Thursday, September 29, 2005

Briefly Speaking, by Victor Niederhoffer

1. Bonds during the last four months have moved gradually back and forth from a low of 114.00 to 118.00 in a gentle ascent, descent, ascent and now descent, that covers the same ground in 5 months that it liked to cover in 1 good volatile day in the 1980's when the bond vigilantes were masters of the universe. Such a reduction in volatility has many unforeseen consequences including such things as the heightened volatility in energy, thru the law of conservation of volatility.
2. Stocks have had 5 up days in a row, since Sept. 21, covering in total less than 1/2 a %. This has to be the smallest such positive run of 5 in history. It gives one the feeling that one had when he had the pleasure of escorting a most elegant and attractive other to five refined and noble cultural events, without being invited in for a night cap after the festivities. But such must be tested as to its impact on the market, not on romance, and similarities for expected moves after long runs of consecutive paint drying on a Arizona wall are surprisingly unrewarding to the chronics.
3. The concept of diminishing marginal utility in economics explains the bulk of the conundrum that affected the subject for so many years, including why diamonds sell for so much more than water. It also explains why risky stocks sell for less than stable ones. The marginal utility of buying a product is affected always by the availability of substitutes. Bonds are the main substitute for stocks, and their relative lack of attractiveness increases the marginal utility and derived demand that the public has for stocks. Such changes in the attractiveness of substitutes and their affects must be tested in a predictive fashion so as not to descend into the labyrinth of promiscuity that surrounds all of behavioral finance.
4. Convection currents explain most of the weather patterns we observe in our day to day forays with the wind and water. The essence of the phenomenon is how a source of energy like the sun causes the replacement and lifting of hot liquids by the more buoyant cold liquids that fall to the bottom. The movement of hot stocks to the top of the best performer list in a period, only to be replaced by the laggards in the ensemble of companies in the presence of constantly increasing income, wealth and changes in tastes has always reminded me of the changing winds and temperature from day to night in the Brighton Beach, upon the Atlantic Ocean that I grew up in. Such regularities mite well be applied to market phenomena ranging from sector rotation, to the changing composition of the most active, best performers, and new highs and lows in a year. One predicts it won't be long before the esteemable Mr. Soji reveals to us how similar phenemona explain the prowess of the surfing champions and can be used to day trade stocks with great aplomb.
The European stocks continue to outperform their US counterparts by a wide margin with the normal indexes there such as Eurotop 300 up by 18% year to date against a measly 0.5% for the US. Part of the differential is explained by the universal law of one return for all assets that the master investor, perhaps best typified by Prince Alweed of Saudi Arabia ( the subject of a hagiographic interview previously reserved only for the sage of Nebraska, and their biggest advertisers, in Fortune's pages), who sits on a portfolio that must directly or indirectly thru his intimates approach the trillion mark. And part of the differential must be explained by the Vic 1997 affect, ( "Thanks for asking. Things are much better than they were in 1997 but then again they couldn't have fallen any lower than the nadir") Yes, things were so bad there that they couldn't have got any worse, as exemplified by the great desire of the Sage and other old lions to hold European assets rather than US assets since the European trade balances were so much more green than ours. But ultimately one would predict a greater harmony and equalization of the returns of Europe versus the US, possibly caused by the equal conduction of return theorem

Tuesday, September 27, 2005

Obviously..........

With so many of the top tier hedge funds opening up to new investors the writing is on the wall. The guys I talk to every day, day in and day out, all are in agreement. Equity returns are poised to slow down. The massive performance fees (20% to 50% of profits in some cases) on billions and billions of dollars are not in the cards so a 2% management fee is better than a stick in the mud. That is not to say the derivatives traders, the futures players, the arb guys, the bond daddy's all will have their day. Just not this year.

Monday, September 26, 2005

Last week it happened............

