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The Chairman
Victor Niederhoffer


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Needles in Haystacks

It's always interesting to see how those with a view on the market are able to pick a straw out of a haystack to support their views. Perhaps the worst, systematic version of this comes around warnings season when the companies with the worst prospects warn and the market assumes that all subsequent news will be equivalent in prospects to the warnings.

This is an example of that same regression fallacy that pervades so much of economic and market thinking where the ephemeral component of a number is assumed to persist. First-year statistics students these days are asked to quantify the tendency for the batters in the top quarter of the batting average rankings in the first half to recede in the second half, and for those batters in the bottom quarter in the first half to gain in the second half. If only market people would read Stigler's articles on these tendencies, how much better the world of specinvestments would be.

In any case, the bears will be bombarding us with denigrations of the current earnings numbers and pointing to other weaknesses for sure. Here are four examples that crossed the desk today:

1. Potential earthquake in Maine

2. Contention that some of the decline in jobless claims is due to seasonal factors.

3. Qualcomm warning.

4. Index of leading indicators  falls 0.4%, giving grist to the bears, despite being a melange of retrospective items negatively correlated with the future, one component of which is last month's stock market price.

Please understand, as our readers will doubtless point out, that we are privy to this same tendency to clutch at straws ourselves. When we're long, we don't like to emphasize the negatives. And we restrain ourselves from mounting the high horse over the world's Abelsons, whose obsessive tendency to focus on the negative puts them beyond the pale of all except certain institutions, when for one brief moment in time they're right.

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