Mar

27

Jim Lorie

(Photo above: the late Professor James H. Lorie (1922-2005). An obituary appeared on this web site in August 2005.)

My experience with "false gestures" reached its climax at its inception as I accompanied Jim Lorie when he showed prospective University of Chicago professors to the Hyde Park neighborhood. He'd stop at The Unique Deli and conspicuously leave the keys in the car. The prospect would say "I thought it would be very dangerous here" and Jim would say "it's so safe here that I don't even have to worry about the car."

A highlight of my observation of false gestures came when I saw a distinguished Objectivist scholar, always dressed in formal suit and tie, stoop to play with a child at a lecture he gave where all the questions had to be submitted in writing in advance and I couldn't even ask him about the identical twins. The gesture was so false, so contrived, he was so obviously uncomfortable with kids that it was a laugh.

A third experience was watching a Japanese movie where the blond American proprietress of a Japanese wine shop spoke in Japanese to all the Japanese customers. It was so hilarious, so out of whack, that you understood immediately why Japanese think that any American who tries to speak their language, no matter how good his accent and grammar, is an utter charlatan.

A recent experience came when I asked an attorney whether it is good to look at the jury when testifying or look directly at the questioner. He said " the juries hate it when you look at them because they know you're treating them like sheep" and they really don't believe you're that much more sagacious and truthful and a man of the people than they.

I wonder what the significance of false gestures in the market is. It's almost a Googlewhack with just nine out of context, unrelated conjunctions of "stock market" and "false gestures." The move on Monday that's reversed on Tuesday comes to mind, or the move from 2:30 to 3:00, like today, up 1% on the Bear Stearns increase rumour immediately followed by down 2% on the Oracle shortfall of 1/3 of 1% on revenues. Yes, but the real ones are part of the "I'm the greatest" bag. They come when companies fudge the real reasons for their shortfall of earnings or insiders fudge their real reason for selling out – "it was just estate and family matters."

The whole subject calls for quantification and further examples in all fields related to investments.

Jeff Watson adds:

False gestures are the mother of all deceptions. From political campaigns to fire and brimstone preachers, all use false gestures to achieve their ends. The wheat market players have been known to use false gestures in the form of buying up three or four whole trainloads of wheat well before the futures market opening. When the cash board shows a smaller than expected amount of cash wheat coming to market, it can cause the futures market to move up, mostly retail driven. A savvy purchaser of the small cash position can sell a lot of wheat in the futures market at a higher price and also resell the cash position at a premium. Sometimes it works, sometimes it doesn't.

John White writes:

 On many occasions the market has been referred to as “the market mistress.” I find this to be an apt moniker because she shares many qualities with women. She’s complex, mysterious, seductive, and just when you think you’ve got her figured out, she surprises you. With that in mind I thought some observations from last night’s carousing with a friend (in celebration of a birthday) might shed some light.

One only need sit in a singles bar for an hour or two to observe hundreds of false gestures. Looking back on the mating rituals from an anthropological standpoint, it seems to me that the market (women) falls for, then identifies, and finally renders obsolete false gestures. Pick up lines are useless. Sending a drink across the bar is passé. “Do you come here often?” usually elicits a mocking laugh. Fortunately for market participants (men) there seems to be an unending supply of original false gestures due to everchanging cycles. Pick up lines are now a contest to see who can come up with the most outrageous and are obviously a joke. I have sent a drink across the bar, but it was a glass of water. The response was a playful tossing of ice back across the bar and a subsequent invitation for a conversation. When it comes to these false gestures, the key to success seems to be originality and timing. An original and unexpected false gesture can move the market drastically.

My final observation is that even the successful false gesture is merely a crutch. If there is no substance to back it up, the market reverses. It is useful for getting a date (trading), but not for getting a girlfriend/wife (investing).

Steve Leslie explains:

The classic false gesture in poker is the check-raise. Example: you are in a hold-em game and the flop hits your hand and you get a set. You are the first to act. Rather than bet the hand you check. An aggressive player behind you, who might have the top pair comes out swinging and forces the action by putting in a sizable bet. Now you come back at him, and reraise. Properly constructed and carried off, it is the most powerful and profitable play. I find that the player who has been reraised usually knows at this point that he is beat but just can't get away from the hand, and calls the reraise and you take down the pot.

Mike Humbert replies:

Whenever I listen to someone telling me how easy something like this is, e.g., winning at poker, picking winning stocks, etc., this scene from "Get Shorty" always comes to mind. BO CATLETT is Delroy Lindo; CHILI is John Travolta.

