FAS Review

To understand this entry, one may wish to review the previous FAS entries (FAS Update) and (FAS Analysis), as well as (Bump-and-Run Bottoms).

Today, FAS closed up 40% on the day. Also:

~ FAS broke out from its flag formation with a breakaway gap (breakaway gaps are very bullish, closing the gap only 2% of the time).

~ FAS broke out on almost twice average daily volume (320M:177M), also very bullish.

~ It did so after retesting its 50-day moving average, which is bullish, too.

~ It came out of a Bollinger squeeze formation, which is, you guessed it, very bullish.

~ The formation it has broken out of is a "high, tight flag," which is very, very very bullish. The high, tight flag formation has an average gain of 69%, hits that target 90% of the time, has a failure rate approaching 0%. It retests its breakout level 54% of the time, but the gap indicates it probably will not. When it does, gain suffers, so the probability of a retest here being minimal is, ah, bullish.

~ On Balance Volume shows accumulation is leading the breakout. That's bullish.

~ Finally, the close was outside the upper Bollinger band, which is a continuation signal, and prices tend to walk the upper (or lower) Bollinger band, once they breakout, all of which is very bullish.

In summary, FAS appears very bullish.

PS: Point & Figure charting gives FAS a target of of 16, but that might make you figure I was pushing the point.
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Should you invest in FAS, please, remember to use a trailing stop. Failure to do so could be hazardous to your wealth.

Piracy

“It was written in their Koran, that all nations which had not acknowledged the Prophet were sinners, whom it was the right and duty of the faithful to plunder and enslave; and that every Muslim who was slain in this warfare was sure to go to paradise. He said, also, that the man who was the first to board a vessel had one slave over and above his share, and that when they sprang to the deck of an enemy's ship, every sailor held a dagger in each hand and a third in his mouth; which usually struck such terror into the foe that they cried out for quarter at once.” ~ Tripoli's envoy, Ambassador Sidi Haji Abdrahaman, 1786, in London, to US negotiators Thomas Jefferson, Ambassador to France, and John Adams, Ambassador to England.

The United States has a long history with African piracy. Why we tolerate it, today, I haven’t an idea, but a definite opinion. I doubt the Navy or Marines have changed.

After being inaugurated president, Thomas Jefferson sent Naval frigates to the Barbary Coast to deal with the pirates preying on American commerce. In August 1801, USS Enterprise defeated the Tripolitan Corsair Tripoli. Through 1802-03, Jefferson pressed the issue by deploying USS Argus, USS Chesapeake, USS Constellation, USS Constitution, USS Enterprise, USS Intrepid, USS Philadelphia and USS Syren, to the area. In October 1803, USS Philadelphia ran aground on an uncharted reef while pursuing an enemy vessel, was taken intact, and moved to Tripoli harbor. In February 1804, Navy Lt. Stephen Decatur recaptured and set fire to the ship, then captured the city. In April 1805, Marine Lt. Presley O’Bannon turned the war with his capture of Derna. In June 1805, a negotiated treaty ended the First Barbary War.

In 1807, Algiers again began raiding American ships and holding American seamen hostage, but dealing with them was delayed by the 1812 War with Britain. In 1815, the Second Barbary War began. In March of that year, Stephen Decatur, now Commodore, returned with a force of ships, capturing two Algierian ships, and negotiated a treaty with the Dey of Algiers. The treaty specified compensation from the Dey as well as the release of Americans and European hostages. When Decatur moved to Tunis to negotiate a similar treaty and enforce the existing treaty with Tripoli, the Dey repudiated the treaty. In 1816, a combined Anglo-Dutch fleet bombarded Algiers into submission, sending the threat from Barbary pirates into history.

Because of the Barbary pirates, Congress authorized the building of six frigates in 1794, including the USS United States, USS Constellation, and "Old Ironsides," the USS Constitution. From the actions in the First Barbary War, Stephen Decatur became the first American military hero since the Revolutionary War. Presley O’Bannon inspired the line of the Marine Hymn “to the shores of Tripoli,” the adoption of the Mameluke sword worn by Marine officers, and has had three Navy Destroyers named after him. The Marine Corp adopted uniforms with leather high collars for protect against saber slashes, leading to the nickname "Leathernecks." The Tripoli Monument, now at Annapolis, was the first US military monument and honors the heroes of the First Barbary War.

Is it not time for the Third Barbary War? It should be a short one. The Navy and Marine Corp are up to it, protecting the sea lanes is their job. The question remains: Do the politicians have the stones? With everyone in the world, especially the pirates, there is doubt.
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The USS Bainbridge (DDG-96) coming to aid of the Maersk Alabama is named for Commodore William Bainbridge, who commanded USS Phildelphia when she ran aground and was captured by the Algerians in 1803. Bainbridge spent 1803 to 1806 as a hostage of the Barbary pirates. Later, he commanded USS Constitution, Old Ironsides, and during the 1812 War, engaged HMS Java, sinking her. During the engagement, Java shot away the Constitution's helm, so Bainbridge salvaged the Java's helm before Java sank. Today, the helm of Old Ironsides is the one taken from Java.

