so that they could balance their annual budgets for two years. The buyers will reap nice returns for years.

Many states, and Illinois is one of the biggest offenders, have contributed little or nothing to their states' employee retirement funds over the past six years. Their only outs are raising income taxes (not going to happen) or selling off their hugest cash generating properties - for lengthy terms and at substantial discounts.

Our state governments, like our federal government, have been badly run, and finding additional revenue streams is getting harder and harder. In each case, though, the lessee has made sure the state has kept a financial interest in the asset; this seems a smart move as it might discourage the governments from taking draconian actions in moments of remorse.

For selected firms, then, governments may be providing great investment opportunities. We may be in the early days of an entirely new asset class; especially for those with long term investment horizons.

Jaime Klein adds: 

Currently, the only cost effective technology to extract drinking water from air humidity is cloud seeding. It is routinely done in Israel (and other places) and causes about a 10% increase in rainfall (amounting to about 800 million cubic meters per year). Since only about 15% of the rainfall is actually used (in agricultural irrigation, tapwater, etc.) artificial cloud seeding produces some 120 million cubic meters/year.

As Henry's insightful note shows, the production of fresh water is a question of energy. All the oceans are full of water so there is no scarcity of raw material. And all the water is being recycled in nature so it will never "end." In Israel, we are producing 200 million cubic meters/year of fresh water by desalination for an average cost of 0.65 U.S. dollar per cubic meter (the consumer pays an average of 1 $US/cubic meter). The desalination industry was established by the State and operates under 20 year-long contracts, selling all its production to the State at a fixed price. There are no free markets in water, not here nor everywhere, since conduction and distribution is a natural monopoly.

In my opinion (shared by Treasury's wonderkids), Israel doesn't need that expensive water, and the desalination industry was established in a moment of national panic caused by a two-year long drought.

By the way, water demand can easily be reduced by increasing its price. The curve is quite inelastic since water costs so little. In fact, even in Israel where domestic water is very expensive, the water company's bill is less than 1% household income. Wastewater removal and treatment may cost an additional 1%. I don't think anybody will make fast profits in the water industry in the coming years.

Henry Gifford offers: 

The question was raised about how much energy it takes to run a machine that takes water out of the air. I will show some counting on the question, and let others reach their own conclusions about why they are not popular.

Starting with the same 25 gallons of ethanol, which was described as being made from a year's worth of food:

84,100 BTU/Gal x 25 - 2,102,500 BTU / 3.41 = 616,568 WattHours of energy in the ethanol

Assuming current USA electricity grid efficiency of 33% (Source: Electric Power Research Institute), that can be converted to 203,467 WattHours of electricity.

An off-the-shelf dehumidifier (Grainger part # 5BB55, info below) takes 30 pints of water out of air per day, and uses (115 Volts x 5.3 Amps) 609 Watts to run. Therefore the 25 gallons of ethanol could perhaps run it for (203,467/609) 334 hours, yielding (334 x 30) 10,000 gallons of water. Probably the machine is rated under ideal conditions (high humidity, low temperature), and therefore the machine can only produce a small fraction of that under more realistic conditions - 500 or 1,000 gallons of water from 25 gallons of ethanol?

A test could be done by putting a bucket under the drip from a window air conditioner or a dehumidifier, and measuring how long it takes to fill the bucket, and then comparing how much electricity the machine uses.

Dehumidifier, 30 Pints Residential Dehumidifier, Capacity 30 Pints in 24 Hours, 115 Volts, 60 Hz, 5.3 Amps, Fan CFM 181, Humidity Range 20 to 80 % RH, Ambient Temp Range 64 to 95, Fan Speeds 1, Bucket Capacity 17.2 Pt, Height 22 7/8 In, Width 15 3/8 In, Depth 12 2/3 In, Impact Resistant Thermoplastic Cabinet, Color White, Includes Four Casters, Removable Front-Loaded Bucket, Hose Connection For Continuous Drain Operation, Filter

Henry Gifford further adds:

I understand that there are no free markets in water here, but disagree that the reason is that conduction and distribution are natural monopolies. There is no free market for corn, apartments, car rentals, health insurance, or many other things here for which there are multiple players competing for the same customer.

New York City's water is of higher quality than the bottled water in most places (usually just municipal water run through a filter), yet it "sells" for only $1.25/cubic meter, which hardly covers the cost of repairing the pipes. Indeed it is still "too cheap to the meter" - many customers still have no meters. As said below, use can hardly go down when the price is too low.

Catching and storing and cleaning and drinking/using rainwater runoff from roofs has been routine in the Caribbean for generations, and is increasingly done in the U.S. Southwest, and would be more popular if subsidized water and electricity (for pumping) were not available.

Jaime Klein responds:

(1) The domiciliary water supply market is a natural monopoly not because of regulation or subsidies, but because the customer has no alternative supplier. All attempts to introduce competition have failed. Even so, the price is dirt cheap.

(2) Rainfall catching water supply systems are fantastically expensive and dangerous to your health. If the price paid for one cubic meter of drinking water from a municipal system is, say, one $US, then the cost of the equipment to catch rainfall, to store, to purify and to pump it (investment + M&O) is, comparatively, astronomical, and averages $15 per cubic meter. As a conversation piece or environmental toy, it may be worth it, but please don't drink the water. Rainwater is not pure, it carries atmospheric particles and poisonous gases. Water from the first rains of the season are highly contaminated and toxic. Even urban tree foliage suffers. The water has to be stored, which is another potential source of contamination. The water has to be purified, possibly by addition of a chemical or by reverse osmosis. It has to be tested before consumption. This is a highly professional area, certainly not for amateurs.

In Israel, the Ministry of Health discourages home rainfall catchment systems, and in practice forbids it. There are strict water testing programs (every two weeks, samples are to be taken by licensed samplers and sent to licensed laboratories) and the water has to meet quality standards (zero coli count, pH, etc.). None of the traditional rainfall catchment systems (and there are many in Israel) are able to supply water of drinking quality and are de facto forbidden. It is not that the Ministry has inspectors searching for home systems to close them down, but no permits have ever been granted.

Henry Gifford comments: 

Imagine you were running a government in a desert area as described below. Thousands of your subjects would know the history of the people who lived for thousands of years in houses without modern heating or cooling and who used thermal mass to even out the diurnal heating/cooling load. Some would know that with modern windows and a few centimeters of foam on the outside of the thermal mass, modern standards of comfort can be achieved easily. Abundant solar energy could make hot water for showering and electricity. This would leave people able to live entirely "off the grid" except for one thing: safe drinking water.

