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10/07/2005
Fishing for a Bottom, from Victor Niederhoffer

Perhaps sparked by the up opening in stocks this morning, an erudite former politician I refer to as the Senator has questioned the veracity, verisimilitude, and, might I say, bona fides, of a bottoming in stocks. His studies show that historically bonds tend to bottom before stocks, and notes that no such bottoming has occurred. (Time: 9:15 EST)

It is good that it is easy for the Senator to test whether a turning point in one market is predictive of a turning point in another, as this kind of question has stumped us for 25 years. The number of observations and the definitions are fuzzy, and the time scale to test it is so long relative to recent data, that any conclusions are neither timely nor statistically reliable. Much more useful is the direct approach, which would perhaps have kept me in a job at Merrill, if I had stayed there and used it for 40 years, working for chronic bear Bob Farrell and his successors.

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