Deepest pockets?

Reader question:

In this sentence – Hillary’s supporters had the deepest pockets – what does “deepest pockets” mean?

My comments:

Hilary Clinton?

If so, this means that people who supported Hillary Clinton were rich and wealthy, well, richer and wealthier than, say, those who voted for Barack Obama.

At least that would probably make sense during the two’s rivalry in their challenge for the Democratic nomination for President during the last US election.

Anyways, deepest pockets refer to the richest and most resourceful people, who, in this case, referred to people who voted for Hillary or had the most money in funding Hillary’s run for office.

Deep pocket equals to wealth?

Yes. You see, in the old days, before the advent of paper checks and credit cards, and especially among those who didn’t even have wallets, people carry their money around in their pockets. And if you had a lot of money on you, you needed to have a large pocket to contain them. And if it was large, it was deep – presumably you had to dig deep in order to reach the bottom pile of notes and coins.

Well, I do not suggest pocketful of coins alone but you get the picture. The bigger and deeper the pocket, the more cash it carries.

Hence the saying that, metaphorically speaking, he who has a deep pocket has the wherewithal, the money and means to do something.

Some time ago, I read a headline which reads Bill Gates Still Has the Deepest Pockets in America. That simply means the former Microsoft chief is the richest man in America. Still is, I think, with some US$50b to his name.

Likewise, you also hear terms such as “large, deep pocket companies”. That means big, rich firms, such as the aforementioned Microsoft and Google.

Simple and straight forward, isn’t it?

Great. With the Chinese New Year coming up, I wish every one of you, my dear readers a very enjoyable new year, and for the youngest readers a lot of pocket money to spend during the holidays. Yes, the deeper the pocket the better.

Happy New Year and, don’t forget, get a good feel of “deep pocket” via these examples:

1. The German parliament, the Bundestag, overwhelmingly approved an increase in the powers and muscle of the European Financial Stability Facility recently, the pot of potential bailout money.

But opinion polls here suggest not all Germans are so inclined to be generous. Our (entirely unscientific) snapshot suggested a more nuanced picture.

Armed with a big yellow envelope with Greece written on the front and some coins inside, we jokingly asked commuters heading for Frankfurt's main railway station whether they would personally contribute towards the Greek bailout.

Around three-quarters told us that, for now at least, bailing out countries such as Greece was worthwhile.

At the nearby Cream Music instrument shop, Bernie Hahn, 44, agrees.

Mr Hahn is the fourth generation in his family to run the shop. He has seen plenty of ebbs and plenty of flows in the German economy. He tunes a ukulele in front of a black and white picture of Elvis Presley, who once bought a guitar from here.

“There is lots of crisis talk at the moment. But from here it feels like a crisis in the banks. Maybe it hasn’t hit us yet.”

On the issue of the bailout funds, he says there is no alternative but to chip in.

“Germany lives off its exports. If people don’t have any money who is going to buy our stuff?” he asks.

“Germany needs the euro. If the euro goes down, Germany’s economy goes down. It is easy to slag off the Greeks and say hands off our money, but come on.”

It’s not pure altruism or idealism: exports need customers, and so Germans don’t want poor neighbours.

It is a perspective that resonates with Stefan Schneider, chief economist for Deutsche Bank Research.

“Germany has, together with France, still has the deepest pockets and they have to be used,” Mr Schneider told us.

“If Greece was the get rid of the euro, it would multiply the problems involved.”

- Backpackers' guide to the eurozone crisis: Frankfurt, BBC.co.uk, October 31, 2011.

2. The U.S. auto industry denounced Jerome Lemelson’s $100-million settlement with Japanese automakers, whom he had accused of infringing on his patent for machine vision -- a breakthrough that helped enable an assembly line of robots.

But the Japanese couldn’t risk a trial. If they had lost, they could have been barred from exporting cars to the United States.

“You weigh your risks,” said Frederick Michaud, a patent lawyer who represented the Japanese automakers. “That is the difficulty with all patent litigation. How much is it going to cost to get out of it?”

Now, the focus turned on American automakers. They considered Lemelson and his attorney, Gerald Hosier, nothing more than predators.