Equinox means equal night. The first official day of autumn, the autumnal equinox, occurs on Sept. 22 or 23 in the Northern Hemisphere. This year it was Thursday at 5:23 when the sun reached the celestial equator, an imaginary line through the sky above the Earth's equator. As the sun's center crossed the line, the season officially changed to autumn. So for the next three months, nights in the Northern Hemisphere will continue to grow longer than 12 hours and days to grow shorter.

Thursday, September 22, 2005

NASA's "MOON"DOGGLE = TEXAS PORK

If Hurricane Rita was in danger of killing off jobs in Texas, President Bush and NASA stepped up and tried to game more tax dollars to put a man on the moon. We went to the moon 40 years ago. There was nothing there. I doubt much has changed.

NASD Arbitrations..............

The process is broken. As the Secretary of State of the Commonwealth of Massachusetts said, "it is industry-sponsored damage containment and control masquerading as a judicial proceeding." As an arbitrator for a decade for both the New York Stock Exchange and the NASD the system is so poorly run it could destroy investor confidence. The beat goes on...........

Wednesday, September 21, 2005

Yesterday.............live and let live..............

My wife wanted to see Paul McCartney perform last night. Phillips Arena was sold out. More grey hair than i expected and lots of "no hair" types. His act is old but apparently not out of style. How those songs "imprinted" on the baby boomers is a story in itself. Why he had a teleprompter going was beyond me.

Monday, September 19, 2005

football...................

It was wonderful to be on the winning end of the 8 year-old Alpharetta Red Eagles football team this weekend. My son, Jordan, plays fullback and cornerback and was awarded the Offensive Player of the Game award. Seeing these young guys get stronger physically, build mentally, focus, concentrate and learn what "firing out" is all about is a treat. It is great to see the support of the parents as well. We will win again.

The weekend....................

Lindsey Morgan had her Bat Mitzvah this weekend. My wife, Pam and I enjoyed her celebration so much. The world would be a better place if every 13 year old had the parental care, insight and love to see their children through a "mitzvah" experience. Congratulations to you Lindsey and to your parents, Lynn and Richard.

Victor on Warren........................

Berkshire Hathaway has been hobbling along near its lows in the 81,000 handle as is appropriate for a company whose chief honcho infuses with disguised hubris his mantras: "I am so much more honest than you or her," and "I cant find any good stocks to buy for the last 10 years" and, " I find dishonesty rife in the investment field as compared to myself and the companies I buy, which I can buy in a flash by just looking at their financials, and I just look for companies I understand like See's Candies and Brown Shoes." However, the Friday 9/17 close of 2720, a 21-month low, seems to me the manifestations of the "Morse effect" (see EdSpec) so common in markets and life where a former revered statesman finds that all his former hagiographers are the most vehement in their execration when he stumbles. I found the same effect directed at me when I "went under" in 1997 (have I mentioned it in the last week?), as is appropriate.

Thursday, September 15, 2005

Where are they?

The Feds are looking for 49,000 Native Americans. The Feds owe them $73,900,000. Where are they?

Wednesday, September 14, 2005

Delta Airlines......good luck employees, to hell with management.....

LUV is now the only major airline, as measured by market cap; larger than the other 30'ish airlines combined: Ticker Name -- Current Market Cap
LUV SOUTHWEST AIRLINE 10,848,590,000
AMR AMR CORP 2,047,903,000
JBLU JETBLUE AIRWAYS C 1,995,651,000
SKYW SKYWEST INC 1,412,564,000
CAL CONTINENTAL AIRLI 833,334,800
AAI AIRTRAN HOLDINGS 916,682,200
ALK ALASKA AIR GROUP 870,329,100
XJT EXPRESSJET HOLDIN 513,181,790
NWAC NORTHWEST AIRLINE 289,069,100
FRNT FRONTIER AIRLINES 375,468,900
AWA AMERICA WEST HOLD 259,179,890
DAL DELTA AIR LINES I 142,331,100
WLDA WORLD AIR HOLDING 234,292,100
MESA MESA AIR GROUP IN 248,421,300
HA HAWAIIAN HOLDINGS 157,062,900
MAIR MAIR HOLDINGS INC 186,403,500
UALAQ UAL CORP 41,839,550
MEH MIDWEST AIR GROUP 41,056,430
UAIRQ US AIRWAYS GROUP 32,904,700
FLYI FLYI INC 15,222,490
ATAHQ ATA HOLDINGS CORP 6,503,350
GLUX GREAT LAKES AVIAT 9,850,370
VIVI VIVA INTERNATIONA 6,932,660
BLTA BALTIA AIR LINES 5,137,600
ACHT AIRCHARTER EXPRES 2,000,000
EFLT ELITE FLIGHT SOLU 151,610
LAIR L AIR HOLDING INC 66,910
MDWYQ MIDWAY AIRLINES C 1,510

