March 2008

Tougher rules could hurt Wall Street profits-PIMCO
Monday March 31, 11:46 am ET

NEW YORK (Reuters) – Wall Street profits could take a big hit if the government toughens regulations in a proposed overhaul of the U.S. financial system, the manager of the world’s biggest bond fund said on Monday.

The White House and some lawmakers have called for a regulatory sweep, not seen since the Great Depression, in the wake of the current turmoil in financial markets and the near-collapse of U.S. investment bank Bear Stearns (NYSE:BSC – News).

On Monday, Treasury Secretary Henry Paulson outlined a plan that permits the Federal Reserve to oversee the books of U.S. investment banks and other large non-bank financial companies which are currently treated differently from commercial banks and savings and loans and thrifts.

Gross, the chief investment officer of Pacific Investment Management Company, or PIMCO, anticipates such a regulatory revamp will result in higher capital standards for investment banks, bringing them closer to their commercial bank counterparts.

“There seems no way that current reserve requirements for banks will not in some nearly uniform way be imposed on investment banks,” Gross, who manages the $120 billion PIMCO Total Return Fund, wrote in his latest monthly ‘Investment Outlook’ published on Monday.

Tougher regulations, with the goal to shore up the safety and soundness of the overall banking system, will likely slash the profits of major investment houses like Goldman Sachs (NYSE:GS – News), Lehman Brothers (NYSE:LEH – News) and Merrill Lynch (NYSE:MER – News), Gross said.

Gross referred to these Wall Street firms as “shadow banks” because they have raised billions in the capital markets, rather from savings and traditional lending. Less stringent regulations had allowed Wall Street to make riskier and more profitable bets than commercial banks.

This “shadow banking system,” which consists of all the levered investment conduits, vehicles and structures created by Wall Street, is now facing liquidity constraints.

“Shadow banks will likely be forced to raise expensive capital and/or reduce the bottom line footings of their balance sheets,” he said.

This would mean lower stock prices on higher borrowing costs for investment banks, he said.

Meanwhile, more stringent regulations would mean investors would demand wider risk spreads or higher return premiums, which could be a drag on the economy, according to Gross.

“Risk spreads – from corporate bonds to equities to commercial and residential real estate – will settle at permanently higher levels. The U.S. asset-based economy will morph into a more expensive hybrid that will reign supreme for years to come,” he said.




I’ll have to crunch the numbers on GS again soon.


Going for Broke
by James Surowiecki

In recent months, a lot of people have been handed financial get-out-of-jail-free cards. C.E.O.s who presided over billions in losses have walked away with tens of millions in compensation. The Federal Reserve has showered cheap money on banks and brokerages. Even Bear Stearns caught a break when, last week, J. P. Morgan agreed to quintuple the price it will pay to take over the firm. But there’s one group for whom forgiveness has not been forthcoming: ordinary consumers struggling with piles of credit-card debt. For them, escaping the burden of their bad decisions and their bad luck has become much harder.

That’s because of a law that Congress passed in 2005 which has made it more difficult for people to write off their debts. Filing for bankruptcy has become much more expensive. More important, while lower-income people can still declare Chapter 7, which takes away your assets but then discharges your debts, most middle- and higher-income people now have to declare Chapter 13. That means they have to pay their creditors monthly for five years before they’re free.

Historically, the U.S. has treated debtors leniently. But the credit-card industry, which was the driving force behind the new law, insisted that tolerance had caused a bankruptcy “crisis”: the number of bankruptcies in the U.S. quintupled between 1980 and 2003. Irresponsible debtors, the argument went, were buying plasma TVs and fancy vacations and then declaring bankruptcy to escape their debts. And they were being supported by the rest of us, who had to pay higher interest rates and fees on our credit cards to cover credit-card companies’ billions in annual write-offs. Cracking down on those who “abused the bankruptcy laws,” President Bush said, would therefore “make credit more affordable.” And we’d all be better off.

So are we? That depends on your perspective. The law did slash the number of bankruptcies—they fell by sixty-two per cent between 2004 and 2006. And the credit-card companies should be happy—their profits rose thirty per cent between 2005 and 2007. But the law hasn’t done much for anyone else. Interest rates and credit-card fees have not fallen as promised. And for debtors life has become significantly harder: many can’t afford bankruptcy—strangely enough, it’s possible to be too poor to pay the filing fees—and many others can’t qualify. These people will either spend the next five years having their paychecks garnished or simply muddle along, avoiding debt collectors and accumulating huge interest and late fees on their credit cards.