“Ford, GM and Chrysler and Motorola desperately wanted to stop that trend, to stop the flow of money to Lemelson before it got started,” Hosier said. “They didn’t want to see me get money to fight them.”

While battling the Japanese, Hosier had also started sending form letters to hundreds of companies in 1989, accusing them of infringing Lemelson’s machine vision and bar code patents. It was, said Hosier, the single-greatest patent licensing campaign by an individual in history.

Many, such as Cognex in Natick, Mass., the world’s largest maker of machine vision, ignored the letters initially, thinking Lemelson’s claims were baseless.

But Hosier soon wrapped up other deals worth $350 million. Forbes declared him one of the highest-paid lawyers in the country and The American Lawyer put him on the cover.

The money didn’t change Lemelson, said Robert Lemelson, his son. He still drove that old Mercury Marquis and wore the same ratty wool sweater.

“He was intensely frugal,” the son said.

With the licensing campaign in full swing, Hosier and Lemelson decided not to go after the smaller companies that produced the equipment, such as Cognex or Symbol Technologies, of Holtsville, N.Y., which made the bar code scanner.

Instead, they focused on the large corporations with deep pockets, customers of Cognex and Symbol that made use of the technology.

Getting them to pay, Hosier said, was based on a simple premise.

“This business is not based on what’s right or what’s wrong,” Hosier said. “It’s based on fear. Nobody would pay you for a patent unless they feared that the consequences of not paying you vastly exceeded the consequences of paying.”

- Inventor Takes On the U.S. Auto Industry, Associated Press, August 28, 2005.

3. Would you be interested a trading strategy that is practically 100% profitable? Most traders will probably reply with a resounding, “Yes!” Amazingly, such a strategy does exist and dates all the way back to the 18th century. This strategy is based on probability theory and if your pockets are deep enough, it has a near 100% success rate.

Known in the trading world as the martingale, this strategy was most commonly practiced in the gambling halls of Las Vegas casinos and is the main reason why casinos now have betting minimums and maximums, and why the roulette wheel has two green markers (0 and 00), in addition to the odd or even bets. The problem with this strategy is that in order to achieve 100% profitability, you need to have very deep pockets; in some cases, they must be infinitely deep.

Unfortunately, no one has infinite wealth, but with a theory that relies on mean reversion, one missed trade can bankrupt an entire account. Also, the amount risked on the trade is far greater than the potential gain. Despite these drawbacks, there are ways to improve the martingale strategy. In this article, we'll explore the ways you can improve your chances of succeeding at this very high risk and difficult strategy.

What is the Martingale Strategy?

Popularized in the 18th century, the martingale was introduced by a French mathematician by the name of Paul Pierre Levy. The martingale was originally a type of betting style that was based on the premise of “doubling down.” Interestingly enough, a lot of the work done on the martingale was done by an American mathematician named Joseph Leo Doob, who sought to disprove the possibility of a 100% profitable betting strategy.

The mechanics of the system naturally involve an initial bet, however, each time the bet becomes a loser, the wager is doubled such that, given enough time, one winning trade will make up all of the previous losses. The introduction of the 0 and 00 on the roulette wheel was used to break the mechanics of the martingale, by giving the game more than two possible outcomes other than the odd versus even, or red versus black. This made the long-run profit expectancy of using the martingale in roulette negative, and thus destroyed any incentive for using it.

To understand the basics behind the martingale strategy, let’s take a look at a simple example. Suppose that we had a coin and engaged in a betting game of either head or tails with a starting wager of $1. There is an equal probability that the coin will land on head or tails and each flip is independent, meaning that the previous flip does not impact the outcome of the next flip. As long as you stick with the same directional view each time, you would eventually, given an infinite amount of money, see the coin land on heads and regain all of your losses, plus $1. The strategy is based on the premise that only one trade is needed to turn your account around.

- Forex Trading: The Martingale Way, Investopedia.com, November 1, 2011.

About the author:

Zhang Xin is Trainer at chinadaily.com.cn. He has been with China Daily since 1988, when he graduated from Beijing Foreign Studies University. Write him at: zhangxin@chinadaily.com.cn, or raise a question for potential use in a future column.