Standard deviations

As is usually the case with posted images, clicking on it will show it larger on another screen.

I know I said the Dow could go to 10,500 or higher and I was staying away from the market and not going to be going short anytime soon, but I can't help looking and observed something interesting tonight. Computers are pretty good at plotting trend lines and standard deviations, so an innocent bystander like me can press a couple buttons and make uninformed observations. Using linear regression one can plot trend lines through a lot of data. Something like 68% of the data points will fall within one standard deviation of the trend line. Something like 95% of the data points will fall within 2 standard deviations of the trend line. So, I plotted a trend line going back to the high on the Dow in late '07. The image I've attached only goes back 9 mo, to show better definition, but the trend line does have a longer history. Anyway the rally we've been "enjoying" has moved the market from the bottom of a two standard deviation channel to the top of a two deviation channel, and for the last couple of weeks the Dow has been bumping against the long term, downward sloping top.

A 1.5 standard deviation channel better fits the data for the rally we've been in since March. The Dow is currently grinding against the bottom of this channel. So which will it be? Breaking below the rally channel to stay in the long range downtrend or breaking above the long term trend to sustain the rally channel. Can't do both and it's time to make up it's mind.

I'm still just watching, but I'm getting edgy.

PS The S&P chart looks about the same.

On C-Span this morning

a guest was an economist I think named Peter Marici, from (I think) the University of Maryland. He seemed very direct, and down to earth. Seemed to blame politicians more than bankers and businessmen for mishandling the economy. He seemed more sympathetic towards Bernanke and the Fed Reserve Bank than toward Geithner and Summers in the administration. I object to his weak critique of the bankers as merely short-sighted and making honest mistakes, as compared to politicians who are irresponsible and concerned only with the next election. He, fails for one thing, to observe that the "short sighted" bankers and businessmen engaged in intense and expensive lobbying and bribed the congressmen through their election campaign contributions to change the laws to enable the bankers to make "short-sighted mistakes". I grew more suspicious of his folksiness as he continued.

One thing he alluded to that was news to me that there is a plan developing to have the Federal Government guarantee state issued debts. I have't thought through the implications, but they're huge.

As we have done in the past, now that the weather is nice,

I've begun walking Mally the two blocks from his home to Armando's Grocery. He's surprised that is seems much easier walk now (his legs must be twice as long as they used to be). We like to look over the produce department and pick out fruit that look good, sometimes exotic things we're not really able to identify or even classify, sometimes special requests: Crystal says Owen likes avocados. We talk about stuff on the way there and back pretty much as equals, though at intersections he puts his hand in mine and allows me to guide him. Like about the music store that used to be next to the grocery store where he would stop in and abandon himself to dance to Latin rhythms, and how the pretty girl there was always happy to see him. After reminiscing for a moment he said that was one of his two saddest memories, second to falling down and skinning his knee. After another pause he remarked that actually that had occurred several times. I told him I thought that the music store should be a happy memory. He said sad because it's not there anymore.

But in the store, he's in charge. A bell pepper for Mommy, watermelon for Daddy, a peach for Poppo, an orange for him. I proposed a carton of chocolate ice cream, which sounded good to him till we got to the freezer and he decided he'd prefer the twelve pack of ice cream sandwiches. We argued a bit, but he answered all my objections. Luckily, he agreed to a compromise, and we got six. He'd been more insistent when buying yogurt for Mommy. I thought one thick and creamy strawberry would be nice. He said she'd prefer the six pack of smaller containers which looked to me like they had the Trix rabbit or some similar cartoon on them. I questioned him but he wouldn't be dissuaded . When we got home, it turned out that he was right.

I wouldn't say he's at an awkward stage, but he's growing out of his toddler cuteness and hopes to be taken seriously. When I was one among nine, I was happy just to be noticed from time to time. i think his way is a greater challenge.