One might say: so what? Even if bankruptcy is sometimes precipitated by bad luck or by an economic downturn, it’s always the result of people living beyond their means, and why should they get away scot-free while the rest of us pay our bills? It’s a fair question. But there’s a reason we did away with debtors’ prisons: having millions of people enslaved to their debts is a bad thing for an economy. Putting people into Chapter 13 essentially means they pay a heavy extra tax that goes straight to the credit-card companies. That creates a disincentive for debtors to work, since the more they earn the more they pay. It also takes away spending power—not the best thing during a recession. Making it harder for people to discharge their credit-card debts has other drawbacks as well. Homeowners would once do almost anything to keep up payments on their homes, even if it meant falling behind on other debts. In the past year, though, economists have reported an increase in the number of people who are just walking away from their homes, because it’s now often easier to abandon a mortgage than a credit-card bill. (The practice has even been given a name—“jingle mail,” because people simply send their keys back in an envelope.) So the new law may very well have exacerbated the housing crisis.

from the issuecartoon banke-mail thisThere are long-term disadvantages to tougher bankruptcy laws, too. In the past, America’s lenient attitude to bankruptcy encouraged entrepreneurship, by making it easy for people to start over if they failed. (According to one recent study, in fact, more than fifteen per cent of personal bankruptcies are the result of failed business ventures.) A paper by John Armour and Douglas Cumming has found a close correlation between the nature of a country’s bankruptcy laws and its rate of self-employment: the more liberal the laws, the more likely people are to start businesses and work for themselves. That’s why the U.K. and the E.U. have actually been liberalizing their bankruptcy laws. In toughening our law, we’re discouraging people from taking risks, like investing in their own business, or learning a new trade. That will probably mean that we end up fewer business failures, but there’ll also be fewer successes.

It’s true, of course, that although we want people to get a second chance, we also want them to pay their debts, and a tougher law might have made sense if the U.S. really had been dealing with a crisis. But it wasn’t. While the number of bankruptcies soared, the economy as a whole showed no sign of strain; it grew briskly, creating millions of new businesses and new jobs. The credit-card companies themselves were doing fine, too: between 1995 and 2004, as bankruptcies nearly doubled, their profits nearly tripled. In responding to an imaginary threat, we ended up making the economy less dynamic and less flexible. Now that hard times are here, we may find ourselves with a genuine bankruptcy crisis. But it will be one that Congress created.


source: The New York Times Sports Magazine
How to Grow a Super-Athlete – What is athletic talent?
can it be taught?, or are you born with it?

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This story could begin in many places – it’s about beginnings, after all – but I’d like to start with the recent evening when my 4-year-old daughter, Zoe, appeared before me wielding a yellow baseball bat and an important announcement: batting tees were for babies. From now on, she would hit real pitches, like the big kids. What is athletic talent? Can it be taught, or are you born with it? By way of biography, I should mention that Zoe, the youngest of four, is considered one of the finest all-around mini-athletes in the history of our house. She’s widely celebrated for her ability to throw balls really far, to hop on one foot across the whole front porch, and to run faster than a superfast airplane can fly. So as I walked (and she raced) down to the basement and located an inflatable purple ball, I fully expected Zoe to take to hitting like she’d taken to everything else. But Zoe, it turned out, pretty much stunk. Toss after toss, she missed. Five tosses. Then 10. I tried throwing the ball softer, harder, lower, higher. I got a different bat, offered advice and abundant encouragement, tried covertly to pitch the ball so it hit the bat. Nothing worked. Zoe whiffed with virtuosity and enthusiasm. Against my nobler instincts, I found myself, like the purple ball, getting a bit deflated. I felt as if I were receiving a grimly polite report suggesting that Zoe, despite her athletic promise, had regrettably tested negative for hand-eye coordination. A few days later, we did it again. This time Zoe started off missing, then hit a foul ball. Then two fair balls in a row. Then three. She was watching the ball now, timing it. As the saying goes, something had clicked. Zoe hit the last toss squarely, and the purple ball zipped past my ear and smacked the window with a resounding gong. We froze at the unexpected sound, enjoying the moment and the question echoing beneath. What, exactly, just happened? What is talent? It’s a big question, and one way to approach it is to look at the places where talent seems to be located – in other words, to sketch a map. In this case, the map would show the birthplaces of the 50 top men and women in a handful of professional sports, each sport marked by its own color. (Tennis and golf handily rank performance; for team sports, salaries will do.) The resulting image – what could be called a talent map – emerges looking like abstract art: vast empty regions interspersed with well-defined bursts of intense color, sort of like a Matisse painting. Canada, for instance, is predictably cluttered with hockey players, but significant concentrations also pop up in Sweden, Russia and the Czech Republic. The United States accounts for many of the top players in women’s golf, but South Korea has just as many. Baseball stars are generously sprinkled across the southern United States but the postage-stamp-size Dominican Republic isn’t far behind. In women’s tennis, we see a dispersal around Europe and the United States, then a dazzling, concentrated burst in Moscow. The pattern keeps repeating: general scatterings accompanied by a number of dense, unexpected crowdings. The pattern is obviously not random, nor can it be fully explained by gene pools or climate or geopolitics or Nike’s global marketing budget. Rather, the pattern looks like algae starting to grow on an aquarium wall, telltale clumps that show something is quietly alive, communicating, blooming. It’s as though microscopic spores have floated around the atmosphere in the jet stream and taken root in a handful of fertile places. A quick analysis of this talent map reveals some splashy numbers: for instance, the average woman in South Korea is more than six times as likely to be a professional golfer as an American woman. But the interesting question is, what underlying dynamic makes these people so spectacularly unaverage in the first place? What force is causing those from certain far-off places to become, competitively speaking, superior? In early December, I traveled to the heart of one of those breeding grounds, the Spartak Tennis Club in Moscow. Russia is the birthplace of a group of athletes who have affected the World Tennis Association rankings in the same way that zebra mussels have affected the Great Lakes – which is to say, pretty much clogged them. The invasion happened swiftly: at the end of 2001, Russia had one woman (Elena Dementieva) in the W.T.A. Tour’s top 30. By the start of 2007, Russian women accounted for fully half of the top 10 (Dementieva, Maria Sharapova, Svetlana Kuznetzova, Nadia Petrova and Dinara Safina) and 12 of the top 50. Not to mention 15-year-old Anastasia Pavlyuchenkova, who was the International Tennis Federation’s No. 1-ranked junior and who was joined in the top 500 by five countrywomen also named Anastasia.

