forwarded message from John Conover

From: John Conover <>
Subject: forwarded message from John Conover
Date: Mon, 18 Nov 1996 03:27:56 -0800

This is kind of interesting. A lot of "beliefs" in correlations in the
stock market are based on copper. This is probably why Reuter's
carried the news clip. So the story goes, whatever copper does, the
market does-kind of implying that if you want to understand the stock
market, you have to understand copper. So it has been said in things
like the WSJ, CNBC, etc. etc. etc. Note that it is self-referential,
or a closed logic argument-ie., if the investors believe it is true,
it will be. A self fulfilling prophecy.


BTW, not all "belief" systems are self fulfilling prophecies. Consider
a cyclic phenomena in equity prices. After folks figured it out, the
value of stocks at the bottom of a cycle would have more value,
implying that folks would have a propensity to pay more at that time,
increasing the value of the stock, and arbitrating away the cyclic
phenomena-a negative self fulfilling prophecy. So, there has to be
some condition that the self fulfilling prophecy is also self
reinforcing. Fractal/Brownian Motion/random walk scenarios do. Cyclic
phenomena apparently do not.

The other good one I heard is that if the year ends in 7, it will be a
good year. If you look at a plot of the DJIA, it sure does. And how do
these correlation/cyclic predictions take place?  Think about it. For
90 years, every year that ends in 7 has been good, or, our correlation
has been evaluated for is 9 cycles. Say it is random, or a 50% chance,
(it is actually, 52.4%, but for the sake of numbers, call it 50%.) The
chances are that if you look at correlations between random things,
every 512 things, you will have 9 things that correlate, on the
average.  Now, there are how many folks on Wall Street that are
spending their days looking for correlations? Want to believe that if
folks believe that 1997 is going to be good, it will be bad?

I wonder if the EMT/RMT hypothesis is stable, (FYI, the EMT is the
Efficient Market Hypothesis-so called since it assumes that folks buy
stocks to get the future dividends, ie., P/E ratios are what it is all
about-at least according to this "belief.") Yes, it is stable. Is the
EMT true? Well, kinda, sorta. At least higher dividends make the stock
price go up, and lower makes it go down. Trouble is, it goes up way
too far, and down, way, way, too far. Maybe we could exploit that and
get rich, since it almost always happens that way. It could be
programmed in a computer that watches the ticker for such things.  We
will call ourselves "programmed traders" ... I mean, if we believe it
will work ...

And, yes, programmed trading is a stable system.

------- start of forwarded message (RFC 934 encapsulation) -------
Message-ID: <"2bItK3.0.-G4._v2ao"@netcom4>
From: John Conover <>
To: John Conover <>
Subject: Copper Prices Surge as Rumors Discounted
Date: Fri, 15 Nov 1996 12:22:43 PST

         NEW YORK (Reuter) - Copper prices soared Friday to their
highest levels since August as investors discounted rumors about
a large hidden stockpile that would replenish six-year low
supplies in global warehouses.
         At 12:10 EST, copper for December delivery on the Commodity
Exchange was up 5.25 cents at 101.10 cents per pound.
         Prices fell Thursday on a report that about half a million
metric tons of the metal may be stashed in hidden stockpiles.
         Traders have been watching warily a drop of more than 60
percent in London Metal Exchange stocks since early September to
a six-year low. LME stocks fell 8,000 metric tons to 101,175
tons Friday.
         The sharp rebound in prices Friday indicated that rumors
about huge hoards of stocks had now been discounted, Fred Demler
of E D and F Man International, a commodities trading company,
         Demand was quite firm, mine production was slowing and
exchange inventories were exceptionally low, Demler said.
         ``At the current stock levels on LME and COMEX, copper
should be maybe another 10 or 20 cents higher than it is right
now,'' Demler said. ``The trend is going to continue higher.''

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John Conover,,

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