Feb

24

VNWe are all accustomed to the wisdom of "the threat is worse than the realization" which comes from the boardgame world, and Tom Wiswell and Nigel Davies have written about it. But one wonders if it's symmetric with "the hope is better than the realization," as an event like the 25 S&P point half-hour rally on the hope of a bailout, a shuffling of the risk from one to another, would be prone to a revulsion, or a 25 point down swing or some such in the near future when hope meets reality or as Galton said about Spencer, when the facts meet the hypothesis.

Nigel Davies suggests:

One way to look at this is to view weak emotional responses as being attached by elastic to the roller coaster of perceived reality. And this leads to two of the great problems in games and speculation, one's perception and the feelings this then engenders. It may also be that 'science' is no answer here except to add a layer of false confidence to already skewed beliefs. It seems very easy to prove whatever one sets out to prove, and to be too rigorous usually means saying nothing at all.


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6 Comments so far

  1. gabe on February 25, 2008 1:29 am

    off topic but good read

    “Results from a study at the University of Leeds show that it takes a minority of just five per cent to influence a crowd’s direction – and that the other 95 per cent follow without realising it.”

    http://www.leeds.ac.uk/media/press_releases/current/flock.htm
    http://www.citeulike.org/user/adriandefroment/article/1847820

  2. Lon Evans on February 25, 2008 4:22 am

    Speaking from the reality of having strived mightily and of having failed many times, I. humbly, concur with Victor’s “one wonders . . .” It is desirable to hope that others will take up the weight, that others will “bail” one out. Such is so desirable a need, so easy a solution, that one is too easily drawn into complacency, into dependency. And this need, this simple solution, is akin to death.

    “Wisdom,” what is this?

    “. . . a shuffling of the risk from one to another, . . . ,” yes, the practice is revolting. I love the game of speculation simply because it demands of me integrity. Anything else, on my part, guarantees failure.

    I wake each morning with the hope of success, and the very real potential for failure. I understand that any position I take demands a difference between my daily bread and hunger. I’ve never been so content to wake to a challenge. I’ve never so enjoyed life.

    Dear Victor, years ago I was given a book you wrote about your life. It was handed to my by an genius alcoholic who drove a cab in Westport, CT. He had been your transportation one evening, and you had passed to him your words, with an inscription. He passed the same onto me. This simple act of courtesy altered my life.

    It suggested that I begin to think, rather than react. I’m a bit slow; these so many years later I continue the struggle against my more base instincts. Little by little, I hope to prevail.

    Thank you for the opportunity, this hope.

    25 point up, 25 point down? Does it really matter? In the end, as far as I’m concerned, the endeavor far exceeds gross measures of success or failure.

    lon

  3. Lon Evans on February 25, 2008 5:18 am

    P.S. Given all Friday’s optimism, why is the Russell still suppressed beneath 700?

  4. iAnatoly Veltman on February 25, 2008 1:32 pm

    "The threat is worse than the realization" concept was pounded by my international checkers coaches, since I was five. I used it a lot in my quest for three Soviet Championships back in the 70s. At today's open, I added to Fri longs in Dow futures and $/Yen — sort of a Texas hedge. The idea is that a threat of tomorrow's headline "Dow over 12500!" will also enable $/Yen move toward major-major 108.35 break-out spot. Whether the break pans out is secondary to threat of getting there; thus putting shorts into immediate risk of 110 $/Yen!

  5. Lawrence Schulman on February 25, 2008 2:41 pm

    I would say that "false hopes is worse than the realization" applies here. I sold into the late Friday rally. I think the market is headed lower regardless. We knew before, the government suggested they will step as a last resort to bail out the mortgage insurers. But the reason the S&P dropped almost 40 points from Thursday highs to Friday lows was due to the slumping outlook provided by the Federal Reserve Bank of Philidelphia Business Survey; the worst in six years. Those who think a cash infusion to save Ambac will lead to a major market rally are ignoring other factors.

  6. Anatoly Veltman on February 25, 2008 9:35 pm

    Anatoly Veltman adds:

    You can’t have more classic example of a threat, than the one playing out in the Gold market. The U.S. flipped this morning to favor one-time IMF sale of 12.9m oz, amount equal to quarter of Comex Open Interest! Most futures trading these days is black-boxed; and so intra-day reaction was tepid at best. Participants, apparently lacking market experience and simple logic, do not understand full implication of Treasury announcement. A couple of fallacies have been making rounds: that the Congress would not approve; and that even if the sale takes place - track-record of Official Sector has been miserable, having in the past bought Gold highs and sold Gold lows.

    Firstly: yes, the U.S.’s 17% of votes do have veto power - as 85% is required for pass. But U.S. has indicated this morning that it won’t veto.

    Secondly: above “track-record” has no statistical relevance to current price forecast. Even though previous Central Bank moves proved unprofitable in hindsight - they didn’t put CB’s out of business.

    More relevant for immediate market outlook would be the following line of thought: what has moved Gold price up for 7 years straight, to the tune of 300%; and what has been keeping it near current unprecedented record price levels? Even if you haven’t heard the anecdotal evidence - then one look at CFTC’s Commitment of Traders break-down holds the answer: fund buying. So let me ask you: what fund manager will dare to keep bidding in the $940’s, following this mornings press-release? Fund’s clients might harshely question such manager later: couldn’t you wait to buy Gold at better prices, following Official sales, or at least a price drop (under the threat of IMF sale)? So, the bid right here is effectively embargoed!

    Next, the way markets often chase each other and create self-fulfilling prophecy: $ trading has been lacking fundamental leads of late. So Gold’s newly-found weakness against the $ - may induce $-bullish sentiment. And as $ rises, Gold would weaken further.

    So goes the story of the threat to sell - who cares when, in what tranches and to whom!!

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