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Spartak, usually preceded in the tennis press by the word “famous” or “legendary,” had produced three of the top six Russians (Dementieva, Safina and Anastasia Myskina), along with Anna Kournikova, now retired. Tournament pairings regularly became all-Spartak affairs, most memorably the 2004 French Open final, Myskina over Dementieva, the continuation of a rivalry the two began at age 7. To put Spartak’s success in talent-map terms: this club, which has one indoor court, has achieved eight year-end top-20 women’s rankings over the last three years. During that same period, the entire United States has achieved seven. “Technique is Everything” Larisa Preobrazhenskaya won’t let her students compete until they’ve had three years of training. What is athletic talent? Can it be taught, or are you born with it? “They’re like the Russian Army,” says Nick Bollettieri, the founder of the Nick Bollettieri Tennis Academy in Bradenton, Fla., and the former coach to Sharapova, Andre Agassi and other top-ranked players. “They just keep on coming.” Getting to Spartak, however, takes more than a talent map; it’s not located on any real maps. Fortunately, help arrived in the form of Elena Rybina, a chain-smoking, speed-talking translator who worked part-time for the Russian Tennis Federation and who possessed a fast-alternating combination of film noir toughness and childlike giddiness that I took as the quintessence of modern Russia. “I learned my English listening to music, like Elton John,” she said. ” ‘Crocodile Rocks’! I love it!” We rode the subway half an hour northeast to Sokolniki Park and started walking. And walking. Sokolniki is almost twice the size of Central Park, considerably less central and only vaguely parklike. It’s basically a huge forest of birch and elm trees filled with a disconcertingly energetic population of stray dogs. We walked past an abandoned chess club, an abandoned amusement park, an abandoned factory and the smashed onion dome of what appeared to be an abandoned church. “It is very beautiful in summer,” Rybina assured me as we passed a pond frosted with green scum. “But Spartak, I must warn you, is not so nice.” “What do you mean?” Rybina lighted a Davidoff cigarette and raised her eyebrow into a Gothic arch. “Spartak is not exactly like a palace.” We turned a corner, followed a road for a few hundred yards and saw a loose assortment of peaked buildings and shotgun shacks that resembled a dilapidated ski village. Windows were dim cataracts of warped plastic, paint was scabbed and peeling and the buildings were frescoed in a rich coat of grime. A glaze of ice coated the club’s 15 outdoor clay courts, as it did for six months of the year. A beat-up 18-wheeler lent the scene a postnuclear, “Mad Max” vibe. The only bright color came from the rainbow sheen of diesel fuel in the puddles. Rybina shrugged indifferently and lighted another Davidoff. We walked past the inexplicably manned guard post, past an A-frame that appeared to be a storehouse for scrap metal and toward a larger structure that resembled a greenhouse. We ducked through a low door and onto the court. The surface was worn down in frequently trodden spots, like cathedral steps. Two wooden sticks nudged the sagging net futilely toward regulation height. The fluorescent lights buzzed. “We are lucky,” Rybina whispered. “The heat is working.” When it doesn’t, the kids play in their coats. 1 The class, called the Little Group, had already arrived. They wore heavy coats and toted their tennis rackets in backpacks, sports duffels and plastic grocery bags. At first glance, they looked like a standard-issue assortment of 5- to 7-year-olds: there was Denis, the handsome blond in the blue turtleneck; Alexandra, the lanky towhead in the green T-shirt; Gunda, the smiley ponytailed girl in the silver shoes; and Vova, the revved-up boy with the Asiatic eyes who was the class’s only 4-year-old. There were 12 students in all. They had been coming to Spartak three times a week since September; by now they’d been on the court perhaps 40 times. As the lesson began, a few of them made their final preparations, reaching into their bags for what appeared to be their good luck charms: a tidy gallery of stuffed dinosaurs, bunnies and pandas formed on the wall behind the base line. The coach, 77-year-old Larisa Preobrazhenskaya (pronounced pray-oh-brah-ZHEN-skya), stood at the sideline, watching. She wore a red-and-white tracksuit and a knowing, amused expression. Preobrazhenskaya was Spartak’s most renowned youth coach, but she wore her authority lightly, radiating a grandmotherly twinkle behind hooded eyes. She’d been quite a player in her day, the 1955 Soviet singles champion. She still looked athletic, sauntering around the court with a John Wayne limp caused by a sore hip. The parents huddled by the door, watchful and silent. The students formed a circle on one side of the net and started to stretch. I watched, scoping for telltale signs of überkinder superiority, but saw nothing of the sort. The Little Group proceeded to hustle energetically through a 15-minute set of calisthenics worthy of Jack LaLanne: jumping jacks, hops, crab walking, bear walking, skipping, sidestepping, zigzagging through a line of orange cones. I was half expecting them to pull out medicine balls, when they actually did pull out medicine balls, passing them back and forth earnestly like so many extras in a Rocky movie. “All the motions,” Preobrazhenskaya would tell me. “It is important to do everything, every practice.” The Little Group paired off with rackets and began imitatsiya – rallying with an imaginary ball. They bounced lightly from foot to foot, they turned, they swung, the invisible balls flew. Preobrazhenskaya roamed the court like a garage mechanic tuning an oversize engine: realigning a piston here, tightening a flywheel there. Several times, she grasped their small arms and piloted their bodies through the stroke. Thus the lesson began, and with it the unspoken implication: the great, rusty Spartak machine was coming to life, carrying its cargo of mini-geniuses another step closer toward inevitable glory. As I pictured the scale of the David and Goliath phenomenon this unlikely scene embodied, the question arose: how does Spartak do it?