Wall Street and Politicians...........

cause the public to lose so much more money than they have any right to lose.

Saturday, September 10, 2005

Only slowing the cancer not addressing cause.......

Nebraska's governor signed an agreement last week that will allow Pine Ridge tribal police to patrol the border town of Whiteclay. The agreement can only improve the situation at the tiny town that exists only to sell alcohol to residents of the reservation where alcohol sales are illegal.
Pine Ridge has one of the highest alcoholism rates in the nation despite being a dry county. Each year, the stores in Whiteclay sell millions of cans of beer to residents of Pine Ridge.
Under the agreement, tribal officers will be deputized to enforce Nebraska state laws, including open container, selling to intoxicated people, bootlegging, selling alcohol on credit, selling to minors, public intoxication, assault and theft.

Change...............

The market has changed. That it will continue to change is the only sure thing we can expect from the beast. One aspect I have had to deal with in the last year is in how individual stocks trade that are high-momentum, high jet-fuel in nature as well as those that are not. The vast number of hedge funds controlling some say a trillion, some say a few hundred billion in hot money throw increased volatility into the equation. It has made my job more difficult and frankly i have found it harder, meaning simply the stress and effort in position trading has increased in this low-return environment. With record short interest on the exchanges and more managers doing "true" hedging with ETF's versus individual baskets both long and short it seems the simple explanation is that hedgies are reporting monthly numbers and making for month-end window dressing all the more common. Volatility is here to stay. It has made the art of trading and my ability to manage a portfolio a more difficult. I relish the task.

more Katrina aftermath............

After a gorgeous morning of exercise with fall in the air and geese overhead i thought it pertinent to comment on one of the simple problems facing victims on the Gulf Coast. As i have heard, roughly one-third of the lawyers in the state of Louisiana may have lost their offices, their libraries and the computers storing much of the information on clients and cases. If evidence and case documentation have been destroyed, what will happen to the people whose fate is in the hands of the justice system. As I learned long ago on my first day in law school, justice has a price and it can be bought.

Thursday, September 08, 2005

CMCO

This name came out of my portfolio yesterday a hair above 21. In review of my purchases i bot the stock in the 9's and then again in the 15's......I usually have a number of reasons for why I sell a stock. This reason was because it was time to take a profit. I continually fight the urge to take profits and wear the badge of the "I top ticked Mr. Market and look how much money I made" syndrome. Those feelings usually wind up costing me alot of money as stocks can carry themselves to extremes with me or without me aboard. Yes, the stock opened up strong again this morning on a weak tape and i was kicking myself. When I bail I generally bail with the entire position, not hanging around to follow a partial holding and not hedging the position/profits with options, the energy required just too much when I can use that focus and concentration on positions in which I am fully engaged. Hythiam (HYTM) is trading well today. Am feeling a bit more cautious today unlike the last week. Just feel something larger than wind and water ahead. I hope you are portfolio is doing well and you are looking more at using ETF's in your portfolio both on the long and short side of the market. They have made my job alot easier this year.

Monday, September 05, 2005

The Evening of Labor Day...........