Just found this wisdom on Facebook

Dave DeBaeremaeker at 9:38am June 23
remember what they say: hard work pays off tomorrow, but procrastination pays off right now

Figures dont lie, but liars can figure

Kim questioned my assumption that Ahmadinejad was accurately reported to have won election last week in Iran by a 2 to 1 majority. I still believe that to be the case, but here's intelligence officer type analysis from the Washington times that suggests the numbers were cooked.

The Devil Is in the Digits

By Bernd Beber and Alexandra Scacco
Saturday, June 20, 2009; 12:02 AM

Since the declaration of Mahmoud Ahmadinejad's landslide victory in Iran's presidential election, accusations of fraud have swelled. Against expectations from pollsters and pundits alike, Ahmadinejad did surprisingly well in urban areas, including Tehran -- where he is thought to be highly unpopular -- and even Tabriz, the capital city of opposition candidate Mir Hussein Mousavi's native East Azarbaijan province.
Others have pointed to the surprisingly poor performance of Mehdi Karroubi, another reform candidate, and particularly in his home province of Lorestan, where conservative candidates fared poorly in 2005, but where Ahmadinejad allegedly captured 71 percent of the vote. Eyebrows have been raised further by the relative consistency in Ahmadinejad's vote share across Iran's provinces, in spite of wide provincial variation in past elections.
These pieces of the story point in the direction of fraud, to be sure. They have led experts to speculate that the election results released by Iran's Ministry of the Interior had been altered behind closed doors. But we don't have to rely on suggestive evidence alone. We can use statistics more systematically to show that this is likely what happened. Here's how.

We'll concentrate on vote counts -- the number of votes received by different candidates in different provinces -- and in particular the last and second-to-last digits of these numbers. For example, if a candidate received 14,579 votes in a province (Mr. Karroubi's actual vote count in Isfahan), we'll focus on digits 7 and 9.
This may seem strange, because these digits usually don't change who wins. In fact, last digits in a fair election don't tell us anything about the candidates, the make-up of the electorate or the context of the election. They are random noise in the sense that a fair vote count is as likely to end in 1 as it is to end in 2, 3, 4, or any other numeral. But that's exactly why they can serve as a litmus test for election fraud. For example, an election in which a majority of provincial vote counts ended in 5 would surely raise red flags.
Why would fraudulent numbers look any different? The reason is that humans are bad at making up numbers. Cognitive psychologists have found that study participants in lab experiments asked to write sequences of random digits will tend to select some digits more frequently than others.
So what can we make of Iran's election results? We used the results released by the Ministry of the Interior and published on the web site of Press TV, a news channel funded by Iran's government. The ministry provided data for 29 provinces, and we examined the number of votes each of the four main candidates -- Ahmadinejad, Mousavi, Karroubi and Mohsen Rezai -- is reported to have received in each of the provinces -- a total of 116 numbers.
The numbers look suspicious. We find too many 7s and not enough 5s in the last digit. We expect each digit (0, 1, 2, and so on) to appear at the end of 10 percent of the vote counts. But in Iran's provincial results, the digit 7 appears 17 percent of the time, and only 4 percent of the results end in the number 5. Two such departures from the average -- a spike of 17 percent or more in one digit and a drop to 4 percent or less in another -- are extremely unlikely. Fewer than four in a hundred non-fraudulent elections would produce such numbers.
As a point of comparison, we can analyze the state-by-state vote counts for John McCain and Barack Obama in last year's U.S. presidential election. The frequencies of last digits in these election returns never rise above 14 percent or fall below 6 percent, a pattern we would expect to see in seventy out of a hundred fair elections.
But that's not all. Psychologists have also found that humans have trouble generating non-adjacent digits (such as 64 or 17, as opposed to 23) as frequently as one would expect in a sequence of random numbers. To check for deviations of this type, we examined the pairs of last and second-to-last digits in Iran's vote counts. On average, if the results had not been manipulated, 70 percent of these pairs should consist of distinct, non-adjacent digits.
Not so in the data from Iran: Only 62 percent of the pairs contain non-adjacent digits. This may not sound so different from 70 percent, but the probability that a fair election would produce a difference this large is less than 4.2 percent. And while our first test -- variation in last-digit frequencies -- suggests that Rezai's vote counts are the most irregular, the lack of non-adjacent digits is most striking in the results reported for Ahmadinejad.
Each of these two tests provides strong evidence that the numbers released by Iran's Ministry of the Interior were manipulated. But taken together, they leave very little room for reasonable doubt. The probability that a fair election would produce both too few non-adjacent digits and the suspicious deviations in last-digit frequencies described earlier is less than .005. In other words, a bet that the numbers are clean is a one in two-hundred long shot.
Bernd Beber and Alexandra Scacco, Ph.D. candidates in political science at Columbia University, will be assistant professors in New York University's Wilf Family Department of Politics this fall.