Having people depend on a centralized water system would be good for the government, especially in an area where governments have a history of organizing wars for control of land with abundant water resources. Therefore I find it unsurprising that a government in an arid area tells people rainwater is unhealthy, and cannot be made healthy. Governments in other areas, such as the Caribbean and Texas, tell people the opposite.

Henry Gifford adds:

 I apologize sincerely about your "concerns for Israel", which you describe as the "mass immigration" of "potential husbands" to Wall Street here in New York. The street is only a few blocks long, yet is big enough to drain the pool of potential husbands from many countries. A proportionally sized financial center in Israel would be far less than one block long, which might leave some of your four beautiful, talented daughters in the same predicament as many beautiful, talented US women: stuck choosing from millions of single men who do not work on Wall Street.



Notwithstanding Mr. Chavez's anti-American, wildly popular pronunciamientos and Ecuador's newly elected Government's declaration that the country's foreign debt is "immoral," I think there is no risk of non-repayment. Ergo, Latin debt is cheap.


(a) Venezuela and Ecuador are oil exporting countries, and their payment capacity is superb.

(b) They are in no danger of default.

(c) Argentina was a special case. Foreign creditors did not notice that Argentina was not the same rich country of the fifties, but a totally wrecked one, and it had no mineral exports. Since the wrecking took several generations, neither did we Argentinians notice the change.

(d) In Latin America, foreign loans are valued personal emergency resources and have been since the Independence.

(e) The situation of foreign owned companies (or just any private owned company or landowner) is very weak and unsustainable. No one can protect them against expropriation when the mood comes. In my opinion, real estate and stocks are risky and overpriced.

(f) Further antics and heroic positioning by the caudillos are only too expectable. I am old enough to remember Vice President Nixon's visit in Caracas, and how it taught the Latins the joy of spitting on gringos.



Hunter and hunted or predator-prey relations are pervasive in the animal world. We're accustomed to observing and reading popular summaries and videos of the dynamics and techniques of survival for such pairs as lion & gazelle, wolf & squirrel, fox & lynx, coyote & seal, osprey & smelt, pike & minnow, and spider & fly. Such studies have been extended to romance and health among humans. Predator-prey relations are also common in markets. For example, the relation between market maker & day trader, dealer & ephemeral trader, flexible & inflexible, large trader & small trader, informed & uninformed, vig taker & vig payer.

Many studies in the field are based on the Lotka-Volterra model. This is a set of simultaneous differential equations relating to the rate of growth of the predator and prey populations to each other. A typical set of equations relating rabbit growth to fox growth states that dr/dt = ar-brf and df/dt = ebrf-cf where a is the natural growth rate of the rabbits, c is the death rate of the foxes, b is the death rate of the rabbits whenever they meet a fox and e is the proportional gain in growth that a fox gets from eating a rabbit.

Such equations do capture the main idea that as the rabbit population increases, the foxes gain in number because rabbits are easier to find and eat, and this provides a homeostatic mechanism to stabilize the rabbit population. Similarly, as the rabbit population declines, the number of foxes decreases because they have less food, and this helps increase the rabbit population which in turn tends to increase the fox population. As might be guessed, small changes in the assumptions of the model, such as time delays, lead to widely divergent behavior involving cyclicalities, instabilities and sharp changes in the dynamics that do not correspond to what we observe in most real-life populations.

A similar critique could be made of the two other standard methods of studying predator-prey relations, which are the functional response curve and the optimal foraging theory. The basic regularities there are that the costs and benefits of gaining prey vis a vis future reproductive success determine the extent and energy with which the predator seeks the prey. The key dependent variable is how much the predator eats as a function of the difficulty of converting the prey into food. An increase in the search time, handling time, or consumption time, reduces the predator's desire to eat. Certainly this leads to insights.  The problem here is that all these parameters are subject to estimation, and they are interrelated and subject to different hypotheses as to their function.

A good book for studying these techniques at an elementary level is John Alcock's Animal Behavior, and a good summary of the ecological approach to these dynamics can be found here.

Methods of studying the factors that enable predators to be successful have always been important to me as I, like other numerous individuals not at the top of the food chain, are often prey to much larger predators. I have often wanted to learn how to avoid capture, and even considered the possibility of sometimes turning the table on the predators and bagging them once or twice just to make the game a little more even sided. Thus, when I came across a cover story in Outdoor Life titled "Predators' Deadly Tricks," which describes how hunters go about capturing the most elusive predators in real life such as the coyote, the bobcat, and the mountain lion, I was very attentive and decided that I should try to devise principles from the practical and theoretical literature that might help other prey like me in their incessant battle with those who would devour them. 

