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Politics : Formerly About Applied Materials

AMAT 275.13

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Dec 10 3:59 PM EST

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To: Gottfried who wrote (53449)	9/30/2001 5:36:22 PM
From: Sam Citron	Read Replies (2) of 70976

G, Excellent questions. It's not exactly that consensus can never happen. We are all familiar with the uncanny predictive ability of T bill futures to determine the size and magnitude of rate actions by the Fed, or the tendency of horseraces to be won by favorites. Fisher is talking about a special case -- professional investors consensus of stock market. The reason their consensus forecast is always wrong is that they have already placed their money where their mouth is. This is what they are paid to do. They are the market. Hence the market already reflects their bias. Let's try to distinguish this from self-fulfilling prophesy (SFP). Why doesn't SFP apply here? After all, if experts agree that the stock market is going to go up, shouldn't that cause us to buy stocks before it happens, thus making it sure to happen? Not in this case. Prices have already been marked up to reflect their bullishness. It is too late to buy. In my view, at the very least, the bias should be eliminated by subtracting the midpoint of the consensus from itself. However Fisher goes beyond that. He looks for the "holes" beyond the forecasted ranges (there are always at least two: an upper and lower bound) and then seeks to eliminate as many as possible by means of such empirical evidence as tendencies of stock market performance in third years of presidential terms. I do not know if Fisher's hypothesis that the "holes" in the forecasted ranges are the most likely prospecting spots, but it "smells right" to me. As a start, I would want to gather the emperical evidence. Fisher's thinking is based on a school of thought known as behavioral economics. Behavioral economists try to model the stock market based on observable psychological tendencies such as the tendency of agents to become more bullish as prices rise or the willingness of politicians to risk recessions early in their terms. Many of their studies can be found on the web. I would say that Fisher is probably on to something and that it is wise to listen to his views, as long as not too many others do. Sam

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