Uptick Rule

News is the SEC is considering a new uptick rule for short sellers. Many CEOs whine the abandonment of the uptick rule is the reason their stocks were decimated. During the financials meltdown, the SEC outright banned shorting 16 financials entirely, and it made no notable difference. Financials melted anyway, based more on investor perceptions that they were worth not much, if not completely broke, and were obscuring their books for reason.

A new uptick rule gives the SEC something to do that is popular if ineffective. Programming to implement this stuff will be immense, thus it probably won't happen right away, especially considering that "last sale" could be in several different physical markets, from NYSE to Pacific, unless also considering European markets. The NYSE now owns some there. My other concern is what happens on stocks of immense volume; e.g., FAS with 225M shares per day. Processing for this one could be more than a supercomputer with Internet-II lines could handle. That's a lot of problem for not much, as demonstrated in the short ban of financials--they melted in spite of the outright ban of shorts which included dealer shorts.

I remain convinced the problem, if any, is naked shorts, not an absence of uptick. A hedge fund, for example, can buy puts, which forces the options dealer to short to cover his risk, and those shorts are naked. The reg also requires only best effort for borrowing shares, so a lot of dealers don't bother much, knowing the Cox SEC wasn't enforcing anything much less "best effort" mush. When Bear Sterns was still trading in the fifties, traffic in puts specifying sale at 5 had started.

Uptick became passe when the markets went decimal. An uptick when the markets dealt in 1/8th points, meant something; at 1/100th of a point, it means nothing, especially on a stock that is trading, say, 500 times per second. On a lower volume stock, it will be easily manipulated by merely buying 100 shares at a higher price than is specified in whatever form a new uptick rule is drafted, then shorting 10,000 shares after the 100-share order executes.

At most, a new uptick rule will require those who whine about its demise to find something else to whine about when their world doesn't go as planned and they can't find a mirror to tell them who is the ugliest of all. Amazing how high and widespread victimhood purveys, but not surprising. Tis the reason for golden parachutes, nicht wahr?

Private vs. Public Interest

"There should be relentless exposure of and attack upon every evil practice, whether in politics, in business, or in social life. I hail as a benefactor every writer or speaker, every man who, on the platform, or in book, magazine or newspaper, with merciless severity makes such attack, provided always that he in his turn remembers that the attack is of use only if it is absolutely truthful." ~ Theodore Roosevelt.

On February 28, 1906, Doubleday & Co. published The Jungle, by 28-year old Upton Sinclair. The novel became an immediate bestseller and has been in print ever since. Sinclair documented the corrupt practices of the meatpacking industry in Chicago, emphasizing slavish conditions of the workers, but the public reacted adversely to the detailed unsanitary conditions of the meatpacking plants.

Suspicious of Sinclair's socialist leanings and conclusions, President Theodore Roosevelt sent labor commissioner Charles P. Neill and social worker James Bronson Reynolds, men whose honesty and reliability he trusted, to Chicago to make surprise visits to meatpacking facilities. Even though word of intended visits was leaked and the meat packers working three shifts a day for three weeks to clean the factories, conditions of the plants and attitudes of the managers so alarmed Neill and Reynolds, their report inspired President Roosevelt to champion regulation of the meatpacking industry. On June 30, 1906, both the Meat Inspection Act and Pure Food and Drug Act became law.

The Meat Inspection Act required the US Department of Agriculture (USDA) to inspect herds before slaughter, each carcass after slaughter, and enforce specified sanitary conditions within the plants. The Pure Food and Drug Act forbade the manufacture, sale, or transportation of adulterated food products and poisonous patent medicines, and led eventually to the Food and Drug Administration (FDA).

How far deregulation has progressed is detailed in Fast Food Nation: The Dark Side of the All-American Meal (2001), by Eric Schlosser. Schlosser's description of slaughter houses shows the difference between them and Sinclair's meat packers seems that modern slaughterhouses also violate the Clean Air Act. Vapors from their wastewater lagoons cause headaches, respiratory problems, and, at high levels, nerve damage.

Today, we hear of two or three salmonella outbreaks each year, with hundreds or even thousands being sickened. The worse, Peanut Corp of America (PCA) with plants in Georgia and Texas, has now been shutdown, but its products being recalled have reached over 3000, those sicken in the thousands, hospitalized approaching 100, and deaths at nine. Workers at the plant reported the conditions existed for years, in spite of inspections from private inspectors in the pay of the company, and the manager shipped peanut products after becoming aware of salmonella infection. PCA has declared bankruptcy, but I have not heard of the manager who knowingly shipped contaminated product being charged with murder.