  1. Signaling is key.The signals that the prey send out to show that they are not easy to digest prevent the predator from even considering attacking, and this saves much energy for the escape. Colors and scents indicate that the prey contain poisons. Stotting, the jumping behavior of gazelles when about to be chased by a cheetah, indicates that they are very mobile and not worth eating. Indeed the essence of the article is that the best way to attract a predator is with an electronic duplication of the distress call of its enemy. Amazingly, the coyote will often show himself within one minute of hearing the rabbit's call, especially when it's made with a "Foxpro FX5 that has a 200 sound capacity, one gigabyte of memory, recall buttons to switch between sounds, remote control functions, and a 700-yard range. Less than a minute later (after the call), a pair of coyotes charged in and we handily dispatched them." Market prey often indicate that they are ready, willing and able to defend themselves by the placement of limit orders in large size, but cancel if they are near just to prevent the larger predator on the other side from even thinking of going after them. The talk with your counterparts is how much more is available for adding to my line when you well know that one more grain of salt would be enough to topple you over.
  2. Vigilance is essential. The herding animals all find that 100 pairs of eyes with 50 always awake are enough to warn them of danger. Noses are always sniffing, ears are listening, and the antennae are always feeling. Indeed, some ducks can sleep with one eye open so as to never be victimized by a surprise attack. The hunter uses a telescope so that he can always perfectly see the adversary. He never lets the prey's vigilance work to his advantage by approaching stealthily, parking his equipment a mile away from where he's going to hunt, and setting up in a blind with proper camouflage. The prey in the market doesn't leave the market for a moment, as that might be the time that the enemy attacks.He cancels all orders when they don't get filled so that a surprise news announcement that's worth a limit move won't catch him just a few ticks from the last price. He has his computer set to wake him, which buzzes around in his private area so he never sleeps through a dangerous situation or lets the predator devour him totally.
  3. Deception is essential. My goodness, the moth blends in with the bark and orients with the grain of what he's sleeping on. The flies disguise themselves to look like bees, and the octopus can change 100 colors in one second. The spider uses a million deceptive lures to entice the fly into its web. The golden orb weaving spider spins a web that's so enticing that even when a bee breaks free, it will dive right back into it after it has escaped. (I am reminded here of the system player who, after a very bad trade on one side, doubles up on the other side for the next trade.) The chapter on deception in Education of a Speculator details other areas of deception in the world. "Quality camouflage is a must; select the pattern that most closely matches the foliage and landscape." Whatever you do, don't make any news. As a prey trader, I don't even like to type out that I'm thinking of exiting a trade, for fear that a predator might have my screen bugged or that the keystrokes are programmed to signal my intention. I never let the other side know what my stop point is because I know that it will always be hit. If I'm really hurting, I'll try to act 5,000 times stronger than I am, and I won't even begin to reduce my position by one contract for fear that my camouflage will be found out.
  4. Proper equipment is a must. Predators are constantly sharpening their claws and teeth. Prey must always practice escape maneuvers. Over many generations, most prey have adopted advanced techniques of escape that include the full range of methods used by individuals in their cohort from the beginning of time to elude capture, be it poison, scent, or cry. Their bodies are perfectly suited to the escape in size, color, speed and strength. The properly equipped hunter, in addition to his Swaroski binoculars and Foxpro FX5 caller, currently has a Gerber Epoch Pack, a Stoney Point bipod, Cabela coverup pants, and, of course, the obligatory Ruger bullets in a Browning rifle, a Bushnell scope, motion decoys, and a set of shooting stocks.
  5. If all else fails, try the unusual. Be prepared to shout if the predator attacks. The proper equipment for the trader starts with a proper price feed, perhaps one that's within a foot of the source of the prices so as not to lose out by the speed of light that it might take to get to you one-thousandth of a light second away.  Next, one should have a computer that's always set to trading and that isn't interfered with by email. Finally, have an office where no one can distract you from the job of survival with the cares of the world or a bill from the Service.
  6. Never give up. The cries of animals often save them from death. If nothing else, they serve to alert family members. The squirting of poison and the enlargement of the body is a common tactic of the caterpillar, and the gyrations of the weasel in extremis are often enough to ward off death. The hunter is told to scream if a predator attacks him and to have a spare set of guns and knives. As a trader, I try to follow the rules of a good competitor in sports who never gives away the last point of a game if there is still an iota of energy left in his body. There is always someone you can call on to help you fight back. On occasion, I've even asked a'la the Boy Wonder for the other half to help me out in a time of crisis, and so far the trust funds are still intact.
  7. I would recommend studying the literature on predator-prey relations by reading a few good books, following up on some of the hundreds of thousands of citations on the search engines, reading the Outside Magazine article in the December-January double issue and then trying to apply these techniques to make yourself impossible to detect, fruitless to waste energy on, and impossible to digest when caught. If all else fails, fight to the death.

J. Klein adds:

One Predator - One Prey; if it was ever so easy. 

It is more like Many Predators - Many Preys - Many Parasites.  Symbiosis. Competition among different parasites - how to maximize exploitation without killing the organism parasited. How to use a competing predator to one's benefit. Mixed situations: One is a predator and a prey at the same time but to different kind of critters.  How a steady state equilibrium evolves. 

In my opinion, however, we humans have already won nature's battle and rule the ecology to our benefit. We easily see through the animal world's tricks and catch them as we want. But the market is wholly made up by humans, who presumably have all been exposed for generations to nature's tricks and have become resistant to them. Situations like those that nature presents to us are no longer relevant, and we have moved to a higher level. It is a different game here.

Since we are part of the game, it is very difficult to see what is going on and much more how to manage it.  It is said that even the big winners know how they did it and why they succeeded. It seems to me that those winning have more useful memory, are able to calculate more precisely, see the present and the future more clearly, can formulate better plans, and execute more rapidly and precisely. In the market, nature's tricks don't work any more. This is a play of pure and cold intelligence.

Scott Brooks comments:

I've thought about this predator/prey relationship for many, many hours as I was sitting in a deer stand and I have several thoughts on this issue. I'll share some in this post. 

One of the biggest things to recognize in a predator/prey relationship is the opportunity that exists. One of the biggest things that we need to look at is the difference between instinct and reason. Whether prey or predator, if you are instinctual, you are acting out of some deep seeded genetic conditioning that causes you to run when faced with adversity. 

Think about it. If there are seven lions chasing a herd of 200 gazelles and the gazelles had the ability to reason, they would say, "Lets stick together and as a group go over there and trample those seven lions to death." The 200 gazelles would win that battle, and probably over time could condition the instinctual predator lions to leave them alone. The cost of messing with those gazelles is just too high. 

Think of an instinctual predator like a bear. Almost any bear could take a human if they wanted too, especially the bigger varieties like Grizzlies. Humans are simply not equipped to deal with them physically. But for the most part, we've conditioned bears to stay away from and fear us. That's only because we have the capacity to think and reason at a level that the Grizzly doesn't. We've figured out a long time ago that taking some animal gut and stringing it on one bent stick, and then taking another straight stick and putting a sharp tip on it, gave us the advantage. Then along comes names like Remington, Browning, Winchester, Anshultz, Benalli, etc. and the odds are stacked in our favor. 

When I played poker back in the 80's, I looked for certain types of players to be at a table before I would play. They were the prey. They weren't thinkers. They were gamblers. They let the cards fall as they may and "hoped" that things would go their way. But they had no real system or methodology to identify when to hold'em and when to fold'em. Most of them could not name three cards that had been played and subsequently folded (I'm talking seven card stud). So they had no idea what cards were still available to be played or not. I can't even count all the times when I could tell what hand someone was trying to build or bluff me into thinking they had and yet had no idea that the key card was already burned in the deck because someone had folded earlier. I guess I was a counter of sorts even back then. I'm not sure that qualifies me as a counter yet, maybe it just makes me someone who paid attention and kept track of things. 

