Based on the only example I have of their graduates, I recommend that course of action.

Martin, you seem to enjoy rolling around in your ignorance and then defending it in public places. Why do you embarrass yourself so?

You enjoy writing these vague, unsubstantiated, personal assertions.

No broker will extend margin to someone until it finishes an exhaustive process of due diligence.

Your brokers are so exhaustive. They should be our central planners.

No broker is going to extend credit to a moron with only ten bucks and a negative expectancy strategy.

Gee. I wonder why investors are so reluctant to buy these mortgage backed securities now. We all know that the mortgage brokers do their due diligence. Maybe too little diligence is due … or maybe risk is poorly understood by people presuming to judge others understanding of it.

Now, stop bothering the grown-ups and go look up "expectancy" and learn how to calculate it.

Hmmm. I have a master's degree in applied mathematics with a 4.0 GPA from the University of Alabama in Huntsville, so I have all of these university professors testifying to my understanding of "expectancy", and I have you here disputing it. Maybe I should sue the university for fraud.

No broker will extend margin to someone until it finishes an exhaustive process of due diligence. I don't appreciate your hypothetical because it is utterly pointless in every way except as a clear illustration of your intense ignorance. No broker is going to extend credit to a moron with only ten bucks and a negative expectancy strategy. Even after months of due dili, the broker monitors your daily volatility and if it gets uncomfortable with the volatility, it will call all or a portion of its loan to you and you will spend all of the cash in your account paying back your broker because the broker will simply take it out of your account. You're confusing private loans with brokerage arrangements. We're not talking about the loan your grandma got for home improvements or the Fed and the banking system. We're talking about traders and margin accounts. Do yourself a favour and stop twisting yourself into a pretzel in a fruitless attempt to win an argument you don't even understand.

Now, stop bothering the grown-ups and go look up "expectancy" and learn how to calculate it. I don't have time to disabuse you of your BS this morning.

The two are inexorably linked. Basic finance.

Speed and distance are also linked. So what? What I said is that they aren't comparable. One compares a distance to a product of speed and time. One compares expectations of reward, which are products of risk and reward, not risks and rewards.

No, you don't state it as a matter of fact.

As a matter of fact, I do.

The clear implication of everything you say is that there is no cost of borrowing or that cost is lower than it should be.

No. I never say or imply such a thing. You somehow confuse your own words with mine here, presumably because you want to dispute some words and can't find enough of mine to dispute.

"Suppose you'll lend me a thousand dollars to buy a thousand lottery tickets if I'll buy ten lottery tickets with my last ten bucks."

That would never happen

You obviously don't appreciate the hypothetical.

"I can't repay you anyway, and no one will jail me for indebtedness."

If that happens, I'll put a lien against your personal property and against any future earnings you have.

You apparently missed the part about the ten dollars being my "last". Good luck getting my next before I buy food with it.

You'll never get another loan until you pay off those liens and your wages are subject to garnishment.

You've apparently never declared bankruptcy. In fact, people get loans the next day. Don't you listen to car salesmen on the radio? "Bankruptcy? Noooo problem!"

There's no reason you wouldn't take that risk! Except that nobody will lend you the money to take it …

But the Fed did accept all of those mortgage backed securities, that private investors are so reluctant to buy, as collateral when financing the purchase of Bear Stearns. I'm not making that up. It's not a hypothesis. It's a fact. These things you say never happen do happen.

The two are inexorably linked. Basic finance. The expected return is a function of payoffs and the probabilities of those payoffs. The reason you think they are different is because you don't know how expected return is calculated. Don't you have an applied math degree? This should be child's play for you. Grab a finance book and have a read before you embarrass yourself, Martin.

I haven't decided anything. I state as a matter of fact that other people's money is at risk.

No, you don't state it as a matter of fact. The clear implication of everything you say is that there is no cost of borrowing or that cost is lower than it should be. If you don't understand that this is your implication, it's only because you don't understand what you're really writing. In fact, credit is not extended in the willy-nilly way you think it is and the consequences are not as small as you imply. Although, to be fair to you, I'm not that surprised you think that since the only criteria to obtain a mortgage a couple of years ago was a pulse and there was a loosening (although not that much) of credit standards even with professional traders. Margin requirements have been tightened for institutional accounts across the board – but they were never as loose as you imply in your example.

You write these words without specifying a single error in the post.

The sole reason is that adequately correcting your errors is far more involved than I have time for right now. I'll give you a start, though.

"Suppose you'll lend me a thousand dollars to buy a thousand lottery tickets if I'll buy ten lottery tickets with my last ten bucks."