this Iran election thing

appears to me to be another country mouse vs city cousin thing. While we all find it easier to identify with the city mice who supported the candidate receiving 1/3 of the vote (which was very much in line with pre-election polling), the country mice comprise a majority of the electorate and voted for Ahmadenijad, in the words of the little ones who Art Linkletter used to ask why they loved their mothers on his daily TV show, "because she buys me things." Fact is the rural poor need to have things bought for them, but the educated urbanites feel the country's revenues could be better spent supporting a growth economy that would offer them better employment.

Question is whether the Supreme Leader and the Council of Experts have a vested interest in maintaining the rural poor in their difficult plight in order to preserve a power base of conservative Shiites. I guess it's reasonable to assume that the conservative clerics do wish to maintain and reward the folks who support their "traditional values" message, and they are probably wary of the educated city folks.

The critical factor is the women, who are, under the law, second-class citizens, but who have aspirations of professional and political equality. Again, these educated hopeful women are city mice. It is not likely the other candidate Mousavi has rock star status among the women since in an earlier term as Prime Minister he was very comfortable accomodating the clerics and was not noticably a reformer. It seems that it was Mousavi's wife, a former university chancellor, who sparked the women's hopes of a better future with outspoken campaign speeches. The appearance of a candidates spouse at campaign events in itself was a departure from the norm, and her speaking forcefully at the events gave educated Iranian women hope for change.

I don't think, however that the demonstrators really believe the election was stolen. They're angry that their candidate lost, but acting out in the streets because your candidate lost an election 2 to 1 does not fit into a valid model for a democracy. I think Obama realizes that, and has not been able to call for the rejection of a legitimately elected president. I'm sure he hopes, as do we all, that Islam will somehow grow out of the anachronistic tendency to diminish women's rights and opportunities, but he knows an assault on the imans would be counterproductive.

He wishes to maintain any possible opportunities for constructive dialogue with Iran regarding assistance they can provide in Afghanistan and the possibility of curtailing the Iranian nuclear programs. Since it is the Israelis who hope Obama's recent overtures to Islam will fail to produce beneficial results, and resentful Republicans who are calling on him to reject the results of the election and repudiate Ahmadenijad, I can only hope his cautious balancing act works out in the best interest of all concerned.

Nobody said it was going to be easy.

Beautiful day

Wasn't it? Janett couldn't sleep last night and I got her up on the wrong side of the bed this morning. She showed resolve and a helpful spirit, coming down to the office to insure Jose and I didn't mess up setting up the payroll for a new client on Quickbooks.
We were invited to a 2PM birthday party for co-worker Evelyn's five I mean six year old daughter Lanie at Randall Oaks, a park I drive by often but seldom stop. Around 1, while we were still working, Louie called and said he was at Randall Oaks for the KofC picnic. Wow! Small world. Good for me - bad for Janett who'd begun thinking in terms of a a courtesy visit to Lanie's party and a quick return home for much needed rest.
I began scaling back my plans, finally to a 15 minute stay with each group, but Janett grew resistant to the idea of going at all. Perhaps she didn't trust me to conform to a scaled down plan. So, I went alone, which happens not uncommonly, when I've exhausted Janett. But the park was nice and I enjoyed seeing Louie and his young adult children, can't really call them kids anymore. Well, I guess we can. The birthday party was wonderful. Lanie was radiant and Evelyn vital and vivacious as ever, engaging fiercely in the water balloon melee. The food was excellent. The poor KofC'ers didn't know what they were missing. Evelyn offered to prepare Janett a plate, but salad, beans, rice, beefsteak with onions and peppers and falling-off-the-bone chicken in red sauce did not promise to travel well on a paper picnic plate, so I compromised with a piece of birthday cake and a couple of slices of watermelon. I think Janett was pleased with the selection and said the cake was particularly good which I didn't know because I'd eaten too much of the main course to try to confront desert.
Janett's retired now (at 8:30PM). Kim just called to say she, Steffy, and the boys were returning from church and could swing by for a visit. Janett groggily declined-but that's OK. We'll see them and accept best Father's Day wishes tomorrow at Jason and Dee's where we'll celebrate Joey's birthday. my life is a mad social whirl.

