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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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Department of Physical Models
Physics offers insights into market interrelations.
10/23/04
Victor Niederhoffer: Pulleys and Markets
The two main advantage of pulleys in the myriad applications we use them for in our day-to-day life are (1) the convenience of being able to exert a force in a confined or compact downward direction and (2).their ability to reduce the force needed to lift or move an object. The most vivid demonstration I saw of (1) was in Vinalhaven, Maine, where lobsterman haul up their traps with a single fixed pulley. The most vivid application of (2) came in the movie “Fitzcarraldo,” which duplicated Archimedes’s feat at Syracuse in moving a large ship by using a compound set of fixed pulleys.
Like the inclined plane and its father, the lever (since a pulley is merely a lever with the fulcrum in the middle, and the beam a rope), the pulley allows a small force to accomplish much useful work.
How often do we see a series of circular moves starting in one market moving into another market designed to accomplish useful work in the first market? An example would be the S&P 500 revolving around 1100 a few times with at least 10-point swings above and beyond as it has done three times in the last six months (it is now below by less than 10 on its fourth try) , and then connecting the rope to oil, for example, as it revolves around $55 a barrel, in conjunction with soybeans or corns revolving about $5-ish or a dollar a bushel, respectively.
The purpose of the system of revolving forces is the avoidance of direct conflict, a collision of forces between the bulls and bears that would disrupt the pleasant pastimes of the market mistress, and preclude the public from playing their rightful role -- as the great turf handicapper Robert Bacon said, to lose so much more than they have any right to do.
Our studies of elementary machines are still very much in progress, and we welcome contributions of a theoretical, empirical and modeling framework that augments or improves.
