All right. It was I that was doing the hyping, not Cramer. Thanks for your very helpful clarifications.

Yes, I think the moral of the story is that unless you've got quite a few millions of dollars to play with, stay out of the day trade. In that respect it is a bit like a casino, in that the market, as far as speculative investing goes, is loaded against the small investor.

A bomb, H bomb, Minuteman / The names get more attractive / The decisions are made by NATO / The press call it British opinion -- The Three Johns

What do you mean by "consistently" beating the market?

From 1995 to 2000:

• Berkshire Hathaway Inc. spot 24 to 56 : multiply by 2.3
  
• NASDAQ composite spot 755 to 4069 : multiply by 5.3

Doesn't look like beating to me :)

What these guys do is create volatility where there might not be any

Pretty much sums up the oil market to me...

Now if I had a really dirty mind and worked at (say) BP I'd think:

"Well: I'm structurally short about 30,000 Brent contracts: where can I find someone who trades alongside someone structurally long cos they run a fund - you know, like J Aron alongside Goldman Sachs".

Then when there's not a great deal going on, or there's some pricing to be done against settlements, or we're rolling the fund over month to month, or whatever; then I could march the market to the top of the hill and back down again and my friends who are alongside the fund could reimburse my losses from their profits OTC (off-exchange) in some way.

And we could both make profits from those naive fools hedging on the markets who actually thought the market prices reflected supply and demand.

But of course something like that could never happen because of our robust compliance department.

Our chairman would never allow it: hang on a minute, isn't he Goldman's chairman as well?

I'm confused.

"The future is already here -- it's just not very evenly distributed" William Gibson

There is real meat in the markets. But when the operative mood of many market players (especially newcommers) is "Just buy something, it all goes up", there is plenty room to set "professional" insider games.

People like to make easy moey, especially now. We are at a top point of the cycle of greed - "everyone" acts asif believing that maney can be made easily perpetually. (Yeah, there is no free lunch - if government assists. But otherwise, prosperity can grow ever more continuously.)

The most effective way to make easy money is a Ponzi scheme (or similarly, a pyramide scheme). They work especially well when there are many people seeking easy money, like it was in Russia and Easter Europe in the 1990's. The most smart blocks can profit handily from massive eagerness. (Poker works the same way, largely.)

Ponzi and pyramid schemes are illegal, of course - too many people inescapably suffer. But a Ponzi scheme does not have to be crystal clear or rigidly designed. Just throw in some ingredients - a steadily growing market, "assuredly" increasing asset value, a flow of newcommers, extra stimulation of demand - and experienced traders already recognize that they don't have to follow the value of their hands, they just have to get timing of Ponzi-lite trading right.

Hyman Minsky build a theory how unstable Ponzi financing patterns emerge from a prosperous or innovative economy phase.

Most disturbingly, the Bush administration was consistently bringing in Ponzi ingredients with its tax policies. That was a pretty sure way to deliver a booming economy - hardly anything can match a Ponzi boom. At worst, their insider ring might have had a hidden Ponzi idea from the outset...

HiD, your comments are excellent, and much calmer than mine which you will see below.  Perhaps you are making a good point, that maybe i missed,,,,Cramer's techniques are focused on the short term trader, and I guess that is a market that I don't know.  I'm certainly not a day trader, and I guess pretty naive in that area.  And when you are involved in the management of a publicly traded company, you don't worry too much about day to day fluctuations.  I don't think Cramer's techniques would hurt me, or others, who invest in companies and their medium to long term prospects.  But still, it seems like market manipulation,,,,and I think transparency and trust in markets is critical--so shouldn't we hang the SOB?  and others of his ilk?

But how much of that $80 isn't casino value?

If the casino is bubbling, the bubble component and the realistic value component become impossible to distinguish.

You could eliminate the bubble component by eliminating speculation and making it impossible to sell shares within - say - a year of purchase. That would turn casino transactions into more thoughtful and measured investment transactions.

Of course that's not going to happen, because no one in the casino wants to have their toys taken away. And also because a lot of 'growth' is generated by imaginary casino value artificially inflating expectations.

Which is why I think your IOB will never fly.

I must say I go along with that view.

But I'm not proposing conventional geared futures contracts for the IOB (which is glacial in progress, to ssay the least). I'm proposing units in a "pool" of crude oil more akin to shares in an ETF.

An "asset-based" contract rather than a deficit-based one.

Paid up front, so no gearing: except of course you are free to borrow to buy the units.

