Victor Niederhoffer’s blockbuster autobiography Education of a Speculator (1996) and two prior reports from Bo Keeley to Niederhoffer called ‘The Rail Indicators’(194) and ‘The Hobo Network’ (1996) originated a low life system to predict stock and commodities movements that attracted the attention of Wall Street investors and were picked up by Barron’s, Wall Street Journal, and The New Yorker.
Throughout the late 80s and early 90s I kept one foot on each side of the railroad tracks, drawing from the world of hobos to abet business and from the latter I applied principals to survive on the rails. Victor Niederhoffer, the #1 speculator for four years running, believed and often requested RR Indicators.
The tide of business is high or low, always moving. Currents affect the whole from within. Everywhere, fish flick their fins and flip their tails. Can the tide be predicted by observing enough fish? We though so with RR and low-life indicators.
I rummaged them from the rails and around the globe… Niederhoffer’s computers and staff gauged their efficacies and lead times in predicting market movements. Investments in millions of dollars were made based on the length of cigarette butts, red light district activity, and numbers of freight cars rolling across American. – Doc Bo Keeley
From Education of a Speculator by Victor Niederhoffer
Here, for the first time, I will reveal the key indicators we have developed.
Railroad car loading in the early 20th century was once a key harbinger. Market players focused on the statistic with the same simple-minded attention they devote today to such ephemeral number as the money supply and unemployment claims. But railroad figures fell into disuse as other forms of transportation- trucks, cars, and planes rose in popularity. Doc Bo and I, however, have improved on the early statistics.
First the difference between a hobo who hops freight to travel from job to job and a tramp who doesn’t work, is that the hobo reads the Wall Street Journal before using it as insulation and the tramp simply uses it for insulation.
The hobo: tramp ratio is a good indicator of the employment situation because it rises directly with the number of available jobs. Hobos are inveterate readers because they have so much time to fill waiting for freight cars to arrive, so a good first indicator of the employment situation is the number of issues of the Wall Street Journal found underneath the bridges where hobos congregate. The number of freight cars passing by fixed points is a direct indicator of economic activity.
As recently as February 15, 1996, speculator Vic received a bulletin from Dr. Bo that freight cars were going through key locations in Jacksonville, Denver, and Salt Lake City at twice their normal rate. The number of freight cars was also increasing. The employment situation was obviously good, so I stayed short the bond. Sure enough, the February employment statistics showed an 800,000 increase, one of the largest ever, and bonds dropped three points.
After hopping freight, Dr. Bo likes to take in a movie at one of the 24-hour cinemas on Skid Row. The amount of popcorn being sold in the movies, indicated by litter on the floor, as well as other unmentionable activities in the aisle, is a good representation of the economic tides for the lowlifes who attend. When he leaves the movies, Bo likes to count the smiles:growls ratio. Those with thin wallets are generally happy when the income distribution becomes more equalized. If they’re not doing a lot of smiling, relative to the fat cats, it usually means bad times for employment.
The next stops for Dr. Bo are veterinarian clinics. Dr. Bo is a veterinarian by training but gave up the practice to play racquetball. Still, he likes to stay in touch with his fellow vets. We turn the contingency into profits. Unlike human medical care, vet bills must be paid for out-of-pockets. Dental work on dogs is a highly sensitive leading indicator of consumer expectations and well-being. When owners anticipate good times, they feed their dogs richer food, which causes cavities and gum problems. If the disposable income is available, a visit to the vet is scheduled. IN the Spring of 1996, Bo reported that business at vets was quite brisk. I shorted bonds on this intelligence.
After visiting the vets, Dr. Bo likes to follow the bums into the Sally. The Sally here is not the venerable government bond dealer. Its the Salvation Army. By calculating the beef:potato ratio in the meals they serve the bums, or the number of suits and shirts on the apparel racks, Dr. Bo gets a good indication of available disposable goods in the working sector of the economy.
The missions are a hotbed of information in this regard. They collect food from fast-food establishments. If there are six donuts per hobo for dessert, look outbusiness at the ubiquitous donut diners is down. Another good indicator, incidentally, is the length of the lines at soup kitchens. Long lines mean bad times.
After a good night of worship, food, and sleep at a mission, Dr. Bo takes in the fast-food establishments. The amount of food left in the dumpsters is a two-pronged indicator. On one hand, it varies with economic activity. But on the other hand, the harder the times, the less thats eaten. I will not reveal the adjustment Bo and I have developed, except to point to the amount of sodas left in the Coke and Big Gulp cups in the dumpsters.
Bo and I pay particular attention to the kinds of boxcars traversing the rails. A disproportionate mix of coal cars, with its augury of cold weather, has a pervasive on all speculations. A shift to oil cars tells that energy is on a roll.
Automobile carrier trainsportable parking lots in bo languageare a key indicator. Not only do they tell where auto stocks are going much before the weekly sales figures are reported by Wards, but by examining the sticker prices on get a leg up on the inflation numbers. Along with employment numbers, the PI sisters are the two keys that move markets the most month to month.
Not all indicators are as easily interpreted. As I return to the red-areas conveniently located near the freight yards, says Dr. Bo, I find the same sidewalk princesses plying their wares year after year. It doesn’t take a lot of smarts for a bo with a small wallet to establish a correlation between economic conditions and the cost of the cookie. The fluctuations are wild and evident. I have never been able, however, to figure the lead time of the indicator.
The Bo and I like to get a grasp on the government sector by monitoring the movements of circle tramps. These tramps ride the rails to collect food stamps in three to five locations in a circle of cities around the country. Each has a few social security numbers and a verifiable address (generally under a bridge), and stays one hop and two steps ahead of pursuing social workers.
The standard exchange rate for food stamps is 50 cents off the face value. When the circle tramps find government handouts less plentiful, it’s a good indicator of the lean hog type of operation our politicians like to run with taxpayer’s money.
The fundamental hobo indicator may now be revealed. The size of cigarette butts on the ground is directly proportional to the health of the economy. The hobo is always on the lookout for a discarded butt. And when he has to smoke one very short snipe after another, then hard times are here. The original smokers are so strapped they are smoking right to the ends as not to waste a penny. To be fair, Rose Wilder Lane, in the Discovery of Freedom, was the first to note international differences between the size of discarded butts. But I believe that Bo and I are the first to track changes systematically within a country over time.
I recently made millions by applying this theory in Brazil. My agents there noted an increasing prevalence of long butts on the ground, and I rushed in to buy Brazilian stocks.