Daily Speculations

The Web Site of Victor Niederhoffer & Laurel Kenner

Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter;  a forum for us to use our meager abilities to make the world of specinvestments a better place.

 

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8/23/04:
Sagacious Lessons, by Victor Niederhoffer

One admires the Sage at times like this. When the dollar is up a percent or two against the euro at 122 and the trend followers are still short the dollar. Yet with supreme confidence he points out "that's a long term position... I have no idea what currencies are going to do next week or next month or even next year, I think I know over time dollar will be much weaker: the long term, like 3 or 5 years and is quite happy to maintain his position without regard to its intermediate fluctuations. " He knows this because of such things as the twin deficits and the 10 reasons that President Bush should be defeated..... and yet, economists know that the current account deficit is one blade for the scissors or the long term deficit and the two are in balance, and that its makes just as much sense to say that when one country wants to invest badly in the US because our rate of growth is so much better than that of France or the weakest member of the EC, then they must generate a current account surplus to do so, and give the us a current account deficit. Indeed without central bank intervention, the two must be equal. The economist would also predict with his growth models that the current account deficit would be greatest when the differential between home growth rate and foreign growth rate is most positive. The empiricist knows that during times that countries have had the greatest current account deficit their currency has been the strongest. And one turns to the US economy under the Rubin "a strong dollar is in our interests" doctrine years of the Clinton administration for just one support, or the current account deficits of England during the 19th century while their currency appreciated as just two examples. The ecologist knows that the foreign exchange market will move against the big non-bank holders regardless of anything else so that they can make their 75 billion or so in foreign exchange profits a year, and that fixed holders of exchange sure in their convictions can always expect to lose to them... heís not going to do something dumb because two years have passed or one year has passed or three month. it would be crazy to have a time limit (so he's willing to sit on cash)" source: Bloomberg 8/16

I used to think it is unfortunate that Charlie couldnít take the Sage out to the woods again and explain to him that his loathing of things growth, his love of the stasis and the cigar butt, might get him in the same mischief here in the dollar, as his love of the distress department stores and short line ag manufacture, got him into during the 1970's. But Charlie apparently believes according to his letter to shareholders that Berkshire is much better at things than he, especially after he bought CORT right at the height of the dot com bubble and now dot com people are not renting furniture as readily and the company lost money right after being bought and the 60% good will of the $386 million purchase price is not being amortized presumably because of the excellence of the "star executive" in charge. It is also regrettable that one canít give the Sage a copy of PracSpec with its section on hubris, as Charlie apparently found the EdSpec educational especially as it related to niederhoffering the curriculum. From my experience, one should never choose to niederhoffer the foreign exchange market before mastering the many facets of this subject in theory and practice.