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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9/10/04
Victor Niederhoffer: One Always Admires...

One always admires a great adventurer like Jim Rogers and Don Quixote who can do things and accomplish feats in investments and battle that I could never dream of accomplishing. Jim recently penned a piece about the intricacies of the Chinese market holding out the possibility of a slowing there leading to a consolidation in commodity prices. Apparently a hard landing there "will be a signal to start buying all the China and all the commodities you can "Jim relies in part on remembering "how bull markets typically play out". The second leg of a big bull tends to be wonderful and the third leg is often speculative but in the the fourth leg people start dancing in the streets while in the fifth leg everything is skyrocketing every day". Apparently Jim believes that after a pause, such a scenario will come in commodities.

Since my knowledge of commodities is very minimal, I have to rely on empirical and economic principles to gain a rudder on this subject. The Collab and I calculated that the average commodity went up about 15 fold during the 20th century. That's all the total gain in the CPI in addition I am still swayed by the Julian Simon arguments that commodities tend to show little gain over time because technology improves the methods of producing them when prices are high, and the technology remains when commodity prices are low.

However, my knowledge of bull markets and approach to testing them I believe is somewhat sound. I believe it as hard to predict a bull market as a bear market. And I don't think that after a first leg of same, a second leg is more or less likely than chance. Nor do I believe the expectations on a prospective basis can be predicted or ordered. Such would not only be completely inconsistent with statistical tests that academics have been making for many years, and one also makes in practice, as well as the theory of rational expectations.

One of the great merits of Jim's dynamic approach to ultimate bullishness on commodities and China and the extraordinary performance of his funds based in part on them to date, was it brought me back to the first chapter of Don Quixote. after reading many books "his head was full of enchantments, quarrels, battles, challenges, wounds, complaints, amours, torments, and abundance of stuff and impossibilities: inasmuch that all the fables and fantastic tales which he read seemed to him now as true as the most authentic histories. he liked yet better Bernardo del Carpio who at Roncesvalles deprived of life the enchanted Rolando, having lifted him from the ground and choked him in the air as Hercules did Antaeus, the son of the Earth".  Sooner or later, we will see who is the more Cervantes like of a character between the two protagonists. and hopefully, like the don with respect to the giant Morgante "we will always speak civilly to each other".