That would never happen (although, if you find a willing idiot, please take advantage). The implied payout of the lottery in this example is far higher than it actually is. The only way you're going to get the $1k loan from Methinks Brokerage is at a prohibitive interest rate and guaranteed by your personal property because I've already calculated that the probability of getting my money back is uber slim. But more likely, I won't even give you a loan, but you'll give me a laugh by asking for it.

but you'll readily forgive the debt,

not any brokerage house I've ever met.

I can't repay you anyway, and no one will jail me for indebtedness.

If that happens, I'll put a lien against your personal property and against any future earnings you have. You'll never get another loan until you pay off those liens and your wages are subject to garnishment. No other brokerage will extend you credit. It won't be fun. There are endless scenarios – legal and practical – that can happen here but I don't have time to get into them. Suffice to say, you'll pay a heavy price – keeping in mind that our original example is not an idiot with a lottery scheme but a professional trader (read: a professional idiot with an oil scheme whose career is now over.

If I do win the lottery, I get a million dollars and pay you a thousand. Why wouldn't I take this "risk"?

There's no reason you wouldn't take that risk! Except that nobody will lend you the money to take it – with the possible exception of your cousin Lenny whose IQ doesn't quite reach into the high double digits.

In other words, all of your assumptions are based on complete ignorance of how to calculate expected returns and how credit is extended. Thus, none of your objections or conclusions make any sense. You should refrain from being so sure of yourself until you have reason to be. Hope that you found that more helpful.

Amount of reward is not comparable to amount of risk. – Martin

As usual, not knowing what the hell you're talking about doesn't stop you.

The two have different units. An expectation of reward is not a risk or probability. It's a product of risk and reward. You migh as well compare a distance to a speed.

The "other people" are lenders who have decided they are being adequately compensated for their risk by lending to the trader (in this case). Who are you to decide for them that they're not?

I haven't decided anything. I state as a matter of fact that other people's money is at risk.

The rest of your post, including your example, is just a more detailed illustration of your total ignorance of how financial markets …

You write these words without specifying a single error in the post.

"Look I have no problem with drilling but let's be honest about one thing. Most of the time we have plenty of warning of what is coming down the road. For 15 years now we knew China and other countries were developing and in need of Oil. During that time how much progress have we made in alternative fuels. If you want to drill fine but that is not a long ternm solution to a problem that is not going away. We must put our energy and money towards energy alternatives that will work for the next 100 years. Drilling more Oil is like putting a band-aid on a guy whose leg has been shot off—its going to help with some of the bleeding but not help the guy in the long run. We put a man on the moon, a shuttle on Mars are you telling me Oil is the only answer. This is Freaking America man—We built an Atom Bomb out of thin air!
I think we can create A new Energy source.
Posted by: matthew | Jun 23, 2008 7:39:37 PM"

Oh yeah, the Socialist Church, where idiots are created as well as birthed.

Hey, matthewduck, not a long term solution? Don't do it, it ain't worth it?

How about a interim solution to bridge the shortages of now and the near future to that glorious future where we wave our magic socialist wands and get free energy from the air. Think drilling might be a decent interim solution to ease the pain that will surely be suffered hardest by those poor suffering slobs in the ghetto that you socialists love to get emotional over? Naw, thinking isn't your forte as is aptly demonstrated by your post.

Thanks for the link to the info about the carbon nonotube capaciter article.

"If carbon nanotube capacitors realize their theoretical potential, then plugging in your car for a few minutes to charge up may make gasoline and diesel engines obsolete.
Posted by: Sam Grove | Jun 23, 2008 3:04:53 PM"

There is another area of technology that this improved electrical storage capability may advance dramatically.

Laser weaponry.

Laser weapons are a developed technology, the problem has been in gaining a storage capability to make laser weapons mobile and therefore avoid retalitory stikes on a fixed position.

Interesting stuff.

Beam me up, Scotty.

As usual, not knowing what the hell you're talking about doesn't stop you. Does it Martin? How exactly do you know this? Same way that you know other people's motivations, no doubt.

They place their cash more at risk, but they place a lot more of other people's cash at risk.

The "other people" are lenders who have decided they are being adequately compensated for their risk by lending to the trader (in this case). Who are you to decide for them that they're not?

The rest of your post, including your example, is just a more detailed illustration of your total ignorance of how financial markets (credit market in particular but all markets in general) work. As usual, this does not stop you from rooting your strong opinions in your colossal ignorance.

Martin Brock: "If the leveraged speculators themselves have much less to lose than they have to gain"

I don't understand this. Why would anyone ever speculate if the reward was not significantly greater than the amount at risk?