BO CATLETT: You know what I'm thinkin'? (leans forward) You wanna make the girl older. I don't like the ending. We could do that, you and me, sit down and write the script over where it needs it.

Chili fips through the movie script a moment . . .

CHILI: You know how to write one of these?

BO CATLETT: There's nothin' to know. You have an idea, you write down what you wanna say. Then you get somebody to add in the commas and sh*t where they belong, if you aren't positive yourself. Maybe fix up the spelling where you have some tricky words… although I've seen scripts where I know words weren't spelled right and there was hardly any commas in it at all. So I don't think it's too important. Anyway, you come to the last page you write in 'Fade out' and that's the end, you're done.

CHILI: That's all there is to it, huh?

BO CATLETT: That's all.

Chili sits forward, stabs out his cigarette, exhales into Bo Catlett's face . . .

CHILI: Then what the f*ck do I need you for?

Eric Blumenschein writes:

False gestures in speculation are not the same as in poker. In poker, you can see the card holders. The equivalent in trading would be six traders sitting in a circle at their screens and you six are the only traders of that particular instrument. Now imagine watching the other five and your screen. Watching price break a new low and looking around to see if anyone is squirming or sweating while others are looking back at you. In trading you don't see the other card holders. It is more like trying to play poker in a dark room around a huge table with only a match to see your hand and the flop is the Fed. So how do you play the game now? The commitment of traders model alone is not enough. I could go bankrupt waiting for them to break the trend. I can't see the game they are in? Are they hedging another kind of trade? What table are they at? What is the flop they are looking for: Housing Starts, Industrial Production, inverted yield curve? Does that make their hand? Now imagine in poker the dealer lays down six different flops to play and after each bet he may or may not make changes in a few cards in the different flops. Would you call that game poker?


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14 Comments so far

  1. Anatoly Veltman on March 27, 2008 9:07 am

    Classic case of false gesture was observed early this morning in oil futures. It will further spill over into sector rotation, once U.S. stock market opens.

    Oil rocketed to $107.70 in London, up from $99.13 less than 48 hours ago! That was on combination of firmer GBP and pipeline sabotage in Iraq.

    A bigger element was disregarded by European speculators in the process. Chicago margins are been hiked 30-50% today. Resulting is perceived pressure on grain elevators to finance their hedging programs. Commodity stocks, that have been in vogue of late, will all come under pressure today. Sector rotation will mean the move out of all defensive issues, including gold and oil stocks. In current era of daily adjustments to fund allocation strategies, this will filter through back to cause heavy profit-taking in $107 oil.

  2. steve leslie on March 27, 2008 9:13 am

    Your false gestures commentary prompts this question. I recall hearing or reading recently (perhaps it was on this website) that 80% of the time the low for the day and the high for the day of the market is reached within the first hour. This reminds me of the famous Ali "rope-a-dope" where he lured his opponents most notable Foreman in Zaire into a false sense of security by feigning weakness and then punched him out in the middle rounds. I also understand that with respect to forex most of the action in that market eg. euro/dollar occurs when London opens for business. Is this statistically true or just noise? sl.

  3. Ward on March 27, 2008 12:35 pm

    Somebody should monitor corporate buybacks net of option dilution vs what was authorized.

  4. reid wientge on March 27, 2008 4:13 pm

    (I do not have the experience or the credentials to make this statement other than to submit that I have read the “standard” tomes on markets.) False gestures ala Ali and rope-a-dope, describes why markets and individual stocks rally before the rout as smart money sells into strength in price and volume as soon to be sheared buyers prop up the price.

  5. George Parkanyi on March 27, 2008 4:22 pm

    Bullsh!t has a short half-life. It is effective only in the short run. If you short-term trade on "information" you're subjecting yourself so much more to its influences. If you've done your homework, you'll have a better sense of what's true, what's not, and what matters and what doesn't. Time is the best vaccine. Cheers, George