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Explanations were not in short supply. I’d heard plenty from American tennis coaches, a nicely bulleted list that included a Slavic gene pool that produces a seemingly inexhaustible supply of tall, fast, strong kids; the economic and cultural gateway that opened with the 1991 collapse of the Communist government; the former Russian president Boris Yeltsin’s enthusiastic (if at times klutzy) love for the sport; and the potent catnip effect of Kournikova, the former top 10 player who, though she never won a singles tournament, provided an escape-hungry generation of girls (and, more important, their parents) with vivid proof that tennis success equaled glamour, fortune, fame. The Russians, when I asked them, chimed in with explanations of their own, including the lifelong commitment of coaches like Preobrazhenskaya; the superior biomechanical techniques taught at the Moscow Institute of Physical Culture, where many of Russia’s top coaches train; and (in a nostalgic burst of cold war trash talking) the intrinsic softness of the West. Watching the Little Group play, I, too, felt a strong urge to bellow my share of theories: it must be the medicine balls! The discipline! The lack of Game Boys! I was particularly struck by the kids’ obvious enjoyment of the lesson. One of the mothers told Preobrazhenskaya that her daughter, Gunda, had awakened early that day, unable to sleep. “Today is my day with Larisa Dmitrievna!” Gunda had said. “It is today!” In sum, there are a lot of explanations, some better than others. For instance, is the Russian gene pool really that innately superior to that of Ukraine or Slovenia or Southern California? If Kournikova inspired so many Russians, then where were the German stars inspired by Steffi Graf? But ultimately the theories fall short because they don’t explain the principles underpinning Spartak’s success. Indeed, seeing the place up close made me wonder if there were any principles. Spartak radiates the glow of happenstance, the diamond in the trash heap. (This impression is apparently shared by the Russian Tennis Federation, which has been content to allow Spartak to remain with its single indoor court.) So even here, at the core of one of the globe’s brightest talent blooms, the question of that talent’s source remains enigmatically tangled, perhaps as much of a mystery to those who nurture these athletes as it is to the rest of us. It’s enough to make you wish for a set of X-ray glasses that could reveal how these invisible forces of culture, history, genes, practice, coaching and belief work together to form that elemental material we call talent – to wish that science could come up with a way to see talent as a substance as tangible as muscle and bone, and whose inner workings we could someday attempt to understand. As it turns out, that’s exactly what’s happening. I was peering inside an incubator at the Laboratory of Developmental Neurobiology at the National Institutes of Health in Bethesda, Md. The incubator, about the size of a small refrigerator, held shiny wire racks on which sat several rows of petri dishes containing clear pink liquid. Inside the liquid were threadlike clumps of mouse neurons, which were wired to platinum electrodes and covered with a white, pearlescent substance called myelin. Within that myelin, according to new research, lies the seed of talent. “In neurology, myelin is being seen as an epiphany,” Douglas Fields, the lab’s director, had told me earlier. “This is a new dimension that may help us understand a great deal about how the brain works, especially about how we gain skills.” The myelin in question didn’t look particularly epiphanic, which is understandable since it would normally be employed by mice for sniffing out food or navigating a maze. Neurologists theorize, however, that this humble-looking material is the common link between the Spartak kids, the Dominican baseball players and all the other blooms on the talent map – a link all the more interesting for the fact that few outside this branch of neurology currently know much about myelin. In fact, as Fields pointed out, if indirectly, the talent map wasn’t technically the most accurate name for my hypothetical landscape. It should be called the myelin map.

