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7/22/2005
'Briefly Speaking' by Victor Niederhoffer:

  1. Ernest Hemingway is one of the few writers besides O'Brian with a good feel for modern investments. He writes in 'Old Man of the Sea' that the best time to sail in the Caribbean is during the hurricane months. The old fisherman always knows when there's going to be a hurricane a few days in advance, from the sea. I wonder if the normal summer decline we've been exposed to the last eight years, a highly significant and consistent one of about 2.5% a month on average, is like the hurricanes. When it doesn't occur, that's when the fishing is best. But that hypothesis must be differentiated from the normal mumbo jumbo that the Expert and the Fractalist like to trot out, that if you missed x of the last 20 biggest rises, why then you'd be left worse off than catching the sweat off a rich man's back.
  2. What is it about Humphrey-Hawkins that makes the world such a perfect place for the chronic bears for one day, with the average declines showing a t-score of -3 over the last decade and with this year's mere 0.75% decline actually more favorable than the average. Could it be the vindication of the sell on the news hypothesis?
  3. The reaction to the devaluation of the yuan has been commented on qualitatively by many. As I don't follow Asian developments (have I mentioned in the last week the devastating blow they administered to me and my customers in 1997, much to the joy of my detractors?), I can only comment that the devaluation was apparently exactly what the administration had been encouraging and hoping for recently. Yet, worldwide wealth managed to drop by at least $400 billion when it happened. Is this an example of unintended consequences, or a normal reaction to an event that was relatively certain vis a vis its ultimate appearance but uncertain as to its timing? A classification of events into uncertainties based on timing and magnitude might be a good start for psychologists interested in studying investor behavior without undue promiscuity.

George Zachar responds:

As to Humphrey-Hawkins, I have long contended that Greenspan's non-dramatic presentations are inkblot tests of the psychology of marginal capital deployers. They see what their self-defined blinders permit them to see, and react accordingly. This is qualitative, yes, but does provide periodic gut-checks of how the crowd perceives things.

And as to the yuan, I believe you are over-stating the timing uncertainty. There was an unmistakable run of very specific press leaks last week, predicting a Chinese currency move no later than Jintao's September visit to the White House. The nature of the reval, OTOH, is still ambiguous, and the subject of much chin tugging. Snow yesterday admitted he didn't know what it all meant, and said he was dispatching a team of Treasury bureaucrats to the Middle Kingdom to figure it out. Yesterday we learned where weak hands had positions near stop-loss points, and not much else, I fear.

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