The Strategy of Conflict by Thomas Schelling

This book was published in 1960, and the author eventually won the Nobel Prize in economics in 2005 for his work in game theory. Forty eight years out of date, this book is fascinating: Schelling elucidates his deep thought so well, fleshing out his significant contributions with numerous real world examples.

Schelling's main contribution is to show that game theory need not concern itself only with the two person zero sum model. Competition often occurs with the possibility of negotiation, with outcome "payoffs" varying depending on the situation. War, for example, is not zero sum, nor are strikes, or business deals. But negotiations are not always possible, nor desirable, and sometimes actions speak louder than words.

Why did the Soviet Union and the USA each have enough nuclear bombs to blow up the world 200 times? Just insane, right? No, not at all! The bombs are effective defensively as deterrents if they can survive a first strike attack. So say the Soviets sent everything over, decimating 99% of the US nuclear force. Then the US would have responded with 1% of its original force - still enough to have wiped out almost all of the Soviet Union. It turns out that the seemingly uncontrolled arms "race" was just a way of making the world more secure!

Schelling book is filled with gems, insights into the anomolies of this world, and I recommend him to anyone.

Greenspan: The Case for the Defense

This book, written by Ed Greenspan and George Jonas, was an easy read, covering many of Greenspan's cases, and giving a sense of what he was like as a person.

Only a few chapters had anything of value in them, some others were mildly entertaining, but this book is not worth reading. It was largely a waste of time, and it would be a waste of time to explain why.

Recent Books Part II

The Transfer Agreement Edwin Black

Subtitled The Untold Story of the Secret Pact Between the Third Reich and Jewish Palestine.

A fascinating recount of the first year of Hitler's rule, the Nazi persecution of the Jews and the worldwide backlash - a boycott of German exports - that pushed Germany to the brink of anarchy. This books was exciting and full of new information about the intrigue of Zionists looking to help Jews emigrate to Palestine, how they weakened the boycott movement, attempting to salvage Jewish German assets, their secret deal with Hitler to sell German exports, and the key roll they played in allowing Hitler to consolidate his power.

Those were very trying times and Black gives a very meticulous coverage, well-researched and objective. Anyone looking to understand Israel, and how it is seen as so important a solution to the horrible pogroms inflicted on Jews throughout history, should not miss out on this fascinating book.

Books I've Read Recently Part 1

I've been fortunate to have had some extra time and to have spent it reading some good books.

The Palestinian Catastrophe Michael Palumbo
- a look at the formation of Israel from the Palestinian perspective
- Jews used terror and massacres to force native Palestinians out, violating their legal justification, the Balfour Declaration. Issued in 1917 this was seen as payment for Jewish help in WW I. From Wickipedia:

"...it being clearly understood that nothing shall be done which may prejudice the civil and religious rights of existing non-Jewish communities in Palestine..."
- war sought by Israel to increase lebensraum, peace impossible
- 800 000 Palestinians forced out
- Israelis official line was that "Arabs" left because their leaders told them to, confident that they would return victorious

My conclusions were that Israel is a militaristic, prejudiced, theocratic country forever at war with its neighbors. No peace will be possible until a full apology and reparations are made to the ghettoized Palestinians.

Update To XLE Trade

The signal on Aug 8 to buy the XLE resulted in a loss as the XLE dropped from 69.35 to 67.20, a 3.1 % loss. The position would've been closed on Tuesday after the two week holding period.

Updated Indicator Test

I just reanalyzed the relation between the XLE 0.1 ema and the SPY 10 days later for the period 4/20/04 to 8/21/07 (today is the 23rd). I also analyzed the 20 day after SPY results.



The 10 day correlation is -.27. The 20 day correlation is -.32. These are quite high and encouraging.



There also was a perfectly monotonically increasing return 10 days later in the SPY as the XLE 10 day e.m.a. decreased, and a fairly good increasing return 20 days later:



XLE 0.1 ema ----------------------SPY 10 days later----SPY 20 days later


< -.56 ____________________ 1.45 %____________2.98%

< -.44 & > -.56 ______________1.06 % ____________1.80%

< -.31 & > -.44 ______________0.97 % _____________2.01%

.14 & > -.31 ________________ 0.86 %_____________1.39%

< .45 & > .14 _______________ -0.04 %_____________0.12%

< .53 & > .45 _______________-0.24 %_____________0.69%

< .62 & > .53 _______________ -0.39 %____________-0.28%

> .62 ____________________-0.49 %____________-1.27%

Average 10 day SPY return 0.4 %. Average 20 day return 0.8 %.


As of today's close, the XLE 0.1 ema is 0.01 so we are slightly positive (by interpolation).

XLE Buy Signal

My oil stock indicator will flash a buy on the close today (its now 1:50 PM EST). In the past four years, the XLE gained 2.7% over the next two weeks after a buy signal, which is above the 1.0% average return - a 1.7% above average return!

The Buyback Letter (by David Fried) has a few oil stocks in its portfolio:
* Valero (VLO)
* Marathon (MRO)
* Nabors (NBR)
* Exxon (XOM)
* Royal Dutch Shell (RDSA)
* Sunoco (SUN)

McDep says Chevron(CVX) and Conoco(COP) are good values, as are the two giant Russian companies Gazprom and Lukoil.

I'll go with recently underperforming MRO.