These "gamblers" were hopeless gazelles at the table. I'm not saying that to be braggadocious. They simply didn't know what they were doing … they were nearly instinctual prey. They "needed" to win. They were always one card away from catching a break. They relied on luck. The reality for these guys was that the only way they could truly win was to quit and stop playing. Otherwise, ruin awaited them all. 

Those are the guys that I played against. I did not play against other good players. If there was more than one other good player at the table, I would find another game. I had nothing to prove by beating another good player. I was there for one reason and one reason only: to win money

For the same reason that lions don't usually attack other lions to eat, I was not interested in paying the price associated with trying to win money from other good players. The cost and risk/reward was just too high. 

To apply this to the markets, it is important to figure out where the instinctual investors are playing and those that don't have a thinking system, and use that to one's advantage. 

What are the masses going to do when "X" event happens? What is their likely "non-thinking" irrational emotion based response ("quick, run, the lions are coming"). 

Unfortunately, as I've said before, the masses left the markets after 2000, 2001, and 2002. They were burned so badly, and fear chased them away from what was very likely the greatest buying opportunity of their lives. It was like gazelles drinking from a stream and some of them getting snatched by an alligator. It seems to me that after a few have been snatched, that's the time to go get their drink … the alligators have enough food to last awhile now … and if nothing else, there is a few less alligators now patrolling the shores for food. The odds of success have gone up for the gazelle … but that's when they leave in fear. 

So I will be that thinking predator. I will only fight battles that I know I can win. My goal is simple. To make money! That's it. I've got no ego in this and no axe to grind. I'm not going to challenge Prof. McDonnell in the world of options, or Prof. Haave in the world of commodities, or George Zachar in the arena of bonds or Vic in the world of index futures. They are simply more skilled and knowledgeable than I am in those arenas. I could be a predator in those worlds, but I would be like the Grizzly bear, and they would be the thinking human up on the ridge 200 yards away pointing a Win, and a 300 Mag at my vitals. That's a battle I can't win. 

But there are things that I'm good, and there are arenas I can battle in. Since I only want to make money, I will only play in the arenas with the best risk/reward ratio for my success, and I will stick to those arenas (but I'll still learn the other arenas … and who knows, I may show up there one day and dip my toe in … but only when I think I'm ready … and then only with a small amount of money to make sure that I'm really ready). 

So, Phil, Gordon, George and Vic, be careful, I may show up in your arena one day … and I'm a good stalker who knows all about how to properly deceive with camouflage …

Tim Humbert comments:

Over Christmas I heard a wonderful recipe for pike:

-preparation: gut and de-scale, rub rock salt and pepper onto flesh, squeeze some lemon juice, insert some herbs into fish, wrap in aluminum foil and cook for 30 minutes

-consumption: throw pike in the bin and eat the foil

Rick Foust adds:

The largest predators (e.g. lions) are much smaller than the largest grazers (e.g. elephants). The largest grazers have much longer life spans than the largest predators despite having inferior camouflage. Certain large houses come to mind.

Small grazing animals (e.g. rabbits) do not survive long despite having excellent camouflage. Their numbers are maintained by fertility (replenishment). New, poorly bankrolled traders come to mind.

Bruno offers:

Professor Sorin Solomon, of the Racah Institute of Physics, has produced some very interesting market models based on Lotka-Volterra. Here is his homepage.

He showed that a generalized Lotka-Volterra model for the market yields a truncated levy distribution for index returns!

See for instance his 1998 paper: "Stochastic Lotka-Volterra systems of competing auto-catalytic agents lead generically to truncated pareto power, wealth distribution, truncated levy distribution of market returns, clustered volatility, booms and crashes."

There are simpler explanations for TLFs, such as a random-walk with time increments that are variable rather than fixed, just like with real-world transactions … but I thought this was topical.

There could be one way to check the above, and that is the impact of random time between transactions. On Euronext, we've got a mechanism for trading very small stocks. It is called "fixing." One could compare behavior of such stocks to behavior of other stocks that trade continuously. One could also check the behavior of stocks that have moved from fixing to continuous trading or the behavior of the whole French market as it moved from all stocks fixing to most stocks continuous in the mid-eighties. There's also a possible comparison between London Gold fixing and NY COMEX.

Todd Tracy comments:

Market Set Ups

While reading Victor and Laurel's article on Predator-Prey Relations, my mind exploded with visuals: foxes hiding in the bushes waiting to pounce, predictive and instinctual reactions to events, finding myself trapped in currency positions, panic driven searches for exit strategies. I realized that I am the prey. I am the new blood that greases the gears. I am the greedy trader who walks into the trap set by smarter, quicker and more thoroughly financed predators. As with much of the information gleaned from Daily Speculations, I found corollaries not just in the markets but also to life.

But wait, I've been here before. Where have I seen these deceptive techniques in use? Spy fiction. Yes, I have read all the Greene's, the Amblers', the LeCarre's, the Clancy's, the Forsyth's, the Flemming's, the Weisman's, the MacLean's, the Harris', the Buckley Jr.'s and a lot of the Ludlum's. The spy, leaving a trail, using cut outs, drops, proprietary tools and the most diabolically elaborate set ups imaginable. Institutionalized deception, deception as a way of life, and tradecraft so efficient as to make the prey oblivious to the fact that they have even been caught.

War is serious business whether or not it be cold, which brings me to the non-fiction. The Secret History of the KGB, the History of the Mossad, the development of the Office of Strategic Services, The Wall Jumper, the techniques of SMERSH, Stalinism, Churchill's autobiographical books and one of the greatest historical accounts on the subject, A Man Called Intrepid by William Stevenson. Control will leave no stone unturned to reveal facts. Control will sacrifice lives to perpetrate false information.

Why should the markets be any different? It's scary to think that once I feel like I'm playing the charts like a marionette, it is I whose strings are being pulled. I am a novice speculator, but my eyes are widening. If only I had Victor's booklist before I read all those novels. All is not lost however because I am learning to tie strings from my life experience to the experience of the markets.





Kim Zussman comments:










George Criparacos adds:


Scott Brooks offers:


Thanks for this Kim!

