I would like to toss an idea regarding the post Sampling Without Replacement, from Victor Niederhoffer.

I'm thinking of signals and receptors. There seem to be no receptors for these alleged signals. One thought, assuming an agent, is signals are being polluted by governments or just an abnormal amount of uncertainty. Have the opposing Quants finally gained enough complexity and control to nullify what once were signals, leaving nothing in their place? Then this is a rational enterprise on their part, generating randomness (as Sam Marx posited). Assuming this purpose driven agentic randomness would presume something of a very large player, concerted or homogeneous group. Purposeful randomness should fail, unless the catcher knows where that "random number" is being thrown. But now I think otherwise in that a random system could help the vig. Also possible is non purposeful randomness arising from a high level of uncertainty.

The world markets recently seemed to be largely acting in one direction across asset classes, thereby ruining ideas of diversification. This was the means of those without means to hedge. This would mean that countervailing elements (values) gold, oil, stocks, dollars etc. do not support the traditional means of valuation in a growing world economy, as I derive from your posts. In other words, I’ve understood you to mean that value is derived from the value of other things (circular, yet valid). Opposing forces have been reduced for now. However, you say that bonds have offset some of the stock losses.

I would simply suggest that the lack of good valuations in bonds has created a temporary random environment. A virus? Arguing against myself, isn't this always the case for oil?

But to test:

1) macro test — deductive: When in the past were there no discernible predictive sequences? I’m respectfully submitting that there may have been periods when history stands alone and unrelated to history. How long did this last, what were the world markets like, was there a large market of something without a good valuation, or very fragile, possibly random, and when and how did sequences reemerge?

2) micro tests — inductive: Another idea is to search for intervening events that altered usual sequences, as in the weather.





Speak your mind

3 Comments so far

  1. Michael Flessas on January 11, 2009 11:35 am

    A brief off topic note: I always enjoy reading your blog. One of the few — very few — blogs on finance worth reading. Hello to Mr. S0r0s too.

  2. Curmudgeon 6721 on January 11, 2009 3:59 pm

    George S0r0s once said that as a young man trying to become a brilliant philosopher he used to write texts that, unfortunately, did not make any sense to him when he re-read them the next day. […]. I hope Mr. Sadofsky will take this as a compliment on my part and a reflection of how smart about markets I think he is…

  3. George Parkanyi on January 18, 2009 1:16 pm

    I'm not sure diversification has been ruined. Market direction is also a form of diversification, and now the lowliest 401-K can be a hedge fund simply by mixing in short equity, bond, currency and short ETFs with long positions.

    I use an aggressive form of asset allocation, and these are wonderful tools and create excellent non-correlation.

    Also, why would governments or an abnormal amount of uncertainty "pollute" signals? They are part of the game, not separate from it. It also implies that "signals" are, or have been, reliable. Name me one reliable trading signal through the history of the markets? :)

    Cheers, George


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