Did you hear about the two Japanese guys

arrested by Italian police at the Swiss border trying to smuggle $134 billon dollars in US Treasury bonds into Switzerland in a false bottom suitcase? It hasn't been a big news item. Why not? Here's a link to the original story in Asia News, but there has not been a lot of coverage in the week since the original report.
If these bonds were in a denomination of $1000 there would have been 135 million of them. That would have been some humongous suitcase. But no, these bonds were in denominations of $500 million and even a billion dollars each. Since darned few investors have a billion dollars to invest at any given moment, these bonds were presumably printed to faciltate transactions between governments or central banks.
Italian authorities says they're investigating to determine whether the bonds are counterfeit. There have been rumors of the North Korean government investing in high tech counterfeiting enterprises. Maybe, but I don't think so. I mean if you were in a position to buy a billion dollar bond, you're probably smart enough to validate their authenticity. Of course, sometimes counterfeit bonds have been used to post as collateral for a big loan, and maybe scrutiny was less strenuous than in the event of a sale. But at this kind of value I doubt procedures would be lax.
So the fun part of the story is the the speculation about whose bonds they are. First guess would be the Japanese (or some other Asian government) treasury trying to to dump dollars in Switzerland through channels that would be untraceable. If there was more coverage of the story, maybe clever conspiracy theorists could come up with scenarios even more intriguing. The government dumping theory, though, is interesting enough in its implications.

Homesick? Get your home town news here!

(Unless you come from N Dakota or Wyoming.) Julie sent this link. No comments please on superimposing the red and blue map.

I'm going to work, Heres something for you.

My vituperations against Geithner, Bernancke and the Goldman Sachs crowd are not intended obscure the fact that other causes lie at the root of the economic meltdown. This article addresses the macroeconomics. In order to entice you to read it, I will not condense or summarize it.

I hope everyone is having a nice day.

You know I support Obama, but wonder why he's

relying on the same old crowd at Treasury and the Fed.
Here's an article fron the New York Times today.

The Economy Is Still at the Brink

By SANDY B. LEWIS and WILLIAM D. COHAN
Published: June 7, 2009
WHETHER at a fund-raising dinner for wealthy supporters in Beverly Hills, or at an Air Force base in Nevada, or at Charlie Rose’s table in New York City, President Obama is conducting an all-out campaign to try to make us feel a whole lot better about the economy as quickly as possible. “It’s safe to say we have stepped back from the brink, that there is some calm that didn’t exist before,” he told donors at the Beverly Hilton Hotel late last month.

Mr. Obama thinks that the way to revive the economy is to restore confidence in it. If the mood is right, the capital will flow. But this belief is dangerously misguided. We are sympathetic to the extraordinary challenge the president faces, but if we’ve learned anything at all two years into the worst financial crisis of our lifetimes, it is that a capital-markets system this dependent on public confidence is a shockingly inadequate foundation upon which to rest our economy.