  6. Eric Blumenschein on March 27, 2008 6:18 pm

    What is the difference between false gestures and bluffing? Padding the bid/ask then pulling away or flooding the ask to push price then reversing it, these actions happen everyday. In trading the es eminis, I recall a particular trading moment watching the ask get absorbed for 10 minutes at a certain price level during a low volatile period, then the bid was flooded with selling and 2 points lower, the ask was flooded and price pushed back up and within 4 minutes, trading resumed it’s low volatile static range. I counted the contracts being traded at the different price levels and estimated that someone had just profited about $100,000.00. If what I saw was interpreted correctly, it was pretty ballsy bluffing (false gestures) with some deep pockets. Yet, isn’t that what poker players try to accomplish? Pull others to bet chips against hidden strength or bluff strength while holding weakness and mixing it all up to keep others off balance and lose their ‘read’ on your play. Is this any different from the horse trader’s feigned disinterest to sell while luring the buyer’s interest higher? I read that Al Capone did not invest in the stock market because he recognized it as a con. Or I would suppose it was a con outside of his ability to run. Personally, I think that all aspects of the market are manipulated with false gestures or bluffs, so the question remains on how to systematically profit from it.

  7. Curmudgeon 3417 on March 27, 2008 9:04 pm

    Am I the only one who thinks the late Professor James Lorie bore a faint resemblance to the young actor Ronald Reagan?

  8. George Parkanyi on March 27, 2008 9:52 pm

    If you like deception, try Mother Nature. The other day at my parents' I saw this wonderful, amazing, and funny documentary about the animals and bushmen of desert West Africa, called "Animals are Beautiful People", Warner Bros, written, produced and directed by Jamie Uys of "The Gods Must Be Crazy" fame. There are two scenes that are particularly relevant to the this discussion. In the first, a sidewinder snake is interested in catching a gecko. Sneak up on and strike at gecko, right? Nope. This guy buries himself completely in the sand, and then pops up just the very tip of his tail, which looks like a blade of grass. The gecko doesn't care, but the ants that geckos like to eat sure do and run to check it out. Ant goes for tail, gecko goes for ant, boom - snake eats gecko. In the second episode a bushman wants a drink. Dig up a root, squeeze some shavings, right? That works in a pinch, but nope. Just ask a baboon. Now baboons never reveal their source of water by going there in view of other animals. So this is how this plays out. In view of baboon, Bushman puts handful of seeds into hole in large dried-out tree trunk. Baboon doesn't trust bushman, but, bursting with curiosity finally runs down and sticks hand in hole and grabs seeds. Bushman runs toward baboon; panicked baboon does not think to drop seeds and cannot pull hand out of tree-trunk. Bushman catches baboon, ties him to another tree. Bushman gives baboon small blocks of salt (which baboons love). Baboon eats salt, gets very thirsty. Bushman releases baboon. Baboon runs straight for water, darn the rules. Bushman follows baboon to secret cave with pool. Bushman drinks water. And we just put coins in a vending machine … Cheers, GP

  9. steve leslie on March 28, 2008 9:36 am

    Al Capone didn't play the stock market because he would have had to pay taxes on his gains( and we all know he hated to pay taxes) plus by some estimates he made $100 Million dollars during his reign. Recall the time period. By the way, the Untouchables with Sean Connery and Kevin Costner although historically inaccurate is a really good movie. Probably Brian DePalma's best.

    On Baboons. They are the largest of the monkey group growing as large as 80 lbs. They are omnivores and will eat rodents and small mammals. For a bushman to battle a baboon shows the courage dedication and strength they must have to survive in the outback.

    Is it just me or does anyone else find it curious that within a week after the Bear Stearns $2 then $10 bid we see a similar game played at Clear Channel buyout? sl.

  10. Doug Kass on March 29, 2008 7:10 am

    Please sing along to the tune of the legendary Bob Marley’s “No Woman, No Cry.”

    No rally, no cry.
    No rally, no cry.
    No rally, no cry.
    No rally, no cry.

    Pisani said — Ratigan said:

    We remember when we used to sit
    In the bright setting in CNBC-town.
    Observing the hypocrites
    As they would buy all the equities they meet,
    Good stocks we have, oh, no good stocks we’ve lost
    Along the way,
    Even in Kudlow’s bright future, you can’t forget your past;
    So dry your tears, we say.

    No rally, no cry.
    No rally, no cry.
    No rally, no cry.

    I remember when Bob and Dylan used to sit
    In the bright setting in CNBC-town.
    Back then Goldman’s Abby would make the market lights,
    As Dougie’s portfolio was burnin’ through the nights.
    Then we would cook bull porridge,
    Of which we’d share with all of you;
    Our long-term view was our only carriage,
    So we’ve got push on through.

    But while the bull is gone, I mean,
    Everything’s gonna be all right.
    Everything’s gonna be all right.
    I said everything’s gonna be all right-a!

