Techniques Used by False Prophets and Charlatans (The techniques used by Market Prognosticators)

Following the incredible popularity of my post “Is Nouriel Roubini a False Prophet?“, I’ve decided to do a little introductory lesson for those more interested in avoiding charlatans …

Cold Reading is a primary set of techniques employed by phony psychics and market prognosticators. When cold reading, the primary objective of the sender is to ensure that the recipient perceives the statement/prophecy to be a hit. Here are a few classic techniques used by Ms. Cleo and Nouriel Roubini:

TECHNIQUE 1. The “Rainbow Ruse”: Indicate one trait and, at times, the opposite.

For example: “The bad news out of the financial sector will continue to flow, and on the days that it does, the market will take a hit,” said Chris Johnson, chief investment officer at Johnson Research. “But select stocks will outperform the rest of the market,” he said, “particularly in technology.”

“Robert Loest, portfolio manager at Integrity Funds, said that a late December rally could depend on what the Fed does on Dec. 11.”

TECHNIQUE 2. “Barnum Statements”: General statements that fit most people (can also be combined with “Forking” — see below).

For example: “I think we’re going to have a tremendous amount of volatility and basically stay in a trading range until we get information on first-quarter earnings,” said Dan Genter, president at RNC Genter Capital Management.

For example: “An end of the year run is not necessarily off the table,” said Art Hogan, chief market analyst at Jefferies & Co. He said that Wall Street still needs to work its way through a lot on the financial side. Yet, the broad selloff of recent weeks may have primed stocks for a bigger bounce back, particularly in the areas of the market that are unaffected by the credit market mess. “But there’s no question of volatility,” he said. “It’s going to be very bumpy through the end of the year.”

TECHNIQUE 4. “Good Chance Guess”: Like a Fuzzy Fact, these are guesses as to facts which are highly likely to register a hit.

For example, a psychic might say, “I see a blue car,” or “a house with number 2 in address,” or “I see a painting on the wall, it might be of somebody who has passed or somebody who is alive, I’m not sure?”

TECHNIQUE 5. “Lucky Guess” / “Forking”: A compounded guess — one that contains 2, 3, or more parts.

If one guess is a hit the recipient will typically say “wow,” even if the others were a miss. This was one of Roubini’s strategies.

For example, “7,000 is going to be a resistance area in the Dow. Otherwise, if it breaks through, resistance should become support and we are next likely to see some resistance at the 7,400 area. If it breaks through there we should see a run at 7,600 and then possibly new highs.”

A subset of this is one noted by Charles Kirk at The Kirk Report: “make so many predictions that you can later say you were right no matter what.” This is Jim Cramer’s forte and most other gurus out there.”

For example, something like “The subprime scare is pushing stocks down and may spill over into the general economy causing recession and global slowdown.”

TECHNIQUE 7. “Russian Doll”: Statement with many possible layers of meaning. Keep working this until you get a hit.

For example, “Market participants were concerned about Wall Street which sold off sharply Monday as concerns about a weakening credit market wiped out investors’ enthusiasm about strong retails sales over the holiday weekend. For a brief period today, there was a twinge of optimism that the stock market would be able to score back-to-back gains. Reports of stronger than expected retail traffic over the Thanksgiving holiday contributed to that view. However, it wasn’t long before concerns about the financial sector (-4.1%) took hold again and knocked the market down to size.”

“After years of living happily beyond their means, Americans are finally facing financial reality. A persistent rise in energy prices will mean bigger heating bills this winter and heftier tabs at the gas pump. Job growth is slowing and wage gains have been anemic. House prices are sliding, diminishing the value of the asset that’s the biggest factor in Americans’ personal wealth. Even the stock market, which has been resilient for so long in the face of eroding consumer sentiment, has begun pulling back amid signs of deep distress in the financial sector.”

“The market is very likely to make new all time highs despite the recent sell off.” This was another favorite by Roubini.

For example, the psychic might say, “You will make a new start.” The market commentator might say, “The market may see new lows before turning higher and cause uncertainty among traders creating risk.”

For example, “The market is now looking toward 2008 and a slowdown, and I find it hard to believe that we can have a year-end rally. But there are some reasons to believe that Wall Street might see a typically upbeat December and an end of the year “Santa Claus” rally.” Clearly, in this case the speaker is predicting A or B and if either occurs they are right.

For example, ex post facto word fitting like “The pull back to resistance level provided support for the overnight rally. The Asian traders encouraged by strength in the yen decided to bid up the SP in the night market.”

Note: These techniques should be differentiated from conditional propositions given by a speaker who tells you what action you should take if X or Y happens. For example, a extraordinary mentor should say, “If the market does X, then you should do why. However, if the market does N, then you should do M.” This way, the speaker is admitting they cannot predict the future, yet are still offering conditional propositions to take beneficial action.

2 posted on 09/04/2009 5:14:36 AM PDT by Red Badger (The problem with socialism is that sooner or later you run out of other peoples' money...M. Thatcher)

Common propaganda techniques as well. In fact, Barack Obama got elected on their strength. What is “Hope and Change” but a glittering generality?

But the author forgot one; the Blame Game. When the promises and prognostications fail utterly, dodge the responsibility. “The market slid sharply on an unexpected sell-off driven by concerns over a surprise price hike by OPEC.”. Or “Emperor Obama said his fascist health-care takeover was being undermined by ‘hysteria’ from conservatives, who were resisting the proposal simply because they are ‘hard-hearted doo-doo heads.”

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