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Art Cashin's Refresher On "Post Hoc" Syndrome

Tyler Durden's picture




 

Nassim Taleb rants against it all the time: the propensity for the media to frame a narrative, or a plotline, to explain market moves. His contention is that for the human mind it is always far more reasonable to have a cause and effect relationship to what is effectively an engine of chaos at the margin, especially these days when the margin is defined 70% by various algorithms, all of which engage in often times illogical feedback loops (such as the ES is high because of a high EURUSD, which however is high due to stressed French banks liquidating USD-assets and repatriating the funds to shore capital) and/or with levered synthetic products such as ETFs, amplifying the noise. On the other hand, sometimes a narrative fits: what Art Cashin describes today as the "post hoc" syndrome. Is he right, or is the human mind desperately grasping to attribute a pattern, and thus pretend it is in control, when faced with the strange attractor that modern capital markets have become. You decide. Here is Art explaining the basics of "post hoc", aka Monday Morning quarterbacking.

From UBS' Art Cashin:

Tear Gas, Timing And Logical Fallacies - On the Friday before Thanksgiving, I maintained that the afternoon selloff that led to a technical breakdown the day before had accelerated when headlines about unrest in Athens turned uglier. A few readers questioned what they saw as a time gap between the headlines and when the market reacted. That merits a review for a couple of reasons. The most important of these is probably the “post hoc” syndrome.

As you probably recall from your fifth grade classes in epistemology and logic, there are about seven or eight logical fallacies. The three most frequently cited are usually - begging the question; hasty generalization and post hoc. The full title is post hoc, ergo propter hoc. That, as you recall, is “after this, therefore because of this”. Since B happened after A, it was probably caused by A.

The post hoc fallacy is quite common in Wall Street. The main stream media often credits an up market to some piece of economic data which came out hours and hours before the rally that produced the “up day”. You’ll often see headlines like “market rallies on claims data”. The problem is that the claims data hit at 8:30 and the market didn’t even get into plus territory until, maybe, 2:45 in the afternoon. That’s classic “post hoc”.

While data like claims and payrolls tend to be finite triggers, some information can be more of a process, where the impact may be cumulative. That was the case, for example, in the Kennedy assassination.

The first headline was something like: “Shots reported fired at President’s motorcade”. (That’s bad.) Then, minutes, later “Reports that President may have been hit”. (Worse but no detail). Then, more minutes, “Motorcade diverted to Parkland Hospital”. (Even more serious.) That’s when they closed the Exchange. The series of headlines had a cumulative impact.

The sharp selloff on the Thursday, a week before Thanksgiving was a reaction to cumulative headlines. In Friday’s Comments we wrote:

Around 12:30, just as U.S. markets were retesting the morning lows for a second time, things changed.  Headlines hit that anti-austerity demonstrations in Athens had turned ugly - maybe very ugly. Clashes with police were said to be intense. That brought more selling in stocks breaking the morning lows and almostinstantly the key support at the bottom boundary of that universally discussed “triangle”.

That phrasing was intended to indicate that cumulative impact. We were also quite reinforced by the fact that Dennis Gartman and other veteran market observers saw the same cumulative trigger in Athens. But a review of “post hoc” is always in order. See you back in logic class.

 

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Thu, 12/01/2011 - 14:35 | 1935655 Gubbmint Cheese
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another logical fallacy: the US economy has decoupled from the rest of the Universe

Thu, 12/01/2011 - 14:45 | 1935689 redpill
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Yahoo Finance! has dubbed yesterday's one-day spike in stocks resulting from coordinated central bank intervention as the "December rally" even though it wasn't December and certainly wasn't sparked by any fundamentals characteristic of a rally.

 

Looking forward to the afternoon headline that "investors were profit taking" because stocks didn't close green.  Whatever.

 

Thu, 12/01/2011 - 16:20 | 1936088 Liquid Courage
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Quite right, but that's actually a good example of "begging the question" - i.e. arguing by assertion, or stating an unproven conclusion as if it were a premise and then using it as a point of departure for a "logical" argument. Such as: well since the US economy is decoupling from the global economy then it's obviously time to buy US stox ... duh!