We have both spent large chunks of our lives working on Wall Street, absorbing its ethic and mores. We’re concerned that nothing has really been fixed. We’re doubly concerned that people appear to feel the worst of the storm is over — and in this, they are aided and abetted by a hugely popular and charismatic president and by the fact that the Dow has increased by 35 percent or so since Mr. Obama started to lay out his economic plans in March. But wishing for improvement and managing by the Dow’s swings are a fool’s game. (Disclosure: One of us, Mr. Lewis, was convicted on federal charges of stock manipulation in 1989, pardoned by President Bill Clinton in 2001 and had his lifetime trading ban overturned by the Securities and Exchange Commission in 2006; documents relating to the case can be found at sblewis.net.)

The storm is not over, not by a long shot. Huge structural flaws remain in the architecture of our financial system, and many of the fixes that the Obama administration has proposed will do little to address them and may make them worse. At another fund-raising event, for Senator Harry Reid, President Obama said: “We didn’t ask for the challenges that we face. But we are determined to answer the call to meet those challenges, to cast aside the old arguments and overcome the stubborn divisions and move forward as one people and one nation .... It will take time but I promise you, I promise you, I’ll always tell you the truth about the challenges we face.”

Keeping that statement in mind — as well as an abiding faith in the importance of properly functioning capital markets — we have come up with a set of questions meant to challenge a popular president, with vast majorities in Congress, to find the flaws in the system, to figure out what’s being done to fix them and to get to the truth about the difficulties we face as we set out to restore the proper functioning of our markets and our standing in the world.

I can't wait for the TV movie

See article

Not So Fun

In my March 11th post on Phillip Purcell I questioned Mr Pandit's veracity.
I'm not the only one. This is from a Bloomberg news article.

Bank Profits From Accounting Rules Masking Looming Loan Losses
By Yalman Onaran
June 5 (Bloomberg) -- Big banks in the U.S. say they’re on the mend. The five largest were profitable in the first quarter, rebounding from record losses for the industry in the fourth quarter. Share prices have jumped, with the KBW Bank Index doubling since March 6.
Treasury Secretary Timothy Geithner, after “stress testing” 19 banks on their ability to withstand a worsening economy, declared in early May that Americans can be confident in the banks’ stability and resilience. Wells Fargo & Co. and Morgan Stanley were among banks raising $43 billion in new capital since then through share sales.
“With our capital and assets, stressed as they have been, we can go back to focusing all our attention on managing our business and restoring value,” Citigroup Inc. Chief Executive Officer Vikram Pandit said after Geithner’s examinations were completed.
The revival may be short-lived. Analysts who have examined the quarterly profits and government tests say that accounting rule changes and rosy assumptions are making the institutions look healthier than they are.
The government probably wants to win time for the banks, keeping them alive as they struggle to earn their way out of the mess, says economist Joseph Stiglitz of Columbia University in New York. The danger is that weak banks will remain reluctant to lend, hobbling President Barack Obama’s efforts to pull the economy out of recession.
‘Bogus’ Profit
Citigroup’s $1.6 billion in first-quarter profit would vanish if accounting were more stringent, says Martin Weiss of Weiss Research Inc. in Jupiter, Florida. “The big banks’ profits were totally bogus,” says Weiss, whose 38-year-old firm rates financial companies. “The new accounting rules, the stress tests: They’re all part of a major effort to put lipstick on the pig."

This is just part of a good article. It's linked above if you want more.

Also, it's part of my "sour grapes" rationale for losing money on my last 4 options trades. If the banks aren't lending the money what are they doing with it. I think they must be giving it to investment companies to run the market up to show some profits for the quarter. Once Mr Smith decides it's safe to go back into the market and recoup some losses, they'll be happy to sell to him at inflated prices.

Jimmy Rogers, commodity trader extrordinaire says for nearly the first time in his trading career, he's not short any stocks, because this newly printed "money" being pushed into the market could run the market up to 15 or 20 thousand on the Dow Jones Industrial Average. He's not sure, but he can't take the chance on shorting. So he's buying commodity futures, on the hunch the same inflationary pressures raising the Dow will affect commodities, but the demand for commodities won't dry up overnight the way the buyers in the stock market will when the time comes.

I'm not sure the market will rise over 10,500. I mean, have people completely forgotten about price earning multiples and balance sheets? But my put buying is temporarily suspended.