I returned this afternoon from a couple hundred of miles and a family reunion. It is good to be home and good to see faces who share a common bloodline if not much else. I always relished reunions because the food is so good. It seems the cooks and chefs in the crowd never bring a subpar dish to be devoured readily by all. In looking at Mr. Market last week, what better evidence could there be of the stock market's unpredictability than that it rose while New Orleans was sinking? My position is that no one, even after the fact, can tell us reliably why the market does what it does, let alone predict its future. Both Nasdaq and the S & P were up 1% last week in a week that will be written about for the next century for the devastation caused. FEMA and the mayor of New Orleans are a tad overboard from media reports and the looters remind me of the idea espoused that perhaps we are only one generation away from barbarism. I just got in from a short run. One mile. In the evening cool with my wife I was at a loss for words. One of my best friends had returned home to the eastern seaboard and fired off an email to me that his father has been diagnosed with both lung and liver cancer. He has labored a good life. In many ways the labor of this fight has just begun. I look forward to a party next weekend that we are attending to raise money for breast cancer. I pray that in my lifetime we will have more answers to fight cancer and to find the cures just as Dr. William W. Shingleton dedicated his life to find the answers that affect so many. Cherish and relish the labors of life. Every day.

Friday, September 02, 2005

President Bush

Whatever he does or doesn't do will be campaign fodder in 2008. What he should do is shut the borders down and straighten out our tax code to pay for Katrina far sooner, more equitably. The minority politicians will be more than prepared to serve up a plate of "W" to their masses who dont get enough aid doled out. That aid, by the way, is my money and yours. Tax dollars. Given away.

Burn Baby Burn............

The burning and looting is a blight on the great citizens of Louisiana.

Water H2O Water...............

If I owned a business selling any kind of water removal/restoration/replacement products or services anywhere in the country, I would be headed to New Orleans right now. There is huge opportunity to be Johnny on the Spot. Contracts will be awarded based on how many able bodied workers you can bring.

Communication and Immunization

The stock market seems to to be just fine. The real threat from Katrina may be a week or two away. The real danger we can't see. Bacteria. Immunizations (big pharma anyone? ) for everyone. Communication will be more important in getting law and order restored. Some type of power will be needed to get cell phone batteries charged. Gasoline will be a huge commodity with afew transport trucks having been commandeered already. The Corps of Engineers will have more than barge traffic to worry about for years to come. Their gravy train is over. And FEMA? Where art thou FEMA? So much government waste of taxpayer dollars for so little. The emotional train wreck ahead is only beginning.

Thursday, September 01, 2005

Passing the Gas in Georgia.............

Last nights gas lines at local gas stations reminded me of my days in sunny San Diego in 79-80. Gassing up when your "day" to get fuel, simply because your last name began with a "P" was Monday, Wednesday or Saturday. Gas prices are probably still cheap per gallon. Far cheaper than mouth wash, liquor or honey per gallon. The truckers are going to have problems. SUV's are getting alot cheaper on every car lot in America. Detroit is getting beat again. Maybe this will drive light rail public transporation infrastructure in America far faster than anyone could imagine. Imagine.

Committed............

Listening to the gaming companies announce they are "committed" to the gulf coast states and will rebuild their gaming facilities is rather amusing. Why don't they just say "we suck so much money out of this region from people who don't understand the odds in playing negative-expectation games that we can't afford not to rebuild?"

Last exit for the lost.............

North Carolina is the last state in the South to have approved of a state lottery. Now they too will extract billions from citizenry in lotto tickets. The human predators in LA, MS and AL need to be dealt with like the scum and grime they are. Listening to the bumbling Army Corps of Engineers and FEMA "chieftains" is like listening to my sons 3rd grade class. Plenty of blame to go around and no one wants to step up and get anything done without all the bureauacracy. The loss of life, property and and jobs will be small compared to the emotional toll inflicted. I keep thinking about this being America's tsunami. This is but a speck compared to the lives lost in the Tsunami last year overseas. How many people will just leave their homes behind? Just walk and never come back.

Native American Advisors CHIPPEWA PARTNERS