Feb

13

It's common among fish and butterflies to have false eyes, usually directly opposite from the placement of the real eyes.

There appear to be three reasons for this. The eyes often mimic dangerous prey like snakes and scare off potential predators. The eyes also serve to fool predators who focus on the eyes of the prey and try to approach from the opposite direction so as not to be seen. The false eyes allow the butterfly or fish to escape in exactly the opposite direction from what is expected, after getting a good look at the killer. Finally, sexual selection seems to be involved with the false eyes being a conspicuous mark of health and attraction to the opposite sex, thereby increasing reproductive potential.

There is hardly any form of deception that is not grist for the deceivers in the market. The situation calls for testing and generalizations. The false eyes in the market often occur at the opening in Japan or Europe where the open in these countries at 19 GMT or 3 GMT to an inordinate extent are opposite from the eyes of the open in New York. I found some 330 occasions each during the last 10 years where the direction of the open in Europe was opposite the direction in New York, e.g. down in New York but up in Europe, or up in Europe but down in New York. I found that the false eyes were the ones in US, with the direction in Europe correct in the next few hours after the US open to a significant extent. The tendency while significant has waned recently in the constant coevolution of those trying not to be deceived unduly by frequent false signals.

As an aside, I saw some nice examples of false eyes at the Mandalay Bay aquarium, a commercial venture, which like so many such compared to those run by zoological societies and other non-profits gives the customer an infinitely more educational and enjoyable experience and thus is so much more popular. How many more people have been exposed to nature refuges and wildernesses at Disney than all other refuges? As Mark Penn notes, it's best to always conclude that people are smart and act in their own interests. The greater patronage at places like Mandalay, Disney, and Naples Zoo compared to their non-profit making rivals shows what people value.

Other false eyes in the market would have to include those who are always talking about the next bear market, or recession. They've been doing it since 1980, and they got one in the naughties. Eventually their eyes will see correctly again.

The study of false eyes led me to a review of false eyes in Go. A good summary of the game, talks about strategic moves in Go. They can be "to make eyes", "To hinder the formation of eyes". To create "False eyes" along with the intention to threaten or attack neighboring forces, to oppose junction, to escape Hama (Territory ) et al. I would like to call on some experts in Go to contribute to what strategies in the Game of Go have to teach us about markets as this appears to be one area out of the many thousands of connections and areas of overlap in games, nature or other pursuits which we have not yet explored.

Steve Leslie remarks: 

At the risk of being jejune or appearing insipid, retaining an iconoclastic perspective is not necessarily a bad thing. This would have proven valuable especially during uncharacteristically robust times, e.g. late 1999 with respect to the markets and late 2007 with respect to such stocks as Google, Apple and Research in Motion. A case can also be made that when things appear most dour or data at their bleakest, e.g. 1982, that a change in momentum might be in the not so distant future. When something is least clear is where opportunities abound. To "think outside the box" is to think for oneself and outside the pervasive wisdom at the moment and not to side with the party politic. Beware of lemmings and pied pipers! 

Pitt Maner III adds:

Go looks to be a very challenging game at the highest levels, for humans and especially for computer programs.

"The superiority of humans over computers in Go might also be explained in more humanistic terms. Go challenges computer algorithms because it requires broad pattern matching skills and a relatively intuitive approach, while chess favors an algorithmic solution because the focus is more localized (on the capture of a single piece) and the approach is more logical.

This discussion of the application of Monte Carlo techniques to Go might have parallels in the markets and be suggestive of other ideas.  Here also is a Wired interview with the Go programmer, Remi Coulom. 

From Coulom's website :

The game of Go is a difficult and exciting challenge for artificial intelligence research. Today, the best Go-playing programs are still far from the strength of the human masters. Nevertheless, machines have made very spectacular progress in the recent years thanks to the emergence of a new technique called Monte-Carlo tree search. In this lecture, I will explain the principle of Monte-Carlo tree search, and how it was used to build a strong program, Crazy Stone. 

Alston Mabry goes over some basics:

The objective of Go is to take and defend territory on the board, and capture the opponent's stones and territory. A stone, or group of contiguous stones, is captured if it is surrounded by enemy stones (or the edge of the board). An "eye" is an empty space inside of a group that gives it "life". However, one eye is not enough — if a group is surrounded, the last enemy stone can be placed in a single eye to capture the group. Life for the group can be secured against all attack only by having two internal eyes.

A "false eye" is an empty space, inside a group, that is "false" because some part of the eye's wall could actually be captured, thus destroying the eye.