In the recent pistachio salmonella outbreak, Kraft detected the presence of salmonella in its own products, and over several months, tracked it back to Setton, their California supplier. Kraft inspectors at Setton determined the cause was indiscriminate intermingling of raw and roast nuts. Roasting kills salmonella, but the raw nuts were recontaminating the roasted nuts. The point here: Kraft found, tracked, analyzed, and reported to the FDA; the FDA did nothing but a press release.

FDA inspects less than 1% of imported materials within its jurisdiction, and so far has not marked materials refused as being refused, meaning these materials can be reshipped with great probability of being passed. USDA restricted meat imports to those countries who have inspection regimes at least as strict as the US, and volunteered to "loan" FDA some inspectors. FDA refused.

In short, the times have become dangerous for the citizen vs. the corporation who would do its best for itself without regard to who it hurts rather than serves. Further, times should become dangerous for those government officials who serve those corporations for political contributions. "There is absolutely nothing to be said for government by a plutocracy, for government by men very powerful in certain lines and gifted with 'the money touch,' but with ideals which in their essence are merely those of so many glorified pawnbrokers." ~ Theodore Roosevelt

"Our aim is not to do away with corporations; on the contrary, these big aggregations are an inevitable development of modern industrialism, and the effort to destroy them would be futile unless accomplished in ways that would work the utmost mischief to the entire body politic. We can do nothing of good in the way of regulating and supervising these corporations until we fix clearly in our minds that we are not attacking the corporations, but endeavoring to do away with any evil in them. We are not hostile to them; we are merely determined that they shall be so handled as to subserve the public good. We draw the line against misconduct, not against wealth." ~ Theodore Roosevelt

"The object of government is the welfare of the people. The material progress and prosperity of a nation are desirable chiefly so far as they lead to the moral and material welfare of all good citizens." ~ Theodore Roosevelt

Light Reading

After a few days of math and physics, of psychosocial, of investment, enough! I need something that just sucks me in and disappears time and self, absorbing me into a different world. In this case, it is Dune House Atreides (1999), by Frank Herbert’s son, Brian, and Kevin Anderson. It says it was written from Frank Herbert’s notes.

In my older years, I now consider Dune (1965) the best science-fiction novel, and Frank Herbert one of the best sci-fi authors. The novel's background thought overwhelms with its suppression of technology to get at the intrigue of potential human development and variation.

My previous favorite was Robert Heinlein’s Starship Trooper (1959), mostly because of its military culture and social constructs. For example, all officers of the Mobile Infantry, Heinlein’s equivalent of Airborne, were drawn strictly from its enlisted corps, thereby assuring meritocracy of its officers. Further, the worldwide society gave franchise only to those who had served society either through military service or through other service requiring risk of life. The idea was not that they voted any better, but they had demonstrated at least an ethnocentric level of responsibility. They had put their society above themselves. The book held women as physiologically and psychologically more capable pilots than men, a concept rare in 1959--or even now.

I note the psychosocial thread running through my choices. It is a fascination that still functions with my latest interests in Lawrence Kohlberg and Carol Gilligan. Apparently it has moved out of sci-fi and into reality. I’ve long been aware that science fiction often rewrites the classics in a modern or future society’s context. For example, Heinlein’s best is normally considered Stranger in a Strange Land (1961), which is a rewrite of the story of Christ, a quite good one I realize in my later years.

Perhaps that is why I always thought Heinlein the best science fiction author, above the seconds, Arthur Clarke and Isaac Asimov. I rated them thus even after much of Heinlein’s future history had been overtaken with real history, but I gave much of that credit to Heinlein being a graduate of the US Naval Academy (Class of ’33, if I remember right). He was discharged from the Navy on disability and wrote his first science fiction story in 1939, “to pay the rent,” as he put it.

Although Heinlein, Asimov, and Clarke were the “Big Three,” I also liked Fred Hoyle, both for championing the steady state universe (he coined “Big Bang” as a derogatory term) and for his science fiction novel, The Black Cloud (1957). A cloud in space turns out to be super-intelligent life and communicates with man. It is as surprised that life can form on planets as man is surprised to learn the cloud is alive. It turns out helical structures can form from inorganic matter, so such life is indeed possible, thus probably exists. Hoyle also first proposed the formation of heavier elements in the cores of stars.

Asimov, of course, wrote extensively about robots, formulating the Three Laws of Robotics, regulating robots in their rise to intelligence. He was also one of, if not the, most prolific writers ever, with over five hundred books published in his career. His short story “Nightfall” (1941) is considered by Science Fiction Writers of America as the best science-fiction story ever written.