So no monthly expiry dates, roll-overs and all of the costs that go with it.

And I will bet a pound to a penny that the Chinese - to name but one, would buy as much of this "virtual crude" as you could put on the market in preference to holding their reserves in dollars....

"The future is already here -- it's just not very evenly distributed" William Gibson

I had a friend who wrote PhD on string theory, and then moved to financial industry. He had circulated an email about his job hunting adventures. I hope he does not mind if I reproduce it here. (Otherwise he must be powerful enough to void me, haha.)

So I've sold my soul to the devil, and he promised me loaves and fishes.  I'm not sure I've ever dreamt of that, but if nuggets are a measure of usefulness, at least I'll feel damn useful now.  Just like the mafia boss must feel.  Jeeez, it's only a small step from quantum gravity to moral gravity.

I've now become sort of a "quant" (quantitative analyst, for pedants). These are the fortune tellers in investment banks who foretell the prices of complex derivatives - like the option of buying an ice-cream at half the price given that we're still waiting for the summer and that cows are threatened by BSE.  The crystal ball is called "Monte Carlo" and our secret weapon are partial differential equations - hence the need for physicists.  We all sing the same tune (heard on the Street):
"Sell the highs, buy the lows;
  Take their money, bash their nose."
And what a bashing it will be!  Oh boy, pray I be merciful.

So let me tell you how I got caught up in this.  I've had quite some adventures in job finding - started out almost a year ago and bumped my candid nose against the glassy doors of industry.  I first knocked at all big players in strategy consulting, got invited 8 times for interviews.  Gee what a honeymoon it was! with the muses, that is. I spent more time in all of Germany's museums than solving case studies in boring offices.  And all expenses paid.

Some firms squander 1000 euros just to see your face: first class return flights and Hyatt five stars (awful, all this luxury: couldn't close an eye! next time I'll ask for a bench in the park).  And all this at the outlay of the sophomore consultant who burns the midnight oil - and his brains on the way.

Since they recruit 1 interviewee out of 8, I had to try eight times before giving up.  And indeed the eighth firm showed signs of mercy, promising to hire me after a sheer 9 hrs interviews (w 9 diff people). When I rang next week to sign the contract, they insisted on a tenth interview.  You get no points for guessing the end of the story.

Reasons for rejections were as wild as sex: first not enough structure, then (upon offering structure) not creative; not passionate, too animated, not clever, too brainy,...  The last guy sounded: "Yes, we understand you see the challenge in the nature of the work; yet we doubt about your material ambitions: Don't you dream one day of driving a BMW deluxe ?"

Oh Mammon! (sigh)... how could this happen in Germany ?!  In the country of Goethe, Gauss and Beethoven [!!]  Go tell this Fritz I now manage his bank's wealth and that I've already siphoned off the fuel from his next BMW.  Pray I leave him more than the exhaust.

I also wonder why they need physics PhD's for knowing why plastic bottles are sexier than Tetrapacks (typical case study).  The answer is that they treat themselves by inviting certain profiles; but when it comes to employing in an industry that's been flat for the past five years, you better stick to that sweet graduate from economics and minimize risk.  In the end, it boils down to the confidence your voice betrays.  Oh, and to that label on your suit!

[After] biting the dust, I finally looked at where mathematicians are most wanted: finance!  For the past year, banks have been recruiting massively and are now on their knees to attract PhD's.  So with the wind in the back, I suddenly turned from beggar to chooser: I spent Dec, Jan and Feb reading finance and sprucing up my C++.

Then I went to Mecca for the first rounds - London, that is.  The news agent [already] gave a foretaste. He sells about 100 items: the FT and the WSJ - the rest is porn.  I climbed on all those scary towers that mushroomed recently, symbols of corporate power, epicentre of the world's financial earthquakes, Sodom and Gomorrah of global capitalism. I made sure I thoroughly enjoyed the view before OBL's planes will turn this Babel tower into rubble simply because he doesn't agree with us that evil is good - err, I mean good is evil, no, wait, I'm confused...

Then came [other cities]. I lied my way through interviews (what don't you learn from 40 hrs of failed interviews in consulting!), growing more confident with every single rubbish I cooked up.

At one point, the boss asked me what my shortcomings were.  So I lowered my looks and took on a practised blush (that's where acting comes in handy).  "C'mon, you can tell me, can't ya!" the boss said. "Well, I replied, it's probably...  greed!"  The boss got planet-struck, jumped from his chair, rushed to me and shook my hand: "Mr [X], welcome to the firm! here's your screen, make a million for the fund; if you do more take your crumb, if you do less you're fired."