Scott Brooks further adds:







1. Identify what your goals are
2. Figure out a methodology that can accomplish those goals
9. Other things that are important that I'm sure I'm missing

Steve B. adds:




Dylan Distasio responds:









J. Klein offers:






Just when you though corruption allegations might be abating in equity markets, along comes an explosive new study. A paper to be delivered to the January 2007 American Finance Association annual meeting in Chicago suggests that investment analysts’ historical buy recommendations have been manipulated to put them in a better light. Rewriting History, by Alexander P Ljungqvist (Stern School of Business, NYU), Christopher Malloy (London Business School) and Felicia Marston (University of Virginia) provides evidence that nearly 20,000 records in I/B/E/S, a database of research analyst recommendations owned by Thomson Financial and widely used by investment professionals and academics, were manipulated between September 2002 and May 2004. This took the form of selective, ex post removal of analysts names from some of their historical recommendations. These were not random; they were concentrated among the worst performing recommendations. Here is the authors’ abstract:


As the authors note, the period not only coincided with close scrutiny of Wall Street research by regulators, Congress, and the courts, but also saw a substantial downsizing of research departments of major brokerage houses in the US. The manipulation benefited the careers of those whose dud recommendations were anonymised. The paper concludes: Whether or not analysts were in fact behind these changes, however, their track records undeniably look better than they should, and we show that the analysts concerned apparently benefited in the sense of experiencing more favorable career outcomes than their track records and abilities would otherwise warrant: Anonymizers are more likely to move jobs, to be hired by a large brokerage firm, and to move from a small to a large firm (Hong, Kubik, and Solomons (2000) measure of a promotion). Anonymization easily has the largest economic effect in our career outcome models. These are very disturbing findings, and as the authors note, given the “non-random nature of the results” it is very unlikely they are attributable to chance. While “it is possible that the brokerage firms were in fact the culprits ..the patterns we document seem at odds with this interpretation”.



I am a 27-yr old professional equity derivatives trader with several questions and comments for Dr. Niederhoffer and Ms. Kenner. I just read Practical Speculation. I had previously read Joel Greenblatt’s The Little Book That Beats the Market. Needless to say, the two works propound extremely different views on the relative merits of growth versus value stocks and on the ideas of Benjamin Graham. I’m sure this is a debate that has been beaten to death before I was born, and I’m sure you are entirely sick of the whole thing, but please bear with me. I am interested in reconciling the ideas of the two authors. I would like your opinion on Mr. Greenblatt’s work and his “system” for investing.

I wondered specifically what Dr. Niederhoffer and Ms. Kenner’s response would be to the data cited in Greenblatt’s book. Is this evidence entirely worthless due to statistical and sampling errors? Is it only since 1965 (the Value Line data in the book was for 1965-2002) that growth has overtaken value? What do Dr. Niederhoffer and Ms. Kenner think is the correct way to value a stock? Since it’s difficult to precisely ascertain current or even past “real” earnings for a single stock, let alone the mkt, how can one hope to accurately predict the level of future earnings (as you must do for growth stocks). What valuation model should be used? What valuation model can be used that works for both “growth” and “value” stocks (it seems fairly silly to categorize all stocks into one of these two fairly arbitrary columns, but that’s what seems to happen).

Anyone can go to Mr. Greenblatt’s website and get a list of “value” stocks. He argues that his system (buy 20 or 30 of these value stocks and then sell them after a year and get new ones from an updated list on his website) will beat market returns over time. I am suspicious, but where is the logical flaw or statistical error in Mr. Greenblatt’s book. Will his method really work, and if not, why ? Mr. Greenblatt posted excellent returns over many years (I believe 10 years of returns are necessary to eliminate luck as the explanation of a trader’s returns) at his hedge fund. I’m sure he wasn’t simply applying the method from his book, but he is clearly a “value” investor.

To me, the strength of “value” investing, especially as described by Mr. Greenblatt, is its seeming logic. Even though you can’t buy a stock portfolio for 50% of its liquidation value as Graham suggested, the market and especially individual stocks can fluctuate fairly wildly even over short time frames, so clearly it is possible at times to buy good stocks or the whole market “cheaply.” As I write this, AMD has a 52 week range of 16.90 - 42.70… with roughly 485 million shares outstanding, that means in terms of market value AMD was (according to the market) “worth” almost $21 billion in late January, and only $8 billion or so in late July. Maybe some of this move was due to new (bad) information, but in all probability (since the stock subsequently recovered- then dropped again) it was due to the overtrading and ridiculous focus on short-term results that Dr. Niederhoffer and Ms. Kenner lambaste in their book. Take a look at the way retail stocks move around on monthly same-store sales numbers or oil and gas move on weekly reserves numbers for further examples of ridiculous overtrading and short-term focus.

Nevertheless, to ignore volatility (which is how I make my living) and keep your eyes firmly on the long-term potential of a stock leads to two pitfalls. First, you miss out on opportunities when the stock swings around in the short run (for example, you could have sold some medium-dated calls in AMD in Jan, then used the proceeds to buy additional stock in July). Second, you are ignoring risk; in the short-run, you could see such severe swings that you go broke instead of getting your 1.5million % a century return. Volatility might be much higher than it “should” be, it might be due to overtrading, and it certainly is the result of a focus on meaningless short-term information, but it is a fact of life. In my opinion, it’s better to take advantage of this fact than to ignore it.

One solution is to actually buy volatility itself. There are several studies showing that a portfolio containing a volatility component of 10% or so will outperform a similar portfolio with no volatility component (an example of a volatility component would be VIX futures or a similar instrument, essentially just a long option position). The general basis for this is that implied volatility in the options market usually increases when the market drops. You are diversifying your portfolio with a negatively correlated asset. Since the VIX hovers at a very cheap 10 or so these days, it seems like a great hedge.

Any reply or even a suggestion of further reading on the value/growth debate would be greatly appreciated. I have also emailed Mr. Greenblatt’s website with similar questions (you can find that email below).

Doc Castaldo illuminates:

He has so many inter-related questions it is hard to know where to begin. The Tim Loughran article “Do Investors Capture the Value Premium?” which some Spec (Dr. Zussman perhaps?) sent to Steve Wisdom recently seems relevant, and I sent it to him (the answer Loughran gives is no). I believe Prof. Pennington and Mr. Dude reviewed the Greenblatt book and found it well done; though some of us have doubts as to how well the results will hold up going forward.

Steve Leslie adds:

I have studied this deeply and although impossible to adequately reconcile this argument, my reply is that there is enough room in the world for value investors and growth investors. One is more of a science and the other is more of an art. And that which works for one will not work for another. And they tend to be complementary, whereas when value investing is in favor growth is out of favor and vice versa.