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“I would predict that South Korean women golfers have more myelin, on average, than players from other countries,” Fields said. “They’ve got more in the right parts of the brain and for the right muscle groups, and that’s what allows them to optimize their circuitry. The same would be true for any group like that.” “Tiger Woods?” I asked. “Definitely Tiger Woods,” he said. “That guy’s got a lot of myelin.” Fields, 53, is a sinewy man with a broad smile and a jaunty gait. A former biological oceanographer who studied shark nervous systems, he now runs a six-person, seven-room lab outfitted with hissing canisters, buzzing electrical boxes and tight bundles of wires and hoses. The place has the feel of a tidy, efficient ship. In addition, Fields has the sea captain’s habit of making dramatic moments sound matter-of-fact. The more exciting something is, the more mundane he makes it sound. As he was telling me about the six-day climb of Yosemite’s 3,000-foot El Capitan he made two summers back, I asked what it felt like to sleep while hanging from a rope thousands of feet above the ground. “It’s actually not that different,” he said, his expression so unchanging that he might have been discussing a trip to the grocery store. “You adapt.” Fields reached into the incubator, extracted one of the pink petri dishes and slid it beneath a microscope. “Have a peek,” he said quietly. I leaned in and saw a tangled bunch of spaghetti-like threads, which Fields informed me were nerve fibers. The myelin was harder to see, a faintly undulating fringe on the edge of the neurons. I blinked, refocused, struggled to imagine how this stuff might help my golf game. Fields proceeded to explain that myelin is a sausage-shaped layer of dense fat that wraps around the nerve fibers – and that its seeming dullness is, in fact, exactly the point. Myelin works the same way that rubber insulation works on a wire, keeping the signal strong by preventing electrical impulses from leaking out. This myelin sheath is, basically, electrical tape, which is one reason that myelin, along with its associated cells, was classified as glia (Greek for “glue”). Its very inertness is why the first brain researchers named their new science after the neuron instead of its insulation. They were correct to do so: neurons can indeed explain almost every class of mental phenomenon – memory, emotion, muscle control, sensory perception and so on. But there’s one question neurons can’t explain: why does it take so long to learn complex skills? “Everything neurons do, they do pretty quickly; it happens with the flick of a switch,” Fields said. “But flicking switches is not how we learn a lot of things. Getting good at piano or chess or baseball takes a lot of time, and that’s what myelin is good at.” To the surprise of many neurologists, it turns out this electrical tape is quietly interacting with the neurons. Through a mechanism that Fields and his research team described in a 2006 paper in the journal Neuron, the little sausages of myelin get thicker when the nerve is repeatedly stimulated. The thicker the myelin gets, the better it insulates and the faster and more accurately the signals travel. As Fields puts it, “The signals have to travel at the right speed, arrive at the right time, and myelination is the brain’s way of controlling that speed.” 2 It adds up to a two-part dynamic that is elegant enough to please Darwin himself: myelin controls the impulse speed, and impulse speed is crucial. The better we can control it, the better we can control the timing of our thoughts and movements, whether we’re running, reading, singing or, perhaps more to the point, hitting a wicked topspin backhand. Back at Spartak, the Little Group lined up outside the service box, rackets at the ready. Preobrazhenskaya stood at the net, a shopping cart of balls at her hip. She waited for silence, then started: forehand, backhand, back to the end of the line. One by one, the kids took their swings – to my eye, pretty nice-looking swings. But not to hers. Preobrazhenskaya frequently stopped them, had them do it over. More follow-through. More turn. Watch. Feel. Pravil’no, she said. Correct. Molodets. Good job. If Preobrazhenskaya’s approach were boiled down to one word (and it frequently was), that word would be tekhnika – technique. This is enforced by iron decree: none of her students are permitted to play in a tournament for the first three years of study. It’s a notion that I don’t imagine would fly with American parents, but none of the Russian parents questioned it for a second. “Technique is everything,” Preobrazhenskaya told me later, smacking a table with Khrushchev-like emphasis, causing me to jump and reconsider my twinkly-grandma impression of her. “If you begin playing without technique, it is big mistake. Big, big mistake!”