Amount of reward is not comparable to amount of risk.

Martin Brock: "'My own, highly leveraged money is a bit of an oxymoron."

Highly leveraged investors are definitely risking more than their own cash.

They place their cash more at risk, but they place a lot more of other people's cash at risk.

Suppose you'll lend me a thousand dollars to buy a thousand lottery tickets if I'll buy ten lottery tickets with my last ten bucks. If I don't win the lottery, I owe you a thousand dollars, but you'll readily forgive the debt, and even if you won't, I can't repay you anyway, and no one will jail me for indebtedness. If I do win the lottery, I get a million dollars and pay you a thousand. Why wouldn't I take this "risk"?

Regardless of the how their futures contract turns out, they still owe the amount they borrowed. So it is their own money at risk. Am I misunderstanding your meaning, Martin?

What I owe is irrelevant if I don't ultimately repay it. The Fed owns all of those mortgage backed securities now. Right?

"We…our…"?

Please, learn something about economics.
Increasing scarcity of any good tends to drive up its price until substitutions are made by consumers.

It's a simple statement, but the implications are enormous.

Don't need that 'we' 'our' stuff. That road leads to boondoggles and corruption.

oh? Why not? Simply assertively stating something doesn't make it so. In fact, "Most of the time we have plenty of warning of what is coming down the road. For 15 years now we knew China and other countries were developing and in need of Oil." is just plain wrong.

We must put our energy and money towards energy alternatives that will work for the next 100 years.

Who is this "we"? If you think it's such a profitable pursuit, you invest in it and reap the reward. Don't reach into my wallet .

Drilling more Oil is like putting a band-aid on a guy whose leg has been shot off—its going to help with some of the bleeding but not help the guy in the long run.

How so? This isn't a rally for Barack Obama, where a posse of sycophants melts as he gets to the substantive portion of his speech: "Hope and Change and Change and Hope and Change, Hope, Change, Hope…" We actually expect you to back up wild assertions with arguments.

This is Freaking America man—We built an Atom Bomb out of thin air!

You're kidding, right? This is a joke. Tell me it's a joke.

I think we can create A new Energy source.

Sure we can. Just not one that is as efficient as fossil fuels. But, this is a free country and you are free to try – with your own money.

To do that with batteries requires that you carry several hundred pounds of batteries…expensive batteries. And it takes a fairly good while to charge up those batteries, the chemical conversion generates heat.

If carbon nanotube capacitors realize their theoretical potential, then plugging in your car for a few minutes to charge up may make gasoline and diesel engines obsolete.

Well, David, I don't know what you mean by "move away from our dependence".

If you mean that we will stop using fossil fuels as our primary energy source within the next 50 years, then I definitely do not agree.

If you mean that fossil fuels will become a second tier energy source a century or two from now – because their equilibrium prices will rise above that of solar, wind, and nuclear energy – then I agree.

But what is your purpose in asking this question, David?

We're just going to be paying more for them in the future unless 1.) there's a drop in demand due to a decline in economic activity (not good), 2.) we develop technology which allows us to drill in places currently off limits, 3.) we develop better secondary and tertiary recovery techniques.

But I'm sure that lots of fern-fondling, tree-hugging, bleeding hearts are willing to starve the third world in their self-indulgent pursuit of "breaking" themselves from their "addiction" to fossil fuels by turning food into fuel. I'm absolutely sure of that.

I don't understand this. Why would anyone ever speculate if the reward was not significantly greater than the amount at risk?

Martin Brock: "'My own, highly leveraged money' is a bit of an oxymoron."

Highly leveraged investors are definitely risking more than their own cash. Regardless of the how their futures contract turns out, they still owe the amount they borrowed. So it is their own money at risk. Am I misunderstanding your meaning, Martin?

I don't suppose Mr. Manuel owns any stock, has a 401(k) or even a savings account.

So, if I'm risking my own money (usually highly levered) to buy oil, it means that I think oil is going up because demand is strong and supply is constrained.

"My own, highly leveraged money" is a bit of an oxymoron.

An Israeli official calls the bombing of Iran's nuclear enrichment facilities inevitable, and the price of oil rises ten dollars a barrel in a day. Is that speculation? Of course, it is. I don't necessarily blame speculators, but if the speculation is highly leveraged, but I certainly blame the statesmen fueling the speculation with their endless war making in the oil rich regions, and I might blame monetary authorities with little personally to lose by extending credit to fuel the speculation. If the leveraged speculators themselves have much less to lose than they have to gain, their speculation is more likely irrational.