Case in point late ’90s. Nobody and I mean nobody wanted to be a value investor. At the time I was with a regional brokerage firm and we had one of the best value fund managers around, and he was never asked to speak anywhere. Everybody wanted growth and hard chargers. He told me directly that the worm would turn and that which one is hated will once again be loved. In 2001 and onward his style came back into vogue. His numbers became very good when the implosion of growth occurred and value turned to the good.

I feel that value investing is more of a quantitative approach to investing. It requires arcane methods and such as roe, price to sales, price to book. You can have value investors, deep value, vulture investors etc. And it is very important that with value investing that one be a patient investor with longer term time frames. I have referenced the Hennessy Funds as excellent quant funds. They have a very rigid stock selection process and rebalance their portfolio annually which they bought the rights to from James O’Shaughnessey who brought this methodology out in his book How to Retire Rich. Their long term track record is very good and they did very will since 2000 but this year for the most part the results have been flat. Martin Whitman is a deep value investor and his Third Avenue Fund has done very well over time. As has the Davis Funds. The First Eagle funds does excellent work with their global funds.

Growth investing is more of an art. It requires timing. Growth investing such that William O’Neil supports can be very successful yet very volatile. Small cap growth investors many times requires a longer term time horizon as the swings in price can be quite hard to take. I have always liked Ralph Wanger (A Zebra in Lion Country) and Tom Marsico in this area.

It is very important that the style of investing one uses incorporates their financial education, character and personality among others. They most definitely require knowledge and different wiring.

As to the trading of that the chair employs, I will let him speak for himself but I am confident that he will say the methods that one uses for value investing and growth investing would never work for his methods of day trading or swing trading.

To use a poker analogy (alas it always comes down to poker) I liken value investors to people like Dan Harrington, Howard Lederer and Phil Hellmuth. They are percentage players very methodical. They wait for premium hands and play those. These are the tight players.

On the other side of the ledger are the growth investors such as Phil Ivey and Gus Hansen, aggressive sometimes to a fault and they play many hands and many times on feel.

Both styles and much more in between are effective and can bring one to the promised land, they just take different routes.

Dr. Phil McDonnell reminisces:

Many years ago I was engaged in fundamental research on stocks for a finance class at Berkeley. Upon showing my results to one of the rising young finance Professors in the Business School I had a rude awakening. He promptly but kindly pointed out to me the myriad of biases which enter into such a study.

It prompts one to paraphrase the poem poem by Elizabeth Barrett Browning:

“How Do I Confound Thee?” Let me count the ways in which fundamental stock data can confound:

  1. Stale Data. Data are not always reported on time. Some is late, but most studies do not account for this adequately.
  2. Retrospective Bias. Most fundamental databases use the current ‘best’ information believing that is what you want now. But for historical studies that means the data may have been retrospectively edited as much as several years after the fact. This is a form of knowledge of the future. If you analyzed Enron before its collapse the fundamentals looked good and the stock was too cheap. If you analyzed today with a retrospective database you know that the company had catastrophic losses. But the truth about the losses was not known at the time and the adjusted numbers only came out years later.
  3. Sample or Survivor Bias. Use of a current database often results in a sample bias due to the fact that only companies which continue to exist in the present will be included in the sample. In order to avoid this issue one must go to an historical source in existence at the time in order to manually select the sample for each month by hand. Many companies are delisted or otherwise stop trading. For these the data must be manually reconstructed from historically extant sources. Otherwise this bias translates into a strong bias in favor of value investing strategies. A strategy which buys out of favor, or high risk or near bankrupt companies will always do well with this bias. The bias guarantees that they will still be around years later because they are still in the database.
  4. Data Mining. There are many variables to choose from with fundamental data. There are countless more transformed ratios or composite variables which can be constructed. This leads to the ability to try many things. Thus the researcher may have inadvertently tried many hypotheses before coming to the one presented as the best. Because fundamental data are low frequency (quarterly at best) there are only 40 observations in a 10 year period. True statistical significance can quickly vanish in a study of many hypotheses.
  5. Data Mining by Proxy. Everyone reads the paper and keeps up with current trends in investments. Thus our thoughts are always influenced by findings of other researchers. Thus even if a researcher did a study which avoided the usual data mining bias it may be simply because he took someone else’s results as a starting point. In effect he used their results as a form of data mining by proxy to rule out blind alleys.
  6. Fortuitous Events. In the 1990’s F*** & Fr**** published papers about factor models to augment the Sharpe beta model. Their significant new factor was Price to Book ratio. In James O’Shaugnessy’s book What Works on Wall Street one can see a sudden upward surge in value strategies in the early 1990’s coincident with the publication of the F & F model. However the event was a single one time upward valuation of value models in the 1990’s. Before and after that, the effect vanishes.
  7. Post Publication Blues. After publication of any academic paper or book the money making method usually stops working. Sometimes it is due to data mining or some flaw in the study and the putative phenomenon was never really there. The market is efficient. If everyone knows something it will usually stop working even if the original study was valid.

Prof. Greenblatt’s book is a fun read and remarkably brief. In fact if someone wanted to just get the gist of it, each chapter ends with a very clear summary of the key points in that chapter. It would be possible to get all the main points in about 10 minutes simply by reading the summaries. Let me say that if one were to use a fundamentally oriented strategy then the profit margin and Book to Price are probably the first two on the list. To be fair to the author, reciting one’s efforts to avoid sample biases in a book intended for a popular audience probably would not help sales. Such discussion is usually reserved for academic papers but nevertheless its absence does not give reassurance that all possible bias was eliminated.

The best way to test this strategy is not to go to the library and do all the work yourself. Rather one could simply go to the web site and copy down all the stocks recommended. Then in 6 months and 12 months revisit them to see how they have done and to see if the performance was statistically significant.

Ever since those Berkeley days more than 30 years ago I have always been distrustful of fundamental studies. That lesson from then Prof. Niederhoffer has helped shape my market studies in many ways. The bias of fundamental data is yet another way the market can confound the research oriented trader.

Jaim Klein replies:

Let’s simplify. The market universe is large and diverse enough to accommodate different successful strategies. One catches fish with net, another with bait. Regarding the value of anything, no such. The value of a thing is the price it can fetch in a certain moment and place. At 27 I was also confused. Experience is the best (probably the only) teacher. He has to do his own work and reach his own conclusions. It is time consuming, but I know no other way. He can also observe what successful people is doing and try to copy them till he can do it too.