    So, no rally, no cry.
    No — no rally — rally, no cry.
    Erin, little sister, don’t shed no tears;
    No rally, no cry.
    Eh! (Little Karen F, don’t shed no tears)
    No rally, no cry.
    Little sister, don’t shed no tears;
    No rally, no cry.

  11. George Parkanyi on March 29, 2008 9:54 am

    BLACKJACK AND COMMITMENTS OF TRADERS

    Last night I saw the new movie that’s just out called “21″. It’s based in the book “Bringing Down the House” by Ben Mezrich, about the MIT Blackjack Team of students that made millions in Las Vegas with a card-counting and role-playing system.

    What they did was use a very simple counting system to determine when the rest of the deck was “hot” - the odds favourable. They also used a clever deception scheme to evade being noticed and banned from the casinos. One of them would play low-stakes hands and follow the count, then at a favourable point when the deck was “hot”, surrepticiously signal the “big player” (holding the the big money) that the deck was hot. When the big player arrived, he would also be given a codeword for the actual count embedded in a small-talk phrase. The the big player would then pretend to be a high-roller and both bet heavily and continue the count. They made the money because they only pressed when the deck was in their favour.

    This morning I was lying in bed waking up when it ocurred to me that the commitments of traders could be looked at as a blackjack game, and what you are counting is the commercials commitments data. Since commercials actually deal with the physical products, when they get active or inactive in an extreme, then the deck can get hot.

    Although there are of course non-linear influences, the futures market is a quasi-closed system, almost like a deck of cards, in the sense that the open long and short positions in each group - Commercials, Large Speculators, and Small Speculators - net out in the Commitments of Traders report.

    The MIT team didn’t win every hand, but they won overall because statistically the conditions were in their favour. The Commercials commitments data are perhaps how you “card-count” in futures. When the Commercials are the most heavily short they have been for in say a year or year-and-a-half, the prices are favourable enough to them that they will happily sell all day. The buyers are the speculators that have been drawn into the price rise.

    Why the conditions are favourable to short in this environment is because the commercials will just keep on selling as much as they can because it is in their business interest to do so. When something changes to make some of the speculators want to sell, then you have both that group PLUS the commercials selling against the remaining speculators, creating a sudden (usually) imbalance in supply and demand. Because of the leverage, that kind of selling cannot be easily withstood (smaller speculators in particular use actual stop loss orders which further feeds the selling). That’s why I think commodity markets that have had a good run break so hard - closed system, and high sensitivity to supply/demand shift when commercials are unloading.

    The opposite holds true when playing the long side. The deck gets hot again when commercials are buying from speculators, they are either taking profits on hedges or the commercial consumers of the commodity (e.g. airlines using oil) can reduce their costs by locking in supply at lower prices.

    The timing in futures is different from blackjack of course - weeks,maybe months instead of minutes. It can take a while for the hot futures “deck” to pay off, but the odds are in your favour. You just need to manage your leverage so you don’t get drummed out by short-term noise.

    “Bringing Down the House” is a great read, and “21″ is a pretty good movie. I recommend them both.

    Cheers,
    George

  12. steve leslie on March 29, 2008 2:15 pm

    May I say it is a wonderful thing to see Doug Kass contribute to this site. Mr. Kass is one particular person who I listen very attentively to whenever he is on television. Please correct me if I am wrong but did not Larry Kudlow characterize Mr. Kass as turning bullish recently.

    On a humorous note, I always thought the song was "No Woman no crime" I feel like Elaine Bennis on Seinfeld who had to be explained to, it is "Witchy Woman". I also thought "Evil Woman" By ELO was "He is a woman" Maybe I have an oedipus complex working here. sl.

  13. steve leslie on March 30, 2008 11:52 am

    May I say to Eric that his comments were very perspicacious. The analogy to Greenspeak and other imperfect information available to the trader is Internet poker. Many an enterprising poker player and those who have found success on the green felt, has lost a lot of money playing Internet poker. sl.

  14. Lon Evans on March 31, 2008 5:32 am

    George,I disagree. Too easy, too simplistic. If it were that easy to play the futures, Vic would never have experienced a drawdown. He's far too cerebral. Futures are an odd bird, one which defies logical definition. The best at the game are not so often the most intellectual, but too often the most perceptive. The CME began as the butter and egg exchange, not the butter the egg head exchange. Chicago, the city of big shoulders and rock hard fists leans more towards the elemental than the cerebral.As always, I enjoy your wit,lon

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