If I may cut in before things flare up too intensely, I would suggest that there is actually a middle ground between the two positions that you two, LG and LPS5, are taking, though I suspect that some may find my approach and interpretation too abstract to be satisfying.
Let me also preface my remarks my saying that I have grown to appreciate LG's insights, analysis, sense of humor, and willingness to share, and I also support his efforts to keep MDD from deteriorating into something like the message board norm (tons of bs, flame wars, personal invective, etc.). On the other hand, like LPS5, and as I have stated many times before, I remain skeptical of conspiratorial views of market activity for many reasons, including some of the ones that LPS5, from a position of apparently much greater experience and expertise than my own, adduces. Discussions with the one true "pro" (actually an ex-pro) that I know personally conform to LPS5's remarks, especially regarding the actual ability of any actor or group of actors to exercise effective "manipulation" of widely followed/heavily traded stocks, much less of the market as a whole.
The differences between manipulation (suggesting, among other things, outright fraud and presuming an ability to set and exploit artificially targeted prices for stocks and indices) on the one hand and aggregate marginal influence on the other should be kept in mind here, and lead me to my main point. It should also be remembered that it's very possible for a market participant to think that he or she is acting independently to manipulate an occurrence, without being right (as in Schopenhauer's famous statement about the rock flying through the air, that, if it could speak, would express certainty that it chose to be thrown).
When I reflect on LG's provocative motto, "think like a criminal," I often think of the medical researcher who stated that it helped him to conceive of the particular virus he was seeking to combat as an intelligent being as capable as he was of developing strategies, employing tactics of surprise and deception, and so on. Contemporary theories of cognitive science may actually support the idea: Viruses, bacteria, animals, human beings, societies, ecosystems and even their constituent sub-systems (such as the immune system, the human brain, sensory systems, and so on) all appear to be governed by the same processes. In every realm of human behavior and perhaps all the more so in the functioning of markets, diverse actors can be seen to act in a parallel manner with and without open or conscious coordination. (One hundred hedge fund managers all get the same "original" idea at the same moment - and, oh yeah, it blows up in their faces, but that's another issue.) Indeed, elements of such synchronicity and apparently spontaneous order appear to exist throughout the natural world.
The idea that a virus or a market "thinks" may seem fanciful, but only if you believe that "thought" occurs by some magical rather than natural and scientifically analyzable process - that the selection of provisionally more fit solutions among competing alternatives is somehow unique to the human mind. In short, it's not absurd to treat the market as a "thinking" being, or, for that matter, to maintain that human brains individually and in concert act like markets, among other self-evolving system. In this sense, what some perceive as market manipulation may indeed amount to the market thinking, which is the same as saying that it is capable of arriving at fit solutions to systemic challenges that happen to be disadvantageous to large numbers of market participants - just as the evolution of a more fit organism can be disadvantageous to less fit organisms, or the evolution of a more fit thought can be disadvantageous to competing, less fit thoughts within your very brain. Developing a useful theory of the market as ecosystem (including especially its governing standards of "fitness") would be an exercise for some other time and place, but, in the meantime, treating markets as though they are being manipulated by a malevolent or at best ruthlessly "selective" intelligent agency may very well remain as valid an approach as the other alternatives.
Of course, "think like a criminal" could also mean something much simpler - as in, if it's sitting there and you like it, go ahead and take it without a second thought. I don't think that's what LG means primarily, but it does back-test well. |