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I thought of something Dr. Fields had said: “You have to understand that every skill exists as a circuit, and that circuit has to be formed and optimized.” To put it in Spartak terms, myelin is a slave to tekhnika – and so, in turn, was the Little Group. Preobrazhenskaya didn’t instruct them on tactics or positioning or offer any psychological tips; rather, every gesture and word was funneled to teaching the elemental task of hitting the ball clean and hard. Which they did, one by one. A few of the kids had located that magical-seeming burst of leverage that makes the ball explode off the strings with a distinctive thwock. “What do good athletes do when they train?” George Bartzokis, a professor of neurology at UCLA, had told me. “They send precise impulses along wires that give the signal to myelinate that wire. They end up, after all the training, with a super-duper wire – lots of bandwidth, high-speed T-1 line. That’s what makes them different from the rest of us.” As the Little Group continued its lesson, I found myself picturing myelin. I’d seen a highly magnified image on one of Fields’s computer screens, and it looked like a deep-sea photograph: bright colors against a field of black. The oligodendrocytes – oligos, in lab lingo, are the cells that form the myelin – resembled glowing green squids, their tentacles reaching toward a set of slender nerve fibers. Once they seize hold, each tentacle begins to curl and extend, as the oligo squeezes the cytoplasm out of itself until only a cellophane-like sheet of membrane remains. That membrane proceeds to wrap over the nerve fiber with machinelike precision, spiraling down to create the distinctive sausage shape, tightening itself over the fiber like a threaded nut. “It’s one of the most intricate and exquisite cell-cell interactions there is,” Fields said. “And it’s slow. Each one of these wraps can go around a nerve fiber 40 or 50 times, and that can take days or weeks. Imagine doing that to an entire neuron, then an entire circuit with thousands of nerves.” So each time Alexandra or Denis or Gunda swings the racket properly – or, for that matter, each time we practice a chip shot or a guitar chord or a chess opening – those tiny green tentacles sense it and reach toward the thousands of related nerve fibers. They grasp, they squish, they make another wrap, thickening the sheath. They build a little more insulation along the wire, which adds a bit more bandwidth and precision to the circuit, which translates into an infinitesimal bit more skill and speed. Myelin is both practice and mastery, cause and effect. As Bartzokis had said: “Myelin is our Achilles strength, and it’s our Achilles’ heel. It’s what makes us human.” All this myelin talk, combined with jet lag, left me feeling slightly changed. I wandered Moscow as if I were seeing the world through myelin-colored glasses. Emerald-green squids and snowy white sausages were everywhere I looked. A TV highlight of a Ronaldinho goal? Pure myelin! That violinist playing Mozart in the subway? What incredible oligodendrocytes that guy must have! A poster for the 2008 Olympics? An international myelin cultivation contest! My repeated ability to get lost within a few blocks of my hotel? Myelin again! (Rather, my lack of it.) It also left me thinking about the clusters on the talent map. Specifically, wondering whether these places quietly possess myelin-accelerating factors: i.e., forces and conditions that promote what Fields would call “circuit optimization.” Might those factors help explain the success of these superior athletes? The rise of the South Korean golfers, who won almost one-third of the events last year on the Ladies Professional Golf Association Tour, has usually been explained by citing two factors: the country’s formidably driven parents, and the rock-star status of Se Ri Pak, who has won 23 tournaments and is one of the nation’s biggest sports celebrities. Yet the logic of this formula has always been confounded by a puzzling fact: South Korea happens to be a nation where it is singularly difficult for a young person to play golf. There are only 200 golf courses in the entire country, compared with 17,000 in the United States. Viewed through the prism of myelin, however, the situation makes more sense. The lack of public courses sends golf-hungry parents and kids to South Korea’s abundant driving ranges, which are Elysian fields of myelination compared to the relative randomness of course play. Were South Korea to increase access to courses, it could be argued, the country might wind up producing fewer top golfers. Then there’s the Dominican Republic, which has historically produced more Major League Baseball players than any other country outside the United States. Conventional wisdom holds that this remarkable record arises from the fruitful collision of a baseball-mad culture and grinding poverty. The equation is undeniably true, but it’s also true of several nearby countries that don’t achieve a fraction of the Dominican Republic’s success. There is one way, however, in which the Dominican Republic is historically unique. It’s the first place where Major League Baseball teams built training academies – two dozen of them, starting in the mid-1970s. While academies provide players with obvious advantages like good nutrition and housing, not to mention regular exposure to scouts, they also provide a daily structure of drills and practices that, like the South Korean driving ranges, would presumably be a ripe environment for building myelin. The most impressive myelin collection I encountered during my Moscow trip belonged to a woman encased in a sheepskin coat, fur-trimmed boots and a fuzzy white hat. Elena Dementieva, 25, represented the acme of the Spartak product. She stood 5-foot-11, weighed 141 pounds and emanated a vibration of such unearthly physical perfection that crowds parted as she moved down the sidewalk. Seeing Dementieva walk into the Russian Army sports club, where she trains between tournaments, I flashed to an image of the Spartak kids and felt a brief parental pang of disbelief. Such a transformation seemed impossible. Sitting down on a set of courtside bleachers (level gaze, warm laugh, no hint of divahood), Dementieva told her story. Surprisingly, she had been rejected by several other clubs as too slow before landing at Spartak. She spoke fondly, if a little vaguely, of her days at the club: dodging stray dogs, washing dirty tennis balls in the sink, doing homework on the long subway ride. Her first instructor was the renowned Rausa Islanova (the mother of Dinara Safina and of the men’s 2000 United States Open winner, Marat Safin), who was known for her strictness and her elimination system in which students competed for a constantly shrinking number of slots. Dementieva’s group started with 25 students; within a year it was down to 7. Of those 7 kids, 4 became world-class players (Myskina, Kournikova and Safin were the other 3). “Spartak was good for me, I think,” Dementieva said, squinting as if she were peering into her hazy past. “I always had a feeling that I was going forward, getting better technique.” When Dementieva took the court to practice, she began with a set of those Jack LaLanne-style warm-ups – sidesteps, jumping jacks, high steps. She looked as if she were still a member of the Little Group, so much so that, watching from the bleachers, I was momentarily unsure whether it was her or some beginner. Dementieva did imitatsiya; she practiced each stroke in slow motion. Then, when her male sparring partner showed up, she proceeded to hit the ball so hard, accurately and consistently that it seemed she was playing a sport I’d never seen before. Again and again, her body rose to the ball in a twist of ballistic force, the power betrayed only by the snakelike rise of her thick blond braid. The ball hissed.