Clarke wrote of man’s history and transformation in the series starting with 2001: A Space Odyssey (1968) which is rated among the top ten movies ever made, and included HAL, the sentient computer who attempts to take over the mission by eliminating the crew. Clarke is also the “inventor” of orbital satellites, and the geosynchronous orbit of communications satellites is named the “Clarke orbit.”

In reflection, I am amused and amazed how the creations of these authors are woven throughout my life and have played a seeding stimulus throughout it. Light reading turns out not very light at all, but the light of a lifetime.

Superposition

“We choose to examine a phenomenon (the double-slit experiment) that is impossible, absolutely impossible, to explain in any classical way, and which has in it the heart of quantum mechanics. In reality, it contains the only mystery." ~ Richard Feynman

Thomas Young (1773-1829), a British physician, conducted the double-slit experiment that changed the world. When light is projected from a single source, through two slits, onto a backstop, the interference pattern created indicated light consisted of waves vs. the corpuscles of Sir Isaac Newton.

The astounding part is that when light, electrons, atoms, or even molecules are fired at the double slits over a period of time the same interference patterns occur—even when the objects are fired one at a time! Molecules as large as bucky balls, a molecule of 60 or more carbon atoms arranged in a sphere, fired singly, produce interference patterns. If the particle is not observed going through the slits, it goes through both, arriving at its destination and causing an interference pattern—it has interfered with itself.

The single particle going through the slits is said to have superposition until it is observed. The principle of superposition claims that while we do not know what the state of any object is, it is actually in all possible states simultaneously until we look to check. It is the measurement itself that causes the object to be limited to a single possibility. Should the single particle trajectories be observed, the measurement disrupts the trajectories and the results of the experiment become what would be predicted by classical physics: two bright lines on the photographic plate, aligned with the slits in the barrier. Cease the attempt to measure, and the pattern resumes multiple lines in varying degrees of lightness and darkness.

In 1935, Erwin Schrödinger proposed a thought experiment showing how superposition operates in the every day world: the somewhat horrific Schrödinger’s cat. Schrödinger places his living cat into a chamber, with a vial of hydrocyanic acid and a small amount of radioactive substance. If an atom of the substance decays, a mechanism breaks the vial and kills the cat. An outside observer cannot know whether the cat is alive or dead. Since he cannot know, the cat is both dead and alive according to quantum superposition states. It is only when we open the box and learn the condition of the cat that superposition is lost, and the cat becomes dead or alive. This situation is called “quantum indeterminacy” or “the observer's paradox:” the observation or measurement itself affects an outcome, so that the outcome as such does not exist until observation happens. There is no outcome until observed.

“My own suspicion is that the universe is not only queerer than we suppose, but queerer than we can suppose.” ~J.B.S. Haldane

Elder Think

“Getting old isn’t for sissies.” ~ Bette Davis

Western societies focus on the negative aspects of aging, but there are plenty of positives, too. Freud wrote some of his greatest works after age 65; Sophocles wrote Oedipus at Colonus at age 71.

Few of the developmental psychologists, however, spent much on mature mental development. Jean Piaget ended mental development with “formal operations,” abstract thinking maturing in the teen years. Erik Erikson delineated eight stages of psychosocial development, defining each in terms of an issue or conflict requiring resolution before advancing. His work, Identity and the Life Cycle, had only one page each on the last two stages of life.

In spite of their omissions, there are four distinct development stages in late life:

1. Midlife Revaluation: This isn’t the same as mid-life crisis, but is a quest, a desire to break new ground and answer deep questions such as “What is a true and meaningful life?” This period generally occurs between 40- and 65-years of age.

2. Liberation: This overlaps the midlife reevaluation period since it runs from late 50s through the 70s. It is a period experimentation, innovation, and striving to free oneself from earlier inhibitions and limitations. The brain undergoes significant physiological changes giving more balance between the hemispheres. Attitude becomes, “If not now, when?”

3. Summing Up: From late 60s through 80s, one recapitulates, resolves, reviews, with manifestations being volunteerism and philanthropy, a giving back.

4. Encore: This variation on a theme manifests as a desire to go on, even through adversity and loss, to remain vital, and often leads to new creativity and social engagement.

Each of these energizes power motivations, especially when not impaired with negative illusions of aging. Previously, an assumption that the brain could not generate new neurons, and one could merely delay deterioration, formed such an impediment. Scientifically, these are disproven and one can indeed generate new capabilities with activities such as exercising mentally, physically, adopting challenging leisure activities, seek mastery of various skills and activities, and establish strong social networks.

“All that is valuable in human society depends upon the opportunity for development accorded the individual. ~ Albert Einstein