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25-Sep-2006
Following the News, from Victor Niederhoffer

In his memoirs Albert Jay Nock always argued that a major purpose of politics, aside from the plucking of the geese with the least hissing, was to gain inside information for wealth building. Certainly the increases in fortunes of many politicians whilst in office would be consistent with that, to say nothing of the implicit gain in wealth from their post-political lives, what with their previous connections and reputation. An example is the $500,000 speech of the former Washington dignitary in the week after he retired from office, and the comparable book and speaking tours of the run of the mill politicians, as well as all the lobbying possibilities.

All this was brought home by the recent French media reports of Bin Laden's death. What's amazing is that the emphasis of the story was on how peeved officials in France were that the information was leaked -- which undermines their ability to act first on inside information.

This leads me to reminisce on the first time I realized that news always follows the price, and more importantly, it reminds me that there are a million people who know more about the impact of news than the average layman or hedge fund manager or ghost or consultant. During the drive for independence in Poland, when Russian tanks were flowing in to maintain Russian control, I was short a huge line of silver. My partner; who was a very influential professor at an Ivy League school, specialized in raising money from mavericks who needed the prestige of the donation to said school and had lines in to every professor of policy at the university. Richard Pipes was then the world's foremost expert on Russia and the "Professor" was induced to make a personal call to Pipes to find out what would happen. "They can't let the revolt succeed because it would cause dominoes to fall," Pipes said. It had such gravitas, it was so inside, so salient, that I immediately covered my short. I lost more millions on that than almost anything else I have ever done, as silver promptly fell from $14 an ounce to $9 an ounce when the Russians did nothing.

Since then I have always tried to remind myself how many experts know much more about public policy than I, and how unlikely it is that I would be able to figure out whether the additional information that I can glean from a newspaper might be bullish or bearish in its ultimate effect on the market, relative to its already discounted nature.

Art Cooper responds:

It is not merely the gaining of "inside information" -- it is the acquisition of influence as well.

I worked at two nationally-prominent law firms, each of whom had partners (who I worked directly with) who were part of the "revolving door" between the federal government and private employment. Such partners not only used their inside information as to the policy-making process: when the matter was important enough, they would use such influence as they had to affect the outcome of that process.

It is not just that such individuals are in a better position to assess the impact of news -- they can affect the news themselves.

Ken Smith replies:

Physicist Brandon Carter said about counting:

What we can expect to observe must be restricted by the conditions necessary for our presence as observers.

Therein lies the crux overshadowing any hope the little man with limited information has for success in the stock market. His position as an observer is restricted.

The news he gets is behind the price. The indicators he sees reflect his behindness. Thus it is he always falls behind.