This article appeared on iBC;

I’ve become moderately obsessed with the “Lost Decade” in Japan. I am a firm believer that there truly is nothing new under the sun and if one examines history correctly one can find pointers and perhaps a true north if one works particularly hard at it.

August 19, 2005 Moneyweek Japan’s New Dawn:

Several times in the last decade and a half, this is exactly what has happened. Investors have got very excited as a global cyclical upswing has driven the market up 40% to 50% in the space of a year. But then, as in 1997-1998 and 2001, the cycle turned, taking the Nikkei down with it. The upswing has never yet turned out to be self-sustaining and there has been no end to the debilitating run of deflation in goods and land prices

From the Wikipedia Entry on Japanese asset price bubble:

The easily obtainable credit that had helped create and engorge the real estate bubble continued to be a problem for several years to come, and as late as 1997, banks were still making loans that had a low guarantee of being repaid. Correcting the credit problem became even more difficult as the government began to subsidize failing banks and businesses, creating many “zombie businesses”.

and finally, more clues to what I was looking for in this Financial Times article from February of 2007 (while it talks about China the history lesson is the road map):

The definitive history of Japan’s dismal decade has yet to be written. But almost all knowledgable observers would agree that significant elements included the bursting of the stock market and land bubbles, the resulting problems in the financial system, the collapse of aggregate demand as banks stopped extending credit

or here:

In retrospect, Japanese officials made several important policy errors. In order to avoid further yen appreciation after the 1987 Louvre agreement, they followed easy monetary and financial policies that gave rise to huge asset price bubbles and expansions in credit that set the stage for the subsequent downturn.

