Feb

11

VN1. The screens at the roulette tables in Vegas these days have helpful summary statistics for the players as to the hottest numbers of the last 50 spins, the percent of even and odds that has occurred, and the percent of 1-12, 13-24, 25-36. Presumably the casinos are so confident of the fairness of their machines that they send these signals to induce the poor players to think that there are some deviations from randomness so that they will play more. How much more frequent does this type of deception, this false enticement occur during markets with similar disastrous results to the participants. And how can this be quantified so that the players are not so likely to contribute to the upkeep of the vast overhead in the market?

2. The number of US manufacturing jobs has gone down by about two million during the last 10 years and the number of non-manufacturing jobs has gone up by about 15 million. The non-manufacturing jobs generally pay more than the manufacturing jobs. How foolish can one be to pay too much attention to the latest reports on manufacturing slowdown in this or that city or state or order rate with the decrying of how weak our economy is to the cost of all weak holders?

3. The book Microtrends by Mark Penn, the chief strategist for the Clinton campaign, and a strategist for 15 different presidential campaigns contains numerous ideas about demographic factors that will have an important impact on the performance of individual stocks. I will review it subsequently.

4. All of the books by Patrick O'Brian in the Aubrey/Maturin series contain insights about economics that are timeless and valuable. Recently in a reading of The Surgeons Mate I came across a beautiful passage about the wisdom of the market, specifically English gilts, in forecasting the likely outcome of the Napoleonic wars that is as fresh as the prediction markets of today, and the most cutting edge efficient market behaviorist papers:

[Sir Joseph:] I do not suppose there are many things that men think about with such deep, careful, zealous attention as money, and the Stock Exchange is an infallible index of their thoughts, the collective thoughts of a large number of intelligent, informed men who have a great deal to lose and win.  Even this Heaven-sent victory of yours, and Wellington's at Vitoria, have scarcely moved the City to anything more than bonfires and illuminations and patriotic addresses. These gentlemen know that we cannot go on alone much longer, and at the first stroke of ill-fortune our allies will desert us, as they have so often deserted us before. No Sir: if I were half as sanguine about Napoleon's downfall as you, I should go down into the City tomorrow and make my fortune.

[Maturin:] How would you do that, for all love?

[Sir Joseph:] Why I should buy Government Stock, India Stock, and any sound commercial shares whose value depends on foreign trade: I should buy them at their present dirt-cheap rate, and the as soon as Buonaparte was knocked on the head, or peace was declared, I should sell them at a perfectly enormous profit.  Perfectly enormous, my dear sir.  Any man with foreknowledge could do the same […].  But however, I shall not make my fortune, alas, for the very good reason that I thoroughly agree with the gentlemen of the City: I believe they are perfectly right.  Napoleon is still a very great commander […] he has astonishing powers of recovery. His fleet is quite untouched. […] No,no, Maturin: take the Stock Exchange for your barometer, and rest assured that there is a great deal of work for us to do before Boney is brought down.


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