Prof. Charles Pennington rebuts:

Dr. Phil lists 7 things that can go wrong in research on stock performance and its relation to fundamentals. Oddly enough, the Greenblatt book itself also lists exactly 7 such reasons on page 146! They’re not exactly the same ones, but there is plenty of overlap. I’ll list Greenblatt’s 7 with my own paraphrasing:

  1. Data weren’t available at the time (look-ahead bias)
  2. Data “cleaned up”, bankruptcies, etc., removed (survivorship bias)
  3. Study included stocks too small to buy
  4. Study neglected transaction costs, which would have been significant
  5. Stocks outperformed because they were riskier than the market
  6. Data mining
  7. Data mining by proxy

Greenblatt: “Luckily the magic formula study doesn’t appear to have had any of these problems. A newly released database from Standard and Poor’s Compustat, called ‘Point in Time’, was used. This database contains the exact information that was available to Compustat customers on each date tested during the study period. The database goes back 17 years, the time period selected for the magic formula study. By using only this special database, it was possible to ensure that no look-ahead or survivorship bias took place.”

To all the biases that we consider, I’ll add the “not invented here” bias. It’s too easy to assume that no one else out there can do rigorous research. I think Greenblatt’s is fine.

(He didn’t however do any original results on jokes. His jokes are all out of the Buffett/value-school jokebook. Fondly recall “There are two rules of investing. 1. Don’t lose money. 2. Don’t forget rule number 1.” That one’s there along with all your other favorites.)

Dr. Phil McDonnell replies:

The way we all remember the late 1990s is the dot com bubble. It was the front page mega meme. The stealth meme was the value stock idea.

Rather than think of it as a single paper consider the paper as the seminal idea of a meme. From the original paper there were follow on papers by various academics as well as FF. From there the meme spread to the index publishers who always want a new ‘product’ to generate marketing excitement. Naturally the index guys sold it to the funds and money mangers who promptly started new funds and rejiggered old funds along the lines of the new meme. The money management industry always wants new products but also each firm needs to act defensively as well. For example Vanguard cannot eschew the new fad and leave the playing field open for Fidelity. As with all memes it grows slowly and diffuses through society.

In all fairness one can never ‘prove’ cause but only correlation using statistics. But it is clear to me that something happened which caused the value part (really just Magic Formula) of the market to triple during those years albeit with only negligible public awareness early on.

For the sake of argument assume that the cause was not the FF paper and its impact on the value meme. Then what was Dr. Zussman’s ‘unseen factor(s)’ which caused a triple in value? Which factor or factors are more plausible?

My prediction for the end of the next meme is the collapse of the Adventurer’s bubble. To play it one needs to sell. But I would guess that it is only a one to three year collapse.



To me the most significant lesson of recent international military undertakings has been how a country's taking action risks sacrificing what that country previously enjoyed in the power, reputation and deterrence of potential action.

For example, going back to the 1967 and 1973 wars, the Israeli military had the reputation of being unbeatable by its Arab neighbors. This gave Israel very valuable deterrent protection against its hostile, far more populous enemies.

But when Israel launched a major attack on Hezbollah in Lebanon and was unsuccessful in that Hezbollah was able to fight it to a draw, major damage was done to Israel's military reputation and deterrent power. Israel is now far more vulnerable to attack by hostile neighbors and by major terrorist organizations. With the benefit of hindsight, Israel should never have risked its reputation and deterrent power in a voluntary war unless it was virtually certain of prevailing and thus keeping its reputation for invulnerability and deterrence in effect.

Similarly, after the First Gulf War, the bombing campaign in Bosnia and the impressive early destruction of the Taliban in Afghanistan, the US had an awesome reputation of being the world's sole superpower, with virtually unlimited high tech military power several orders of magnitude above that of any other country.

But for the US to undertake a major invasion of Iraq that turns out unsuccessful, to become bogged down in a losing war against militarily unimpressive enemies, has done incalculable damage to the US's ability to cow hostile nations with its military potential. Again with the benefit of hindsight, the US should have thought long and hard about risking the unparalled military reputation and deterrent strength it enjoyed.

Now that the US's perceived military strength and ability to deter is far less, Iran can do what it wants in developing nuclear weapons and funding/arming Hezbollah, and even North Korea can feel pretty safe in its provocations. The degraded military reputation of the US also gives it far less ability to influence Russia and China to help with Iran and North Korea. And Russia can also feel free to strongarm our ally Georgia (the country, not the state) with little or no complaint from the US.

(I am not dealing here with the question, moral or libertarian, of whether the US should be attempting to deter or influence other countries. Only with the question that if it wants to, whether it has the power to do so.)

Finally, the relevance to investing of giving up the power of potential is, I believe, tenuous. It is true that when one moves from cash to a committed investment not easy to sell, one loses the potential to invest in other things or to remain in cash. But there is no reputation or deterrent value that one is giving up, since stocks and other investments are not capable of being threatened or deterred. (Except perhaps in rare cases where an extraordinarily rich investor like Icahn or Kirkorian is threatening to buy a massive amount of a company's stock if the company refuses to do what he wants.)

Prof. Marion Dreyfus replies:

A deterrent power that is never invoked, on the other hand, becomes a straw man, and ankle-biters will proceed to a series of provocations to test the level of tolerance of that so-called massive deterrent potential. Israel had been repeatedly provoked by thousands of Kassams and Katyushas against northern cities, and precisely how many thousands of incursions it can sustain is not an exact science. Nor is it in her interests to permit little gangrenous groups to pick off her soldiers and murder them at will.

This leaves out the concomitant scandalousness of the unpreparedness of the IDF. Both in terms of tank platoons and soldiers guarding the perimeter, there was a feebleness of deployment that stuns most of us familiar with the power of the IDF. A major contributor to the lack of overwhelming force and the triumph of the IDF, too, was the constant effort to save civilians, which is no way to win a war against soulless automata. had the Israelis conducted the war in the way most nations would and do, it would have won inside of a week.