Go is very much a game of risk and reward. Each move is both offense and defense. A defensive move meant to secure life for a group may create a strong formation from which to launch attacks. And the reverse: An aggressive move to claim territory may panic the enemy, but then as he defends, he may create a solid formation which threatens the aggressor. Now the aggressor must backpedal and play defensively to protect his outpost.

In Japanese the back and forth of risk and reward is captured in the word "sente". A player "has sente" if each of his moves forces a response from his opponent. In a tight game, sente passes back and forth between the players.

There is sente at the opening of the game, or "fuseki", when players are usually staking out territory and claiming corners. These are broad, strategic moves. And then there is sente in close, tactical situations, where the life of a group is threatened, and each threat forces a response.


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13 Comments so far

  1. Anatoly Veltman on February 13, 2008 9:54 pm

    Perfect instance of "false eyes" is playing out within precious metals complex. Platinum accomplished unprecedented outside reversal today, from London low of $1880 to over $2000 historic objective — just 8 hours hence. In doing so, it pulled Gold chart back up from the potential "right shoulder" abyss of the popular top pattern. Both metals have shed 20% of their record Open Interest in a month, while prices are still near record. The difference is that Platinum is in the midst of true production dilemma, with miners lifting a few hedges; while Gold is undergoing spec liquidation, in front of the looming Official Sector reserve offer. Pay attention to Thursday trade, following Wednesday's false move!

  2. Lon Evans on February 14, 2008 3:16 am

    In regards to:

    “Other false eyes in the market would have to include those who are always talking about the next bear market, or recession. They’ve been doing it since 1980, and they got one in the naughties. Eventually their eyes will see correctly again.’

    Vic, have you ever, for a living, swung a hammer, and found that no one needed the nail sunk? I’ve read of your past, I’ve read what you have written, and as much respect as I do have for your experience, I don’t find within your story much in the way of struggle. How many fast-order plates have you scrubbed? How many sleepless nights did you sacrifice for your education?

    To suggest that recessions are a fiction of the pessimist’s neurosis is not only rude, but inaccurate.

    You were blessed with wonderful parents, if your telling is to be believed. So much was your father your guiding light that, in my opinion, you’ve been hog-tied to his concern of your ending your days in a Bowery flop-house, which might explain a couple of blow-ups.

    Few, Mr. Niederhoffer, have been graced with the intelligence, the drive, and the support necessary to achieve what has been your reality to date. Give the less fortunate their due.

    In closing, as much as you’ve achieved, you’ve also lost, or not? Have you, Vic, ever been forced from your home. Other than selling books and plate ware; other than placing your assets in a wife’s name, have you ever lost everything? Millions of Americans have and will continue to lose their homes in the coming months. Millions of Americans have and will continue to lose everything.

    My question for you, necessarily, is, how do you define ‘recession?’

    lon

  3. steve leslie on February 14, 2008 1:12 pm

    Two points:

    Lon: I worked in the Rubber industry in Akron Oh. Can’t get more blue collar (or black collar)than that. I know struggle and I’ve got stripes. And I know recessions. of the 1979 variety for that matter.

    Not that my friend and mentor needs defending, however he took an interest in a nobody like me,sent me his autobiography and a framed picture of “The Essex”. He and his colleagues have taught me innumberable and invaluable lessons. Some are to “think outside the box”, think for yourself and not to rely on the wisdom of others. All of this despite never meeting him face to face and having only spoken to him once by phone.

    His methods may be eccentric and his successes at times sporadic, however his genius and scope is not to be disputed, and he is genuine.

    “Millions will lose everything?” Perhaps but from whence does this number come from. I doubt that “Hoovervilles” will sprout across America.

    Getting back to deception: No limit poker offers many opportunities for deception such as “the all in” the bluff,the semi-bluff and the slow play.

    In stocks, I think of rumors of take-overs(Biogen Idec) overt activism (Icahn) and pumps and dumps (Gordon Gecko).

    sl.

  4. Steven Lambert on February 14, 2008 4:59 pm

    As Winston Churchill said:

    “I am an optimist. It does not seem much use being anything else.”

  5. Lon Evans on February 14, 2008 5:32 pm

    Mr. Leslie,

    I’m sorry that you took my criticism as a personal attack on Mr. Niederhoffer. It was not such, and hopefully most who read it will understand that it was posted only to contradict the statement mentioned. I’ve tremendous respect for Vic, his thought processes, and the content of his insights, which is why I frequent this site.

    In regards to: “Perhaps but from whence do these numbers come from.”

