May

21

Shearing the SheepThe market reminds me of some very creative people we all meet (people like Hobo) who always amaze you with new ideas and inventions at every clip. What it's been doing last few days has happened once in a saint's death. The gold, crude and euro:dollar all up 1% or more in conjunction with a 1% decline in stocks. Never before, perhaps once, but never with up afternoon. Similarly today. What always amazes most is how fixed income can go up and down on statement of commissioners of authority, as if when they said they were vigilant on inflation that was bad for fixed income.

While we're at it, a paper in Nature says that there is a gene for leading a herd in humans, a long gene. Galton would have appreciated this, and looked for the comparable gene for being herded, a tendency he found particularly prevalent in oxen and humans. On a day like today with the market reacting to minutes of several weeks ago, with much new data in markets, and announcements by leaders of the pack, one would have hoped that the presumably short gene for sheep-like behavior would not have manifested itself in so many breaks below round numbers and trillions of wealth temporarily lost, with the herded ready to transfer so much wool and mutton to the big leaders who can borrow freely at the discount rate from their future colleagues.


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7 Comments so far

  1. James Starr on May 21, 2008 9:37 pm

    Victor,
    As a less sophisticated investor than most on this web site, I am often at a loss to understand the gist of many comments. Would you consider a brief summary for the dummies at the end of your comments?
    Am I correct in surmising that you feel todays move was an overaction and possibly even unwarranted, based on news of several weeks ago? And that this move is just as likely to be reversed?
    Also, after reading so much praise for Triumph of the Optimists, I have just purchased my own copy!
    Thanks,
    James

  2. Lon Evans on May 22, 2008 3:38 am

    Primatology Victor,

    Read Goodall, specifically of Mike (less than physically imposing) and how he realized a perfect adaptation of suddenly available intimidation. By this means he took control of the tribe. But not merely through technology, when later challenged the beast proved a warrior, as Jane recounts (”In the Shadow of Man” Jane Goodall). Long genes, short genes, who give a damn?

    There are most on this site who would judge that I suffer the shortest of genes. They are the ones who have never battled. The last one standing is the one who matters. Mr. Sears suggests that he was once a champion, andin a sport I’m well acquainted with, yet I’ve never heard of him. But I’ve read of Mike?

    Do markets exhibit a long gene, short gene scenario? Is such mutable day by day? Can we extrapolate, based upon an imperfect opinion of human nature, the nature of any given market?

    So many questions; so few answers. Like Mike, I grab for what suggests profit. On occasion, like Mike, I’m correct.

    Be well Victor.

    lon

  3. gabe on May 22, 2008 8:47 am

    maybe moody’s ‘computer bug’ got transferred to nyse. ratings on trlns of debt should be 5 notches lower. no big deal.

    maybe it finally sunk in that the only way the rates can go from here is UP. although i think the sooner they step in to protect the long end of the curve the better for stocks.

    but i think the hidden driver lurking in the back is the early positioning for q2 results when it will be pretty obvious the h2 recovery won’t come as mumbled before. at which point is time to back up the truck and load up.

  4. George Parkanyi on May 22, 2008 8:50 am

    The various markets are all inter-related non-linear systems. They do exhibit boundaries, and the properties of resonance, dissonance, and chaotically (the science) behaving feedback. So in general, yes the “long” gene may exist and we do know that humans have a herd instinct, but that information is not enough on which to base trading decisions. Other factors need to align to create resonance. A good current example of such resonance is crude oil - which is in a tight, powerful, and (so far) stable up-trend.

    However, because of the non-linearity involved, sooner or later (sooner I think) - this trend will de-stabilize. Different factors will influence when different parties get off the train, and as they begin to, the nature of the move will become - transitional - unstable and volatile - and will at some point reverse.

    In this trend there is also a large degree of “potential” resonance that is accumulating. When you get one or two significant price breaks, many will be trying to get out at the same time, and you will probably see a very sharp and pronounced short-term trend reversal.

    But the markets do have boundaries. There is not an unlimited amount of capital; the “long” gene type effects are statistically significant, and do impact its re-allocation. The latter I would think would also work both ways. Fear or greed determine direction, and the herd instinct, because of its re-inforcing nature, would provide amplitude (modulated by other inter-relating factors).

    Just as an electron in a quantum fashion can change its spin and electro-magnetic materials their polarity, the human behaviour similarly flips it fear/greed “polarity” based on external catalysts and direct influences. To what extent we can predict that is what consumes us day-to-day as traders.

    Cheers,
    George

  5. Russell Sears on May 22, 2008 2:08 pm

    It may very well be that I was a minor figure in a minor sport, before the internet gave complete coverage of almost everything people obsess about. Never claimed to be a "champion". My claim, just a competitive runner, with some good race times, national class maybe at one time. In fact I have stated to you that often my best times were not even wins. Both in the marathon, 7th place 1996 grandma's marathon, and actual mile. And I have further implied my "world class" asperations never materialized.

    Further, much of my best times (from 1990's to 1997) significance and what little "news" worthiness have been erased by time. Or news archives have learned to charge for paid references for past history. As guys like me (best times behind them) are willing to pay for past memories. You can still find plenty of much slower times for recent races. But we all age, some just are willing to do our best, even if it is slower than we once were.

    A few years ago, I could have shown links to the 1996 Grandmas marathon top ten results, or the complete listing of all 1996 usa men's marathon trial finishers (I was 40th out of about 120 starter and 135 qualifiers). But you can either take my word for it. or spend time and money or money to research it
    But here is some "historical" links to race times given for free.

    http://tinyurl.com/4qz9o7

    http://tinyurl.com/57qq5j

    Russ

  6. George Parkanyi on May 23, 2008 4:03 pm

    Russell,You don't have to defend yourself or your record. I, and many others here, have never run 10K, let alone a marathon.My claim to fame in running was coming in so far behind on a high-school competitive cross-country run that the organizers were already packing up and leaving, and had to quickly re-esablish the finish line just for me. Cheers, George

  7. likeinsights on May 25, 2008 3:07 pm

    Yet the sheep behaviour happens days after days, months after months, decades after decades. In real life, it is easy to understand that there is some safety benefits to be part of the crowd but in the market? One way or another it has to bring some benefits?

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