Daily Speculations

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The Chairman
Victor Niederhoffer

4/1/2005
Briefly Speaking: Monster Oil, by Victor Niederhoffer

It's guaranteed to happen that on the last day of a quarter a brokerage house will disseminate a model that shows that one of their major holdings is imminently due for a 100% increase in price. Also, that the model will be generated by an agrarian reform-loving mathematician who does not understand the first theorem of economics:

The higher the price, the greater the incentive for increased supply and the greater the incentive for reduced consumption.

The brokerage house model should be understood in terms of Ben Green's Horse Trading rather than considered a legitimate economic exercise.

Briefly, the attention given to the nice Monster numbers reminds me of a truly proper exercise in "forecasting " undertaken by the great Paul DeRosa. He polled the 10 major banks, to get their deposits, then put them thru a Bureau of Labor Statistics census adjustment seasonal program to come up with an estimate. How beautiful. So good that he had to stop it, as the edge was embarrassing.

But because of these adjustments, and the unholy politicking going into the employment number release (do they want people to control their own retirement, or do they want the government to decide, not that the relatively non-government administration has been elected), it is shameful to use a series like Monster to predict employment since the random components are paramount, whatever one part of the numerator may be estimated to be.

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