Craig Cuyler replies:

These points could also be related directly to proper means of speculation, ballyhoo deflation and scientific method in trading. The US government has ignored almost every rule of proper speculation and here are just a few off the top of my head:

1. The US got itself into a war based on spurious correlations (the link between Bin Laden and Hussein)

2. Hindsight bias (Bush snr's previous Iraqi war in which the US came out relatively unscathed with its reputation intact)

3. Data mining (the Hunt for WMD's and the Yellow Cake uranium from Niger, both which didn't exist)

4. The doomsday scenario (pre-emptive attack on Iraq would prevent further attacks on US) - Iraq was never going to attack the US it didn't have the means,

5. Trading on tips and unsubstantiated rumours (the US being conned by Big Oil and others with their own agenda),

6. Trading with too much leverage and no risk management (how long can the taxpayer pay for this mess in Iraq, how many more innocent people on both sides must die before the stop loss is hit?).

As Dan says, the situation has weakened America's military position and standing in the global community and the direct beneficiaries are the Iranian Mullahs and psycho's like Kim Jong Ill who are now emboldened to develop their own nuclear arsenals. This is similar to when hedge funds like Amaranth get themselves into trouble and the market knows that it can press its advantage until the protagonist capitulates - this is what Iran, Jordan, Hezbollah, Taliban, North Korea and others will do. When an investor or a speculator puts on a trade for the above reasons there can be only one outcome - failure!

Stefan Jovanovich responds:

The 1973 war (what the Israelis call the "Yom Kippur War" and their opponents call the "Ramadan" or "October" War) was the worst crisis in Israeli military history. Within the first week the Egyptians crossed the Suez Canal and breached the Bar-Lev fortifications in what was probably the greatest feat of Moslem arms since the Turkish defense at Gallipoli. The Bar-Lev fortifications had cost $500 Million (in today's dollars roughly 1/3rd of the 2007 Israeli defense budget) but they were breached with water cannons, rubber rafts and hand-carried weapons and the battalion holding them was effectively wiped out. There are other details of the war that match the failure of the Bar-Lev line, but it is enough to note that, immediately after the war was over, a special commission headed by Chief Justice Shimon Agranat of the Israeli Supreme Court was appointed to investigate "why Israel had been caught by surprise and why so much had gone wrong during the war itself". The commission's report, completed in January 1975, was highly critical of the performance of the IDF on several levels, including intelligence gathering, discipline within the ranks, and the mobilization of reserves. Among the facts in the report was the disclosure that the IDF needed the emergency airlift of $1 billion of ammunition (in 1973 dollars) from the United States to avoid literally running out of bullets. To gain a proper sense of the scale of this potential disaster, it is useful to know that the entire cost of the war for the Israelis was $5 billion. (One of the bitter reflections that we Viet Nam veterans try to avoid considering is whether the 1975 Democratic Congress would failed to fund the reinforcement of the IDF as cavalierly as they refused to resupply the ARVN.) The Yom Kippur War ended the political future of Moshe Dayan. Ariel Sharon was lucky enough to have retired as commander of the Southern front 3 months before the war began. Had he remained in command, he, too, would have seen the end of his career as a figure in Israeli politics.

The tactical difficulties the IDF experienced against Hezbollah have a great deal in common with the mistakes of the Yom Kippur war. The Israelis badly underestimated the usefulness of anti-tank weapons against infantry (most of the IDF casualties were from blast and shrapnel, not bullet wounds) just as the IDF underestimated the lethality of Sagger missiles.

As for American bombing in Bosnia (sic) (the air strikes were in Serbia proper), the American after-action reports are almost sarcastic in their assessments. The Serbs, displaying their native criminal ingenuity, managed to shoot down an F-15 using cell phones and 1970s-era Soviet missiles. The USAF was unable to even "bounce the rubble" since most of the "targets" destroyed in Kosovo turned out to have been decoys. The U.S. Army had to wait a month to cross the Danube while the combat engineers (not under fire) rebuilt the bridges. When they finally made it across, they discovered (surprise, surprise) that their M1A1s were too heavy for the roads. The war ended General Wesley Walker's military career and began his political one.

Fortunately, both the IDF and the U.S. armed forces have learned from their mistakes and will continue to do so. The wars being fought in Iraq and Lebanon (yes, it is still going on) have taught both militaries that tactical intelligence can no longer sit even at the brigade level; it has to be down at battalion and even company level. Both militaries have also learned that they have to have the ability to jam enemy electronic signals not just in the air but at the street corner level. These are revolutions in military affairs comparable to the development of armor and automatic weapons.

To conclude  that "US's (and, I presume, Israel's) perceived military strength and ability to deter is far less" is to go against all the known facts of what those countries' enemies are actually doing. Both the Russians and Chinese are working as fast as they can to abolish conscription and reduce overall troop strengths. Both have effectively conceded to the Americans permanent air and space superiority by ending their next generation fighter programs. The field strength of Hezbollah, Al Qaeda, Taliban and the Baathists has been reduced to the level of banditry and local thuggery, and their internal documents speak of reduced levels of financial and military support and, in some cases, of outright despair. Their only hope is to win the battle of CNN.

I can go on, but what would be the point. That the New York Times and Washington Post and CNN remain unaware of what is actually going on in the Middle East and East Asia is hardly surprising, given the fact that their correspondents no longer spent any time in the field but leave that to their native stringers. That members of the list continue to retail the daily "everyone knows" historicisms of the "authoritative press" is disappointing.

Laurence Glazier replies:

More than 20 years ago, I remember reading media assessments that Israel was unlikely to survive more than a few years. I think this is still a good case to be contrarian. Other things being equal, Israel is and will even more so be one of the economic powerhouses of the present century.

There are — as ever — challenges.

Aumann may shine in game theory and bible code analysis but Buffett gets the nod in buy and hold.

J. Klein replies:

It was not only media assessment. 30 years ago I bought land in Israel, and all my friends advised against it, Israel couldnt last, too much risk, what a meshugge thing to do. It turned out to be a hit, by far.

Israel government has announced that it is planning a second wave of settlement erradication. The idea is to cut ourself free from our turbulent, violent, suicidal, no-good neighbors by a good fence. It is only expectable that Prof. Aumann, a believer, would argument against it, since we are giving up land aka Promised Real Estate.Nobel Prize does not make him a prophet, and less so in his hometown.






Woody Allen said that "hope is that thing with feathers". I read it in his memorable book Without Feathers. Why I am writing this instead of working? Because Argentina emitted a new series of seven year bonds and the demand was three times the supply. Figuratively, people pushed and trampled over each other to give their money to Argentina and get one BONAR. Only four or five years ago Argentina was broke and paid out its bonds at 20 or 30% of face value. Savers were harmed. People have no memory?


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