Daily Speculations

The Web Site of Victor Niederhoffer & Laurel Kenner

Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter;  a forum for us to use our meager abilities to make the world of specinvestments a better place.

 

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7/20/04
Victor Niederhoffer: The Rhythms of the News

Has anyone noticed how those with fixed beliefs are encouraged by market moves in a particular direction to reach ever wider and further? For example, there is a steady backdrop of noise in the media about the weakness of the domestic or foreign economy. As known, such weakness is not predictive of anything either empirically or theoretically as one would have to know how it affects the expected discounted value of future earnings and whether such had already been rationalized or not. Or more to the point whether there is an empirical relation between future price moves and economic weakness, other than the well known inverse correlation documented by Vic in his introduction to the Carret book. Yet the market at its 6 month low yesterday was more than sufficient to elicit a google of memos to us about the weakness of this of that sector be it autos, retail or the quality or quantity of jobs picture.

As another example, one might note that the hate mail directed at us against our skepticism in support of trend following or charting as well as the hate mail raking us over the 11997 coals again are at a peak after a year like 2002 where some chartists and trend followers beat the stock market or 2003 when the average trend follower only lost 10 percentage points relative to the stock market, versus a year like this when such as the Florida trendists or the sports operator are down as much as 20 or 30 percentage points relative to the market. The same for books and it no accident that the book trend following was recommended as a "must read bible" right before it's two heroes are down 30 percentage points on their flagships.

One finds the changing dynamics of the credibility given to various ideas like a piece of music in ABAB format, or at least in sonata format, or like the changing emphasis on minor or major keys in the ninth.