Martin Kronicle

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Mike Bellafiore and Steve Spencer are the founders of SMB Trading. Bella and Spencer, along with their colleagues Adam, Roy, ZMush (Z$, Mush, Mushy, Z), JThoma, GMan, are prop traders and have one of the best training programs in the country.

I spoke with Mike about his new book One Good Trade: Inside the Highly Competitive World of Proprietary Trading (Wiley Trading), and the SMB training program.

They also maintain a blog at SMB Training that I recommend.

You can follow SMB Capital on Twitter.

Chris Gillick, a current friend and former colleague of mine at Trader Monthly, helped Bella write this book. Gillick also wrote an article on SMB for the October 2008 edition of the magazine called Three Rules: Motion Detectors which can be found under the Press tab on their blog.

Reading for me is a contact sport. I get review copies of books from publishers for free. I generally keep those books. Most become book reviews and podcasts. Afterward, the books are too marred and dog-eared to do anything with. Sometimes I lend them out, but they are generally not readable by anyone else but me.

Here is the list, in no particular order, with links to the podcasts or video.

10 Laws of Enduring Success by Maria Bartiromo
The Invisible Hands by Steven Drobny
Think Twice by Michael Mauboussin
More Money Than God by Sebastian Mallaby
Trust Agents by Chris Brogan
4 Hour Work Week by Tim Ferriss
Financing The Future by Glenn Yago & Franklin Allen
Fiat Money Inflation in France by Andrew Dickson White
Ivy Portfolio by Mebane Faber
Buy, Don’t Hold by Leslie Masonson
The Quants by Scott Patterson
One Good Trade by Mike Bellafiore
Twilight in the Desert by Matthew Simmons
Rise & Fall of Bear Stearns by Ace Greenberg
What the Dog Saw by Malcolm Gladwell
Fearful Rise of Markets by John Authers
Talent is Overrated by Geoff Colvin
Oil: Money Politics and Power in the 21st Century by Tom Bower
Goodbye Gordon Gekko by Anthony Scaramucci
The Bourne Identity by Robert Ludlum
The Bourne Supremacy by Robert Ludlum
The Bourne Ultimatum by Robert Ludlum
The Girl with the Dragon Tattoo by Stieg Larsson
The Girl Who Played with Fire by Stieg Larsson
The Girl Who Kicked the Hornets Nest by Stieg Larsson
How We Decide by Jonah Lehrer (re-read)
Sh*t My Dad Says by Justin Halpern
Against The Gods by Peter Bernstein (re-read)
Out of Water by Samyuktha Varma and Colin Chartres

Fiction that I”m going to read (once I get some free time):

A Visit From the Goon Squad by Jennifer Egan
The Art of Racing in the Rain by Garth Stein
Shinning City: A Novel by Seth Greenland

Most of the fiction is on my Kindle. I love my Kindle. All of the other books are hardcover.

Here is the full list of MartinKronicle podcasts, which includes Jim Rogers, Victor Sperandeo, Tony Saliba, Linda Bradford Raschke, Barry Ritholtz, Charles Goyette, and Daniel Ammann.

Here is a list of books I loved in 2009.

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“Truths are first clouds; then rain, then harvest and food.” — Henry Ward Beecher

For the most part, I trade exchange-listed commodities, but there are dozens of commodities that don’t trade as such. The most important one of them is water. The growing 21st century “water gap” between supply and demand is going to have major ramifications for the entire planet.

There is the potential for the world to go from abundance to scarcity within 25 years. What does the world look like in 2050 when there are an estimated 9 billion people inhabiting the earth and they all want healthy food, hot showers, running water in their homes, and effective sewage? Will we create a “water footprint” and trade water conservation credits, not unlike the carbon market?

Water as Political Capital

On one hand we need large urban centers to begin aggressively conserving water, while on the other hand there are hundreds of millions of people in India and China who do not have running water. This is a global issue that’s not making enough headlines — and it needs to.

Colin Chartres is the co-author of Out of Water: From Abundance to Scarcity and How to Solve the World’s Water Problems and is the Director General of the International Water Management Institute (IWMI).

Colin’s book, co-written with Sam Varma, blew me away — as did this interview. I highly recommend the book.

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I wouldn’t want to be a CEO of an oil firm if my life depended on it. Everyone hates you. You have to deal with some of the most unsavory people in the world who steal, bribe, reneg, and lie to you all-the-while demanding signature bonuses. You at times put your own life at risk via your business travels. You have to have an appeasing Green ethos.

Back home in America, you have to deal with your own brethren who spit in your face, but at the same time want $2 a gallon gasoline consistently, as if it’s their birthright. That’s all before you have to deal with a lame President, House, and Senate who collectively could not come up with a National Energy Policy if their offices depended on it.

[As of this writing, the Department of Energy has not found America a single drop of oil. Alec Baldwin wants to shut down an oil company. Let's put the DOE down first Alec - I'll work with you on it.]

Tom Bower’s new book Oil: Money, Politics, and Power in the 21st Century is the best book on crude oil that I’ve ever read. Crude oil is a very complicated business. It is about 180 degrees out of phase with the simplicity of e-commerce.

Bower spoke with more than 250 industry professionals, politicians, and analysts over an 18 month period of time in order to complete this book. IMHO, I think academics and Liberals will learn the most from this book. It is written as the definitive history of crude oil – and it’s backed up by facts. Not make believe facts or Michael Moore Facts either, but real facts, that in the end provide readers with a well-rounded understanding of America’s addiction to crude oil and how we got here.

Read the rest of Big Oil Has Replaced Big Tobacco In The Bulls Eye of America’s Vitriol at the Huffington Post.

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I received several emails about managing risk with respect to my What Do You Make of Wheat post last week.

When the market goes parabolic and you watch your equity burgeon, you can actually become as frozen as if Jennifer Aniston herself asked you if you’d like to see the “way back” of her Range Rover. Stuttering and stammering isn’t sexy. You need to have an answer in the moment. For the record, I would be interested. In fact, there are some very interesting things that you may not know about the “way back” of a Range Rover that IMO one should definitely know about, but I digress…

A parabola – a mathematical expression for exponential growth or decay – doesn’t last forever and they consume themselves (or the host). You must act fast, whether you have galloping pneumonia or a highly levered portfolio in CBOT Wheat. A simple parabola is the equation y=x^2.

For the less experienced trader, I would suggest entering a Stop order to offset your position. I say “offset” b/c you can be long or short. In this case, you were long.

Entering the order serves two purposes:

1) the markets move too fast to try and day-trade out of a sizable position. Mishandle it and you will have substantial skid – skid that can be avoided if you order is “on the floor” or whatever is left of it. Almost all trading is done on the screen these days.

Second, it instills discipline in your trading. You’ve picked a spot where you’ll be financially and emotionally stable to offset your position. If you’re stopped out, that’s a good things: you don’t have any knowledge where the, ahem, bottom will be found.

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You’ll notice via the 5-minute bars, that the damage was done in the first 20 minutes of trading of the outcry session. Funny too, considering that 95% of all volume is done on the screen. There was plenty of time to offset the position before the “opening bell.”

However, if you waited for the market to open you were overrun with a wave of selling: you got caught in a $1.20 “long ruler” range day that might have left you paralyzed. Just as bad as watching the tail lights of the Range Rover drive away.