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01/27/2006
Briefly Speaking: Runs, Davos, et al., by Victor Niederhoffer

Runs

Since the beginning of the year, runs in the direction of the S&P move from previous close to current open, are as follows:

Positive run [of length] 2
Negative run 1
Positive run 1
Negative run 2
Positive run 1
Negative run 4
Positive run 1
Negative run 1
Positive run 5+

For example, the open on Monday Jan 23 was 1266.80 and this was up from the 1264.80 close on Friday, Jan 20. The Jan 20 open was 1287.50 and this was down from the close on Thur, Jan 19. Thus, a positive run of length 1 was started on Jan 23, which since Tues, Wed, Thur and Friday (today) also had up opens is now a positive run of length 5 and counting. Is such behavior consistent with randomness and does it provide a caution for day traders to get the joke?

Davos

Every last week in January, prime ministers, CEOs, academics and reporters meet in Davos and take a 60-franc bus ride to the ski resort to hear papers designed to create a world state and provide a general backdrop for disseminating thoughts on the smallness of man, the weaknesses of the United States, the coming decline of the dollar, the importance of communitarian goals, and the ravages that mankind's attempts to deploy resources efficiently cause to the environment.

Like Delphi, Davos is a forum designed for rubbing shoulders with the elite and coming up with predictions that will maintain the existing pecking order. It's the kind of function where the Sage might be expected to enumerate the serial numbers of all the private planes that land there for the purposes of holding up the users to ridicule the way he likes to do and has done at such meetings as the Masters, and the Bohemian, but presumably because everyone at this one is a fellow traveler, they're safe this time, and those that use the helicopter because their time is valuable are safe from his scrutiny and exposure. But the question is: does all the dollar bashing that goes on there provide a proper platform for a jumping-off point against at a predictable time after the Delphic self-serving predictions have been made? Inquiring minds wish to know what other ephemeral moves come out of this mountainous area, and how small folks can profit therefrom.

Bond Moves

Very quietly bonds have moved to a one-and-a-half month low, gold has moved to an all-time high, and crude and the stock market are within a gnat's eyelash of respectively all-time and five year highs. Such relations provide a nice backdrop for understanding and predicting the connections and feeding relations between markets, but the problem is that they are always changing.

The Sage's Stock

There is a general tendency for past performance to be very ephemeral and non-predictive. Indeed, I often look for the worst past performers when choosing a adviser to handle my own meager funds on the principle of ever-changing cycles et al. and the "we try harder" factor. However, there is an even worse tendency to remember the vivid successes of an investor many years after he has lost his greatness, especially when fanned by his own claque. Such a tendency I'm afraid might be too prevalent vis-a-vis the Sage and the Palindrome. Since Aug. 31, 1988, when the Sage's stock closed at 78,000, it has risen to its current level of 89,600, for a total return (there are no dividends forthcoming from such an eminent value investor) of 15%. Such a total return compares most unfavorably to Treasury bills during the period. I'll go out on a limb and speculate a la Julian Simon with a counterpart that loves the candymakers and regional furniture marts in declining urban areas of the world that such a relation has a reasonable chance to continue until the future. I abstain from a similar analysis of the Palindrome's past and forecasted performance during these periods on the grounds that he is doubtless in Davos now; and former doubles partners and great benefactors of humanity should always be given the benefit of the doubt. (Note that I chose a retrospective within-year high for my calculation of the Sage's 6 1/2-year total return.)

Watching

A amiable correspondent from Australia writes to me that I should be very careful in spreading good ideas around the Web because he knows of at least two operatives at substantial firms whose main job it is to watch what I do and front-run or imitate me. I would point out that I also have heard of at least three operatives whose job is to ferret out what I am doing and take the opposite side of my trades. Such an activity has even been one of the major themes of a book and is widely recommended on the highly prestigious trading forums. I would put my vote and my money on the wisdom of those who go against rather than those who go with such a poor speculator as I.

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