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Father Random by Victor Niederhoffer

An interesting post came across my desk indicating that consultant Bob Shrum was pleased that Mr. Kerry came within 60,000 votes in Ohio "of winning the presidency." Of course, father random arranges it so that if you take the 10 states with the most electoral votes, and then rank them by how close the race was, you can always find a small number of votes to moves from one party to the other to switch the outcome. Indeed, in analyzing cross classified data such as:

                                          Last 2 months up    Last 2 months down    Last 2 Months Avg. Chg
  First 10 months up                       10                                 2                          4%
  First 10 months down                    6                                 6                           2%

A standard way to tell whether an association or non random preponderance in any elements exists is to count how many of the observations must be moved from one element to another in order for the proportions to equate (see the Leo Goodman method of teaching for another example of Goodman and Kruskal's ingenuity in Ed Spec for a lead to this). ....

But there's something much more than the Father going on in the backings and fillings that the market took before the election before finally going up a "Swift " 7% in the days surrounding the election. It's the Market Mistress's way of giving the losers hope. If only those odds of 3 to 1 in favor of Kerry on Nov. 2 at 7 pm had held up and he had won, then the market could have gone down a "swift" 7% " they can say.

Of course, the sapient investor knows that the market would have surmounted the obstacles to end up in the same place regardless, but it is amusing how the Mistress gives the bears and other losers hope. "If only they had bought instead of sold .... If only the Swifties hadn't found a handle... If only oil hadn't started its Lobagola move the other way home..."

But of course, the Mistress of Markets must always give hope, must always take account of the tendency of her husband, Father Random, to "confound and percolate." Or else the friends of the losers could not be drawn in, and the losers themselves would not be ready to come back to the casino. to lose more than they have a right to do in  the most efficient fashion.  

In discussing the magisterial efficiency with which the market ploys her trade, making every thing seem like it is hung on a thread, that without such fine distinctions, the readers of the biggest financial weekly, those with an average tenure with the magazine of 50 years or more, those who love the humor, the wit, the acerbic skepticism of its lead columnist, those who have been induced to either stay out or reduce the percentage of funds deployed in the market during the 40 years he's been their columnist, might not be encouraged to continue to withhold funds from stocks, as their leader elicits yet another group of friends (where are Bob Farrell and Mark Faber and Charles Minter and Robert Prechter today) who can point to that knife edge that prevented them from circumventing the 2 percentage point differential in favor of stock returns relative to bonds that has existed this whole year, and can lead their followers and readers to continue their bearish predilections.

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