    The answer to this question is so obvious that I’m perplexed by your having posed it. Think “Sub-Prime,” and ask yourself what acts as the foundation for the most dangerous global financial crisis since the Great Depression. Yes, Mr. Leslie, it is American’s either being foreclosed upon, or simply walking away from untenable mortgage readjustments. As to your mention of “Hoovervilles,” we no longer call them such. Today, the dispossessed suffer the real possibility of taking up residence in a box at the end of skid row.

    I suggest that you begin with “thinking outside the box,” and not blindly accept the words from up high, even those emanating from the ‘Chairman,’ himself. As a born iconoclast, I am disinclined, possibly incapable, of doing otherwise.

    Best,

    lon

  6. John on February 14, 2008 7:27 pm

    “…Other false eyes in the market would have to include those who are always talking about the next bear market, or recession. They’ve been doing it since 1980, and they got one in the naughties. Eventually their eyes will see correctly again…”

    Lon, I presume this comment was directed towards permabears like Gary Shilling and Alan Abelson that are invariably pessimistic on the economy and the stock market respectively. I don’t think the statement was saying recessions are necessarily illusions. (Though perhaps the appearance of non-random skill in forecasting them is an illusion.) Given the upward drift of the market “always talking about the next bear market, or recession” is not a moneymaking stance. And note that the statement says “always talking …” I don’t think the viewpoint would be inconsistent with developing a bearish (or at least non-bullish) stance on the market in periods like 1999/2000 when real bond yields towered over the equity earnings yield.

  7. jeff on February 14, 2008 7:45 pm

    Lon said:
    ” Millions of Americans have and will continue to lose their homes in the coming months. Millions of Americans have and will continue to lose everything.”

    Lon, can you cite a source for that statement, give some quantification, or is this an exercise in hyperbole?

    The last time I looked up, I didn’t see the sky falling.

    Jeff

  8. Lon Evans on February 15, 2008 3:37 am

    Bother,

    Rather than respond, rather than succumb to the influence of the idoitic, I choose instead to get anecdotal. Last night, I opened up the platform and found the futures up some 10 handles. So I looked to the East, and found optimism - galore. My iconoclastic soul was offended by the global stupidity. So I shorted the coming day.

    Well, we all know how that day ended. My personal gain was twenty handles. Not bad for a novice, huh?

    As of this missive, I'm am short at 1352.50. We'll talk tomorrow.

    lon

    P.S. Jeff, you’ve never looked!

    […]

    By the way, Vic. Without you . . . , well, you know. Thank you.

  9. Martin Johnson on February 15, 2008 10:05 am

    From my experience in this business, those that have the inherent need to disclose “this or that” profitable trade in an attempt to demonstrate their prowess and abilities are one step closer from being humbled by the market mistress.

  10. Lon Evans on February 15, 2008 3:42 pm

    Dear Martin,

    I concur with your opinion, and am personally loath to even discuss what it is I do for a living. I included this last nugget for the benefit of this community, only. In effect, I put my money where my mouth is, which is not so much braggadocio, but rather to affirm my, generally, contrary opinion.

    To sum up the trade. I continued to sell into last night’s upswing. At the point when I reached my size limit, I placed my stop and slept. The little averaging thingy tells me that my play balanced out at 1354.833, very kind of it to inform me. I woke to find the markets in retreat with a bounce at 1340. At the second bounce (again 1340) shortly after market open, I covered.

    I thank each and every optimist for being kind enough to take the other side of the trade. Without your mindset I would still be licking the wounds of last Friday’s very painful losses. As it stands, I am now flat for the last two weeks. Yes, Martin, I have known Mistress Market’s bipolar tendencies, and I, with gratitude, appreciate each and every occasion by which she has informed and educated me.

    A pleasant weekend to all,

    lon

  11. George Parkanyi on February 15, 2008 9:50 pm

    It’s interesting, this discussion about go (I’ve never played it) being a game of winning territory and trying to box in one’s opponent made me think how - if you considered the price ranges that a stock transits (see any price chart) as the “territory”, conceivably you could box in or profitably trap a stock with options. The different strike prices, maturities, and margin offsets give you a rich combination of alternatives with which to layer on option positions with the objective of ultimately locking in a profit no matter what the stock does. Perhaps go strategies could be applied here.

    I need to think more on that one.

    Cheers,
    GP

  12. Second Handers « Masteroftheuniverse’s Weblog on February 17, 2008 9:29 am

    An item mentioning this post has been published at http://masteroftheuniverse.wordpress.com/2008/02/17/second-handers/

  13. Spencer Siekierke on November 5, 2009 12:42 pm

    COOL eyes dude!

    Okay, I’m a pretten, but I still think those are some wicked defense mechanisms.

    So long
    Spencer S (the Great)

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