What’s Different

Well, there’s a whole wack of things different between the US and the Japanese markets of their respective time periods. While there are great similarities the differences boil down to two things that I’d like to point out:

The Japanese culture of the time was less individual oriented and more geared towards making sure that the country, the corporation, or the family prospered at the expense of the individual. The North American model could be almost a perfect inverse of that priority structure. At the time of the bank failures, the “zombie businesses” there were not the same levels of individual debt that is carried now by the American consumer.

The Japanese economy at the time was an exporter. The main problem that the central bank had, which took a full decade to solve, was to get the individual consumer to spend domestically. Again, the American situation is a stark contrast as the US seems to export little and certainly, if left to it’s own devices, would have a long rough row to hoe if it were to forced to look inwardly to stimulate growth.

The comparison is valid and has been made by a number of people. Both stockmarket busts were led by banks and real estate.

The Japanese market, almost 20yrs later is still in the doldrums, is this what is in store for the American market? I think not, due to some very important differences. The crucial difference is contained within the accounting standards utilised.

Japanese banks record assets at “Historical purchase value” thus, the assets are not marked-to-market and written down if they become impaired. Obviously in the real estate bust, poor real estate loans were impaired, but never written down. The result being that the capital of the bank and it’s ability to lend were impaired, while concurrently scaring off sources of new capital as they did not know the true extent of the damage.

In the US, banks are forced to mark-to-market, thus faulty loans are written down aggressively, so aggressively that many lending institutions are boderline insolvent if not outright bankrupt. That so many within the financial system are insolvent has led to a government bailout to protect the financial system from total collapse. This has happened numerous times, each time, it has been successful.

The huge advantage is by writing down impaired loans and reserving against future losses is that should the banks overestimate the losses, via a total writedown, any surprises must be to the upside.

Prior to the 1935 post depression, banks had never lent against real estate, it being deemed too illiquid. Business was exclusively in self-liquidating loans. This business is still viable, and will most likely be the source of banking profits again, whether legislation forces it upon them or not.

That the banks are now probably through the worst of their writedowns, that the Fed has taken upon itself to fund any bank in serious trouble, the financials will cease to be a drag on the index.

That is not to say that the economy is not without problems, just that banks and bank earnings will start to surprise to the upside, rather than being a source of continued woe.

Japanese banks by contrast, not only did not write down their losses, thus depriving themselves of gaining meaningful new capital, they further compounded their error by continued lending to already failed loans, digging themselves ever deeper into insolvency.

The destruction currently being endured by American banks is creative in that it sows the seeds for the next expansion.

It is interesting in that the American consumer is also engaged in writing down his debt, via walking away from underwater mortgage contracts. Personal bankruptcy, as corporate bankruptcy, has become a viable and acceptable business decision. Thus again we have a creative destruction underway, paving the way for future prosperity.

Obviously this will not resolve overnight, however, the seeds of the next expansion are being sowed while all eyes are still focused on the doomsday scenario.

The key will be on productivity going into the future. High productivity will allow America to earn it’s way out of the hole that it has dug for itself.


Interesting in that my algorithm was also signalling long from yesterday. As I stated in the comments section, sometimes it can be a little early.

That it is confirmed by other Quantitative methods is a positive development.


Trading the OPEN without a doubt is where the most money can be made. The volatility is consistently higher than at any other time in the day, excepting Fed announcements.

I’ve utilised in the past OPG strategies, but they are a bit hit and miss, plus you need to exit huge numbers of positions quickly, those who have *Exit-all-positions* functionality, which I would imagine all platforms have, this is not a major problem, unless you wish to exit some, hold some.

As I only trade 1 stock, GS, this strategy becomes undiversified. Diversification of OPG is one of the keys to it’s success. Thus I have written a modified OPEN algorithm for the OPEN which I shall be trialling next week.

Thus there will probably be two components to the preceeding analysis. An OPEN analysis and a first-half direction.

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