I first studied Logical Fallacies  - from the standpoint of scientific and technical writing - as pitfalls to be avoided. Then I later encountered the commercial and political spheres where they are used as tools of persuasion. It's a wicked old world we live in.

Thu, 12/01/2011 - 14:38 | 1935661 GeneMarchbanks
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He's a bored old man.

Thu, 12/01/2011 - 15:02 | 1935727 hedgeless_horseman
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+1 to Tyler for that first paragraph.

My experience with this phenomenon is that sports commentators' post-game "analysis" of outcome causation rarely, if ever, has anything in common with the causation as surmised by the athletes and coaches.

Fri, 12/02/2011 - 02:49 | 1937543 Nobody For President
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Ditto. Also, great nom de plume Hedgeless, been meanin' to say

Thu, 12/01/2011 - 14:39 | 1935666 JSD
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Whatever floats (or sinks) your boat.

Thu, 12/01/2011 - 14:39 | 1935669 The Axe
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Sorry Art!   Thanks for the logic lesson! But I don't get the point.

Thu, 12/01/2011 - 16:36 | 1936140 RockyRacoon
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In that case you shall always fall victim to said fallacy.  Poor guy.

Thu, 12/01/2011 - 14:41 | 1935678 Imminent Collapse
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Here's another:  Bailing out the banks will solve sovereign insolvency (or any insolvency, for that matter).

Thu, 12/01/2011 - 14:44 | 1935680 Cognitive Dissonance
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Is he right, or is the human mind desperately grasping to attribute a pattern, and thus pretend it is in control, when faced with the strange attractor that modern capital markets have become.

It is just a little more complicated than that. Let's not forget the overt and covert manipulation that is covered up and over by the mainstream media story telling. The MSM is the keeper and spreader of the public myth. This is not by accident, but rather by design.

That's not to say everything that comes out of the idiot box is a lie. Just 95%.

Thu, 12/01/2011 - 14:45 | 1935698 Tsar Pointless
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Good to see you on here, CD. You are absolutely correct - it's all by design.

No conspiracy or tinfoil in that statement. Just an iteration of fact.

Thu, 12/01/2011 - 15:46 | 1935944 trav7777
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no; it is not by design...it is emergent complexity, which is not the same.

Here's a good example.  We all think "zero tolerance" is stupid.  That's because it is.  In the schools systems, privately, off the record, NOBODY will defend it.  They all think it's stupid too.  Yet.nobody.does.anything.  They all ADVANCE it in fact.  If you speak to them privately, in their private frame, they agree with you.  They're not idiots.  They're not malevolent.  In the public context, they become agents of the system.  It's almost like a split personality.

The system has its own mind, just as a school of fish appears to have some hive brain as well.  The system has its own demands.  Perhaps it's a byproduct of natural selection such that people who adhere to the system's goals achieve preferential outcomes.

I am among the few people I have EVER met who will stand up and speak out against the hive mind's goals.  And I routinely watch people WHO AGREE WITH ME directly oppose my actions.  They may even come AFTERWARDS and say, btw I agree with you, despite having JUST not only contradicted me but attempted to ostracize me from the hive.  People defend the hive and the hive's mentality even if they disagree with it.

This is a highly interesting animal phenomenon...like lemmings collectively marching to what they invidually would fear.

I would bet when I drop a race grenade in here that half the people who call me RAYCISS actually agree with me 100%.  In fact, their opinions on these things would in many cases scare me.

Thu, 12/01/2011 - 16:59 | 1936242 VyseLegendaire
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" it is not by design...it is emergent complexity, which is not the same."

 

aye aye.  As animals we fear social exclusion, or something like that.  It's going to be our downfall as a species.

Fri, 12/02/2011 - 00:11 | 1937288 chindit13
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Damn it, trav, you made me log in!

"emergent complexity"  Bingo!

Have at this one, CogDis, and you've found yourself a string of new articles.  I'll be waiting to read your output.  We all like to think we're the lone wolf, contrarian, follow-the-beat-of-our-own-drummer types, but few really are.  Perhaps left alone to our private thoughts we are, but get us in a crowd, especially one to which we feel obligated to belong, and something at the genetic level takes over.  I actually do mean at the genetic level, by the way.

