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09-Oct-2006
Briefly Speaking, by Victor Niederhoffer

I have been reading one of the best books on baseball, The Hidden Language of Baseball: How Signs and Sign-Stealing have Influenced the Course of Our National Pastime by Paul Dickson, and I wish that I were one-tenth as insightful about the signs in our field as Dickson is in his.

I have found an author with a sense of history, the ability to bring off a hilarious set piece and knowledge of romance and economics comparable to Patrick O' Brian. He is Mark Helprin, and I highly recommend his imaginative recreation of the backdrop of the World War I, in A Soldier of the Great War. I would like to make a Baedeker of all the economic wisdom in O'Brian and Helprin and see if this is good training for market people.

It is scary to say that over the 40 years that I have content-analyzed his uniformly bearish columns, Alan Abelson is at a minimum -- for him -- in his bearishness. All he can say is that his forecasting has been off and that investors should enjoy the rally while it lasts: " ...and this bull move, coming as it did amid growing skepticism about the investment outlook, is a perfect example of the power of contagion in coaxing investors off the sideline and dissipating fear. Since our crystal ball is in the shop for repairs [my goodness, that's the understatement of financial history -- VN], we'd venture that since it's being propelled more by money than mind and more by emotion than fundamentals, it's not for long, let alone forever. So enjoy it while you can."

That scary thought reminds me of a 13th method employed by poseurs to appear important, which is to ridicule anybody who has lost money, implying that you were on the other side of their trades. "The Ameron disaster shows how trying to front-run the floor traders at their own game by such simple fixed rules as selling the near and buying the far will lead to disaster." This is so much better than the 14th method, used by Abelson, which is to explain that the market went up because of "contagion," as if one had actually predicted it instead of saying the exact opposite for 12 consecutive weeks while the market rallied and he trotted out one ridiculous reason after another for being bearish from his old cronies like Fred Hickey.

Which brings to mind the 15th method. Pretend that you're very honest by admitting a loss, but then go on to talk about your current forecast and past greatness as if it's that much more pertinent and honest. Uri Geller would say: "Don't even count that I caught your missing car key in my hand out of thin air as an example of ESP, because I wasn't even trying to do it." Here's Abelson's version of the Gelleresque propaganda technique: "Fred Hickey, apart from that fact that he's the smartest tech analyst... unhesitatingly owned up to having had a truly punk September (his put options went the wrong way) turning his best-ever year into more a good one." A comparable technique is to trumpet a hypothetical success you're boasting about by noting that you grew up in the school of hard knocks and losses, as is that would make your current hypothetical profit on 1/100 the capital more meaningful.

In any case, it got me very frightened that Abelson is bullish and the bears might be capitulating especially because the next options expiration falls on the 20th, far from the beginning of the month. I have always thought that the terrorist attacks and bear raids by investment banks are timed to fall on the expirations on the 21st of the month, i.e., where Friday is the last calendar day of the month, making Saturday the first, Sunday the second, and Monday the third, the first Friday the seventh and the third Friday of options expiration the furthest day, the 21st. And a little calculation shows that indeed that's very bearish, with the average decline in Friday-the-21st weeks being -3% with a t of -2 and taking into account the 15% decline of the Friday the Sept. 21 close of 9/11.

However, a little pencil-and-paper work shows that option expirations ending on ending the 20th, such as the coming one, are not that bearish at all, averaging 0.0 -- just a little bit less than the drift. I leave it as an exercise for the reader to generalize this point.