Form Flows Away From The Public
Robert Bacon, in Secrets of Professional Turf Betting, stated one of the eternal truths of the market, and of any closed universe betting casino. Form flows away from the public, he said.
Bangtail fans and punters will instantly recognize the meaning of “form”. For the vice free liberal arts graduate it basically means “the odds”. We were one of these. In our youth we didn’t learn to play pool of repair cars and motorcycles. A wasted youth.
In turf betting Bacon’s eternal verity is recognized by the quoted odds on a race. At 2-1 (or worse, 1-2) the public is betting heavily on the horse. At 56-1 only the insiders or the jockeys or the mob is betting the horse. The public is certainly not on the play.
At the top of the market in 2000 you couldn’t get a place at the betting window for the crowd there. The $2 window was submerged under the public. Dow 36000, anyone? CNBC and Cramer in their glory.
At the top of the real estate market everybody in the world (except chartists and old graybeards who had seen many market tops) (Robert Prechter, Us, Robert Shiller) was long real estate. In these runaway markets it is always the most leveraged who suffer the most. AIG of course was challenging Long Term Capital Management for the title and trophy. And AIG along with the other participants was about as aware of trend analysis as were the residents of the Black Lagoon before awareness of the Monster of the Black Lagoon appeared.
We remarked in 2005 that when there were 9000 hedge funds that the hedge funds had become the public. We said that there might be 9000 ace salesmen, but there weren’t 9000 competent (much less excellent) managers. When secretaries and shoe shine boys (no disrespect intended) start flipping houses you know the end is near.
A golden bait hung temptingly out before the people, and one after the other, they rushed to the tulip-marts, like flies around a honey pot. Every one imagined that the passion for tulips would last forever, and that the wealthy from every part of the world would send to Holland, and pay whatever prices were asked for them….The demand for tulips of a rare species increased so much in the year 1636 that regular marts for their sale were established on the Stock Exchanges of Amsterdam, in Rotterdam, Harlaem, Leyden, Alkmar, Hoorn, and other towns. Symptoms of gambling now became, for the first time, apparent. The stock jobbers, ever on the alert for a new speculation, dealt largely in tulips, making use of all the means they so well knew how to employ to cause fluctuations in prices.” (Italics mine.)
Who wrote that?
In 1998 and 1999 I was starting my seminars at UC Berkeley Extension with a slide of a field of tulips and a Dutch windmill. No one knew why the slide was up. In 2005 I told my graduate seminar at Golden Gate University to prepare a list of issues to short for the coming real estate crash.
When you smell the crowd and hear the roar of the greasepaint it’s time to get off the train. Trend analysis and a ruler will sharpen your senses and often has saved your average innocent abroad from being smothered by tulips.
Life, like the market, being fractal, you see these principles repeated in miniature with astonishing frequency. The recent crude market — $146 crude? Get serious (fundamentally, economically). $1.59 Euro? Get serious.
These are just random (or fractally generated) thoughts without reference to a particular market or situation. Except perhaps to capitalism itself.
Wasn’t it Marx who said that history moves from thesis to antithesis to synthesis. Perhaps (gasp) a new paradigm (yes we are embarrassed) is about to surface.