Now back to trav.....

First, a slightly embarrassing confession.  I scroll Comment's Sections looking for your easy to spot avatar, because I know the comment is not only going to be entertaining, thought provoking, occasionally riling, often informative, but also that it will elicit a knock-down, drag-out Fight Club Main Event.  Wallflower you ain't.

I haven't yet seen you post anything that has emerged from Craig Ventner's Human Genome Project and related studies, but there are some fascinating, even disturbing revelations.  Here's a taste:  a possible "Compassion Gene", a possible "Happiness Gene".  Neither seem to be evenly distributed across the species.  I'm not sure we want to go there, but I suspect trav has already, or soon will, book tickets.  The ultimate mystery of what makes us what we are is being revealed, its implications not yet known.  It's an interesting time to be above ground, at least if one has an open and inquisitive mind.

Finally, I smile when I see you chastise folks for cherry-picking MSM data.  I have a similar bug-a-boo, which is the way people show nothing but contempt and incredulousness for MSM reporting, but accept without question anything and everything that comes from what I call the Internet Gurus.  There are things you know, as well as things you believe, and you continuously stand ready to "educate".  There are some few things I know, but when I see someone who has it wrong or is woefully naive in a Downing Effect sort of way ("I'm awake, unlike the sheeple!"), I rarely bother.  I doubt I can change a mind.  I guess that makes you, rather than me, an optimist.  No doubt it's in our respective genes.

Fri, 12/02/2011 - 01:40 | 1937438 trav7777
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I find willful ignorance of reality to be tantamount to suicide.

There are a lot of people who would rather commit suicide than accept reality.  This is a fact.  I cannot yet figure out why except that they fear being ostracized more than they fear dying.  This would appear to be a result of some deep-seated evolutionary behavior...

The evidence in favor of Watson's thesis is so voluminous as to present force majeur against its opposition.  Yet it is "outside the realm of appropriate scientific discourse."  You know what's more...I GUARANDAMNFKINTEE that EVERY SINGLE scientist who spoke out against him KNOWS, ADMITS, CONFESSES IN PRIVATE that EVERYTHING Watson said is true!  It is inconceivable that they could be stupid enough in their positions as to be unable to dicipher the truth.  Yet they profess the opposite and threw a colleague who spoke the truth under the bus.  They assassinated him.

If this BRA shit proceeds to its logical conclusion, the society our forefathers built will be utterly destroyed as nearly all the cities targeted in the Great Migration have been.  We will end up like Detroit or Zimbabwe.

Yet the hive seems hellbent on going there.  I know that the message is shaped by a select few people of a particular interrelation, and must conclude that their likemindedness creates an improper inference of conspiracy.

Fri, 12/02/2011 - 01:50 | 1937421 trav7777
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lol...prepare to be ostracized.

I don't know why i have this habit of saying what everyone is thinking, but I do it.  And then I watch as people who've confided to me in secret that they agree 100% (or even more) deny deny deny it and side with the hive.  I find it absolutely bizarre; people really confound me.  And how they go along with charisma when they all admit the leader is an idiot.

As for genetics, epigenetics, and evolutionary biology...phew.  I dunno if it's necessary that I go there because nobody seems to want to hear any bit of where I do go on genetics.  None of our traits are evenly distributed.

I await the explanation of how blacks have the top 100 100m times in history.  Must be whitey's fault somehow.  Happiness, compassion, ethics, or our sense of what's deeply RIGHT in a sense, are not shared.

People can't figure out what Driving While Black is...it's not.  It's Driving LIKE Black.  They also can't understand why blacks feel persecuted by the law.  It's because their typical sense of the proper constraints of civilization are DIFFERENT *shudder* than whites, which seem loud, obnoxious, and even barbarian to east asians.  What white people think as permissible under the law seems oppressive to most blacks, who lack the impulse control capacity that whites have or that asians have.