That's how I ended up with [this] hedge fund for stat arb (statistical arbitrage, or systematic trading).  Hedge funds, ladies and gentlemen, are those vultures managing the wealth of big banks or pension funds.  They stand first in line to milk the cow, and usually consist of traders who're still not happy with their triple bonus from the bank, as well as of a few quants. They use alternative investment methods which ensures to hedge the risk - hence their name.

The most mythical of all hedge funds, Medallion, was set up 20 yrs ago by jim simons, a successful math/phys guru known for the Chern-Simons gauge theory.  This guy's been doing returns of a constant 35% since 1990 with a Sharpe of 4 (reward/risk).  He employs a little family of 60 physics PhD's in New Jersey, who devise clever algorithms to suck the stock market with systematic trades, i.e. their computer buys and sells thousands of times per minute, sometimes holding a position for just a few seconds.  Decisions are made statistically: all you need is to be right 51% of the time.

Now this Croesus owns way more than 5 billions, which is the upper limit above which your trading strategies have too much impact on the market and bite their tail.  So the unfortunate fortunate had no choice but to open a charity and to fund... not dying africans nor abandoned dogs, but the pariahs of the world, the outcasts of society, the intellectual hermits, the scholarly troglodytes, the modern Diogenes,..., also known as: mathematicians!  He funds several institutes [and] academics - otherwise despised by the taxpayers.

It's a thorn in our eyes that this guy remains unchallenged and walks away with the lion's share; so we are set to give him flak. [My fund] is a little family of 15 PhD's [and] 15 IT guys.  [Its] best-performing fund made a sappy 35% last year with a Sharpe of 3.4.  So if you have a spare million, send over your eggs and we'll brood them in our fast breeders (70% with double leverage).  We now sit on 1.8 bn and are soon going to kick out the cuckoos' eggs.  And don't forget: either you're with us or against us.  And if you're against us...  Bashing!

So what's the value to society ?  Well, there are short term pros like adding liquidity and efficiency to the market.  But there's a hidden long term benefit:  You see, it's due to bastards like us that the rich get richer (700 billionnaires today vs. 470 two yrs ago; or a total of 2200 bn today vs. 1400 bn).  So the more the hedge funds compete, the quicker the 35% returns will plummet to a sane 8%.  It's like jumping in the fetid boat to drown it sooner.

The sea is full of mines, though, and an ill-reputed hedge fund has already drowned: LTCM with its capital of 4 bn and leverage of 200 bn. That was back in 1998, and off the two Nobel laureates on its board went playing the second fiddle!  CFM with its stat arb is tempest-proof; its strength lies in its decorrelation from the market, so we don't care if the S&P goes banana.  We spend the day frisking in the mud of data, filtering out signals from a tsunami of noise. That's much like what the guys in particle accelerators do.

The firm's atmosphere is more than relaxed, working like in academia. Since our computers do the trades, we have no traders breathing down our necks, and no pressure; nowhere seen in finance!  At noon it's binge time, and we gradually map out the zoo of restaurants in the area (9. arr.).  What else would I do of these lunch vouchers my boss pays me with ?!  

[The] great thing about industry, is that the week-ends are for you, no matter if the world collapses.  No guilt feelings about this or that paper that you still haven't read, and no wrong computation to haunt your sleep.  On the other hand, the silly [system] doesn't grant me any holidays in the first year.  

[I] hope you appreciate my latest societal observations about the REAL world: since I work in finance, female acquaintances start confiding me their doubts about their current partners at a frightening rate. So I advise them to start a career in finance; perhaps the guys around them will start showing similar doubts.  Tell me more about emancipation! - the freedom to choose your fondest slavery.

Cool.  I was getting that feeling like I do sometimes when I watch thugs bludgeon elderly ladies who just want to make it down the sidewalk to the grocery store. In those situations I often find myself not doing anything about and just feeling kind of angry and hopeless--not realizing that there is something I (yes, I) can do about it. Seriously: rather than saying "Where's Elliot Spitzer when you need him?," you actually did something.  That is what this website is all about.  Very cool, even if Bush's SEC will probably do nothing.

P.S.  While I don't often intervene for the elderly when they're up against the hoodlums, I do try to save the little kittens.

Oh, trust me, wc, you're one of probably hundreds of thousands who have done so by now.  This will probably be a big thing in New York and London, and it will almost undoubtedly arrive in Washington.

Be nice to America. Or we'll bring democracy to your country.