Friday, May 02, 2008

Mark of Desperation

When I was in high school, I was no saint and explored the boundaries of what I will politely term in hindsight as 'partially misspent youth'. But when it came to my studies, for whatever reason, I never cut corners. Indeed, I liked to learn, and remain, to this today, both curious, and a proponent of "there are no shortcuts to success". This may strike many hedge fund managers as unnecessarily Calvinist and puritanical, particulalrly those, who, contrary to my assertion, have conjured amazing wealth overtly looking for, and taking shortcuts.

I recall an AP History final that I took, which I aced something unsurprising since I passionately loved history. One day, my teacher, who'd taught me several occasions prior and who I admired profoundly, appeared before and was very cross, calling me into his office. He was red-faced (more than usual) with anger , and looking very disappointed and point-blank accused me participating in a cheating scam. I was distraught, disavowed all knowledge of any wrong-doing, and assured him that in any event (which was the truth), since I would never do such a thing, purely out of principal and conviction. What had transpired was that a friend who was sitting behind me, less conscientious and honest than I, had copied my (perfect) answers from my paper despite my best stealth efforts. This in itself would not have been problematical for my erstwhile friend had he not transposed a letter and number early-on, giving him a run of perfect answers, only they were off-by-one below the transposition point, for a grand total of 23%. That reality meant he was caught with his hand in the cookie jar in a manner that was beyond dispute. Amazingly, serially cheating (something he continued to pursue at univ I am told by friends who attended with him) didn't prevent this guy (now no longer my friend) from going to Univ. Pennsylvania Law School and qualifying for the bar in PA and NJ, an occurance that always causes me to look with suspicion upon ALL lawyers and people who take public oaths.

Markets are apparently no different. Cheats are rarely caught, and even more seldom called-out. For in American finance, one can resolve a potentially criminal matter quite conveniently without admitting or denying guilt. But if one looks, one can see highly probably examples of it all over the place. Whether it is price erosion before a poor earnings announcement, or accelerated gains and volume prior to takeovers or other positive news-flow, or periodic window-dressing for calendar periods, or option expirations, such "cheating" is everywhere.

Sometimes such cheating is more profoundly obvious and egregious than others, but the world is a big place, and the regulatory authorities really do not have the resources, nor as de facto trade associations, do they really care about run-of-the-mill window-dressing or market manipulation. Since I am in the proverbial trenches, however, I see more than my fair share (excluding those that might be subject to various behavioural biases). The one highlighted here is Toda Construction (TSE Code #1860), and the date is this past Wednesday, April 30th. On this day, someone felt compelled to buy sufficient quantities of stock, all day and particularly into the close, to assure a near 14% gain at its closing denoument. Blimey!

The obvious question is "who" might be so interested and what might be their interest? To the inset (right) you can see a holdings report, and recent filers. Could any of those have a concentrated interest, given their concentrated benefit, in seeing the price 14% higher at the close of the day (and month-end) than at the beginning?? Oh yes, it could be a mere coincidence. But such "coincidence" ex-news, ANY news or earnings report, or recommendation change, is more the exception than the rule. Yes there are many other potential explanations. But nonetheless, as a not uninterested observer of such phenomena (I am unashamedly short this puppy, let it be said, in smll quantity), what would Ockham say? And WHO would the ultimately attributed time & sales point to as the culprit? And finally, what excuse would they find to justify such buying ebullience, and would it both plausible and legal? I wonder if my "friend" is involved in such securities law?


Byrne said...

Why don't people short during this kind of thing? Or do managers only mark-up their illiquid holdings?

Anonymous said...

They do. But apparently insufficiently so. Also preventing such price innovation is, I would argue, that the the capital has migrated from short-term contra-trend or reversion oriented pursuits in favor of order-sniffing and pro-trend strategies. Such an adaptation doesn't happen by magic, but because, on average, participants deem it more profitable to do the latter than the former.


Anonymous said...

The Future
Give me back my broken night
my mirrored room, my secret life
it's lonely here,
there's no one left to torture
Give me absolute control
over every living soul
And lie beside me, baby,
that's an order!
Give me crack and anal sex
Take the only tree that's left
and stuff it up the hole
in your culture
Give me back the Berlin wall
give me Stalin and St Paul
I've seen the future, brother:
it is murder.

Things are going to slide, slide in all directions
Won't be nothing
Nothing you can measure anymore
The blizzard, the blizzard of the world
has crossed the threshold
and it has overturned
the order of the soul
When they said REPENT REPENT
I wonder what they meant
When they said REPENT REPENT
I wonder what they meant
When they said REPENT REPENT
I wonder what they meant

You don't know me from the wind
you never will, you never did
I'm the little jew
who wrote the Bible
I've seen the nations rise and fall
I've heard their stories, heard them all
but love's the only engine of survival
Your servant here, he has been told
to say it clear, to say it cold:
It's over, it ain't going
any further
And now the wheels of heaven stop
you feel the devil's riding crop
Get ready for the future:
it is murder

Things are going to slide ...

There'll be the breaking of the ancient
western code
Your private life will suddenly explode
There'll be phantoms
There'll be fires on the road
and the white man dancing
You'll see a woman
hanging upside down
her features covered by her fallen gown
and all the lousy little poets
coming round
tryin' to sound like Charlie Manson
and the white man dancin'

Give me back the Berlin wall
Give me Stalin and St Paul
Give me Christ
or give me Hiroshima
Destroy another fetus now
We don't like children anyhow
I've seen the future, baby:
it is murder

Things are going to slide ...

When they said REPENT REPENT ...

Leonard Cohen

"Cassandra" said...

I too admire Leonard Cohen's art, and the profundity of some of his lyrics... but remember that he IS approaching life, seeing life, from a perspective of interminably wrestling with his brain's own chemical demons. This doesn't make him wrong - for some of the best insights have histoorically come from this point of view. But it means what he says should be considered with this clearly in mind.

Ivan Homeless said...

Laugh and the world laughs with you
cry and you cry alone
Buy and the world buys with you
Short and you short alone

t said...

"Northern Trust. Service, expertise, integrity. To achieve your financial objectives, you need a partner you can trust. [...] You can rely on our [...] unquestioned integrity."

"Cassandra" said...


Northern Trust is merely the Global Custodian for I believe, Silchester or possibly Orbis - the two holders non Japanese holders.
In all my years of observation, I do believe I have witnessed Silchester ever mark positions. Where a stock of their has been "marked" or window dressed, there are other more active holders with less scruples.

In the GCs case (North Trust), as a service provider goes, "Ask no questions, tell no lies"....