As the genome gets decomposed further, these traits will begin to be identified with concrete sequences.  So much of how we act is genetic that it isn't funny.  It's the reason you're like your dad even if he didn't raise you.  People given up for adoption still walk and talk like their biological parents.

On the topic of emergent complexity it is the height of irony how ZH has its own orthodoxy and if you cross it, very very few are even brave enough on the internet to take the risk to defend the truth or anyone speaking it.  There are individual would-be cults of personality and they don't like being challenged.  Me, I am like the speed of light, the same in every reference frame, as combative and irreverent here as anywhere else LOL.

Either way, though, yeah, I keep trying to educate people.  I keep trying even better metaphors and analogies to try to get them to grasp.  Perhaps this is borne of arrogance?  Maybe I think I'm so good I can make the blind see, who the fk knows hahaha

Fri, 12/02/2011 - 03:32 | 1937590 chindit13
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I think I earn my own ostracism here, as I have a different belief system than most of the regular posters.  My scorn comes not from my views on race (I'm willing to judge everyone individually and accept that all of us have pluses and minuses), but from my views on who runs the world.  From personal experience, I know that if one climbs above the timber line and has a view of the top of the mountain, the only folks up there are the newly arrived.  While they do try to set up camp, other parties are approaching the summit and are ready to knock the squatters off.  It is a constant battle, driven by ambition and ego, with more than a touch of vindictiveness.  There are no Lizard People.  I suppose for many the idea of general randomness, save for the flailing of those who have a short term lease on the summit, is more unsettling than the belief that somebody, even a malevolent somebody, is in charge.  I guess there is an odd comfort in having either a god or a devil, because it keeps open the possibility of a deal.  There is no deal to be made with randomness.  Shit just happens.

Fri, 12/02/2011 - 03:00 | 1937555 Nobody For President
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"It's an interesting time to be above ground, at least if one has an open and inquisitive mind."

 

+1 for that, old man...It is indeed!

Thu, 12/01/2011 - 14:53 | 1935728 Eally Ucked
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Hey man, as defender of humanity you should  defend Trav , who looks to me as banned person for now, I know he's little rough on the edges but still has big input to that site, hate it or love it any way. 

Thu, 12/01/2011 - 15:23 | 1935860 slewie the pi-rat
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what did he do now?

corrupting the youth?

hemlock, BiCheZ!

Thu, 12/01/2011 - 15:26 | 1935865 Cognitive Dissonance
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It appears that Trav is alive and kicking. If he were banned you would not be able to see his history. And what a fine history he presents. :>)

http://www.zerohedge.com/users/trav7777

Oh look, here he is now.

http://www.zerohedge.com/news/sdr-same-demented-regime

Thu, 12/01/2011 - 15:38 | 1935921 trav7777
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u talkin bout me?  Nah man, I am alive and kicking.

I intend to be relentless on this "MSM only tells the truth about stuff I want to believe" meme.

Thu, 12/01/2011 - 15:36 | 1935914 trav7777
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yes, I know...anything they say about race and ethnicity is 100% true.  It's just got to be.  Fuck the data.

Thu, 12/01/2011 - 16:41 | 1936156 RockyRacoon
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Be sure your arguments don't fall under the "begging the question" fallacy.   Going forward with an argument based upon unproven statements or false conditions will result in fallacious conclusions.    Of course, we like a little fallacious now and then, don't we?

Thu, 12/01/2011 - 17:56 | 1936450 trav7777
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well, I like fellatIO from your mom...does that count?

But, no, I'm not using petitio principii

 

Thu, 12/01/2011 - 20:04 | 1936767 RockyRacoon
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Being a gentle person, I'll let that pass.

Sat, 12/03/2011 - 03:15 | 1941116 mkkby
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Well, the MSM does report the higher crime rates of various races... which is why you know it unless you are doing your own research.  So your statement "everything they say" IS false.

PS - Feel free to have sex with my mother too.  She's dead so you'll just be admitting to your own perversion :)

Sat, 12/03/2011 - 02:59 | 1941097 mkkby
mkkby's picture

Cog Dis -1

You statement is another logical fallacy.  Since everyone is lying, there must be some unseen force directing it all from above.  It can't just be everyone talking their book. 

Thu, 12/01/2011 - 14:43 | 1935687 Tsar Pointless
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I was once a newspaper reporter. Back when I was in journalism class in high school, we were specifically taught and told to write in language geared to an eighth-grade level of reading comprehension.

Now, I daresay that level has dropped considerably - quite possibly to a fourth-grade level of reading comprehension.

Take note of articles you read in newspapers and online sites. You'll see a lot less mult-sentence paragraphs, and an abundance of one-sentence paragraphs.

Everything about Amerikkkan society has been dumbed-down, with a race toward the lowest common denominator being the meme.

Thank the Prussian education system - upon which we modeled our education system - for this societal trait.

Thu, 12/01/2011 - 15:24 | 1935862 TheMerryPrankster
TheMerryPrankster's picture

There are 2 ways you can write. Write above your audience and hope that curiousity will make them learn a new vocabulary so that they might understand new concepts and by doing so make the world wiser.

Method 2, write down to your audience, destroying curiousity and continually dumbing down your audience, until they must be reminded to breathe.

Why would anyone dumb down their audience unless it was to exploit their ignorance?

It's harder to cheat someone who understands what is happening.

Thu, 12/01/2011 - 15:48 | 1935951 trav7777
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LOL...i write so far above my audience in my professional life that they ask me to dumb it down.

There is no curiosity out there.  Nobody wants to acquire perspicacity into the inherently abstruse.

Thu, 12/01/2011 - 16:38 | 1936147 Chuck Walla
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Why learn and understand beyond how the SNAP card works?  The money comes regular from Uncle Sugar Daddy. I know who to vote for, they tell me.  Thinking is over-rated, see the bozo in the White House for proof.

Thu, 12/01/2011 - 17:57 | 1936456 trav7777
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I believe the average grade level among blacks is probably 5th or 4th in terms of reading.  Large swathes are functionally illiterate.

No, more money, AA, and racial setasides will not fix this.

Thu, 12/01/2011 - 19:15 | 1936683 Randall Cabot
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That's because nobody goes there because it's too crowded.

Thu, 12/01/2011 - 16:40 | 1936155 blunderdog
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You can only write as well as your tools permit.  Look at what's been done to the "American" vocabulary in the interests of marketing some product or political agenda.

Communicating any concept of any complexity is near-impossible to Americans because you have to define all your terms first, and half the time, the audience will "disagree" with your definitions and sidetrack the discussion before it begins.

Dealing with simple ideas is easy, and can be done in that 8th-grade vernacular.

So we end up a country that believes Saddam Hussein was involved in the 9/11 attacks.  That's (sadly) just as well as we can do.

Thu, 12/01/2011 - 17:08 | 1936287 Bwahaha WAGFDSMB
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I thought the 2 ways of writing were, keep it simple stupid, and baffle them with bullshit.

Thu, 12/01/2011 - 19:13 | 1936674 Randall Cabot
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The Prussian education system? LOL What kind of a guru are you anyway?

Sat, 12/03/2011 - 03:18 | 1941120 mkkby
mkkby's picture

Yes, you are being pointless.  Reading comprehension has nothing to do with logical correctness.

Thu, 12/01/2011 - 14:47 | 1935692 JSD
JSD's picture

And let's not forget that Taleb also argues that the more voltile the market swing, the more likely it is to be attributable to some event/events. Now one must determine for his/herself: "What is considered volatile?". At present (IMO), attributing a 1% move in ES to any news is, at best, theater.

Thu, 12/01/2011 - 14:55 | 1935732 lsbumblebee
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That's quite a sermon, coming from someone who doesn't believe in the Plunge Protection Team.

Thu, 12/01/2011 - 16:43 | 1936169 RockyRacoon
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What has one to do with the other?  His comment is not nullified because he might disagree with you on the weather.

Thu, 12/01/2011 - 14:56 | 1935733 Gubbmint Cheese
Gubbmint Cheese's picture

If the market can go up 500 points in a day.. doesn't that mean it could also FALL by 500 points? Hmm.. when was the last time we saw a drop of that magnitude?

 

Thu, 12/01/2011 - 14:58 | 1935737 Nucking Futs
Nucking Futs's picture

Here's another fallacy:  Learning epistemology in the 5th grade.

Thu, 12/01/2011 - 15:29 | 1935893 slewie the pi-rat
slewie the pi-rat's picture

well, yes, but art said logic, not epistemology

this is the cirriculum:

  1. finger painting
  2. trolling
  3. logic
  4. epistemolgy

any questions? the answer is 2!

 

Thu, 12/01/2011 - 15:18 | 1935836 Let them eat iPads
Let them eat iPads's picture

Example:

Stock fall after trouble reported at Kardashian household.

Thu, 12/01/2011 - 16:06 | 1936020 ebworthen
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"As you probably recall from your fifth grade classes in epistemology and logic..."

Didn't Art mean the graduate philosophy classes of the 1900's?

In fifth grade these days they are learning about the bad white man, and how to use an iPad.

I was wondering why I've seen less of Art on CNBC lately; must be the new producers, who seem to love post hoc histrionics.

Thu, 12/01/2011 - 20:05 | 1936181 RockyRacoon
RockyRacoon's picture

Back when a person was actually educated upon attending school, I had 2 years of Latin, in the 5th and 6th grades.  It has served me very well.

<Edit... somebody doesn't like Latin it appears.>

Thu, 12/01/2011 - 20:50 | 1936866 defender
defender's picture

Nah, they just don't like people being educated in school.

Fri, 12/02/2011 - 01:20 | 1937410 codeblue
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I also had 2 years of Latin, but that must make me a fossil. And, I can say with a PhD in psychology, that the human mind is inherently pattern seeking. It is a marker of intelligence to see patterns such as the revered Fibonaccci Sequence, and to have  the ability to think at highly abstract levels. We are always looking for patterns in order to predict future realities. It must have survival value.

Fri, 12/02/2011 - 01:37 | 1937432 codeblue
codeblue's picture

I also had 2 years of Latin, but that must make me a fossil. And, I can say with a PhD in psychology, that the human mind is inherently pattern seeking. It is a marker of intelligence to see patterns such as the revered Fibonaccci Sequence, and to have  the ability to think at highly abstract levels. We are always looking for patterns in order to predict future realities. It must have survival value.

Fri, 12/02/2011 - 03:08 | 1937565 Nobody For President
Nobody For President's picture

Is having a PhD the reason you posted twice?

(Hey, this is the Fight Club.)

Thu, 12/01/2011 - 16:45 | 1936187 Golden Receiver
Golden Receiver's picture

I have a problem with someone writing about logic when they say there are three logical fallacies. Maybe that was in his 5th grade class. In my college text, 57 of the most common logical fallacies are listed.

And ad hominem is more often the most cited as abused. What a dumbass.

Fri, 12/02/2011 - 01:47 | 1937452 trav7777
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I would wager false dilemmas are #2.  I see them more than anything because I just ignore personal insults

Fri, 12/02/2011 - 03:14 | 1937570 Nobody For President
Nobody For President's picture

Ah Dude...Art Cashin ain't a dumbass - the stuff I have read of his on this list indicates a pretty experienced and perceptive guy when it come to this rather bizarre 'market'. 

And he was being a bit humorous, OK?

It was a reflection on how people try to impose framework on a market that is broken, and often get it wrong by so doing - it was not a college lecture on logic. Maybe you could give it another read.

 

Fri, 12/02/2011 - 05:41 | 1937698 qussl3
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If we presume that the market is broken, then what is its unbroken state?

That we accept and continue to participate, do we not legitimize this "broken" market?

It is what it is, all we can do as individual participants is act appropriate to our circumstances.

The whales will shove it around, the algos will front run, the insiders will make mint, the strong hands will flush the weak and so on.

If the market were "fixed" would we all make money?

Fri, 12/02/2011 - 01:51 | 1937458 caerus
caerus's picture

argumentum ad ignorantiam is also quite popular...

Do NOT follow this link or you will be banned from the site!