Putting a spin on cycles in the market

Marketplace Staff Oct 5, 2009

Putting a spin on cycles in the market

Marketplace Staff Oct 5, 2009


Bill Radke: Why does the stock market do what it does? Is monetary bubbles inflating and popping? Is it about earnings and underlying values? Or is there something bigger? For all of time, people have looked for the secrets of cycles — from mathematics to the movements of stars.

Toady in The New Yorker’s money issue, staff writer Nick Paumgarten looks into some of these cycle theories. Good morning, Nick.

Paumgarten: Good morning Bill.

Radke: The stars show up, also the the Fibonacci sequence made famous in “The Da Vinci Code.” Why do we feel the need to find patterns like these?

Paumgarten: I suppose we have a human need to find patterns in everything. It’s how we hunt. It’s how we escape the killer lion. It’s how we plant things for the season. So we have a tendency to look for patterns in everything. I think the market often seems senseless no matter how research we do it’s still a mystery to us, so I think it’s natural for us to seek patterns in it.

Radke: You write that the cycle theories get a lot more popular in down markets than in good times.

Paumgarten: Yeah, that’s what they tell me. I think it has to do with the fact that when things are going well, we think we’re responsible for it. When things go badly, then we want to sort of disavow responsibility for having things go to hell and instead we seek other explanations, sometimes sort of mystical explanations.

Radke: Your central character in your story is this central hedge fund manager who had a lot of his success in Asia, where the idea of cycles seems less far-fetched than it does in the West.

Paumgarten: That’s true. You know, he had a prediction. He called the day that was the highest of the Nikkei before it crashed in 1989, and as a result of that call — and the fact that he sort of believes in these cycles — he had a very sympathetic audience in Asia and it helped him do business there.

Radke: He used the irrational number pi.

Paumgarten: Yes. He believes that things happen in cycles of 3,141 days — which, of course, as everyone knows, is pi times a thousand, which is 8.6 years. And the main actor in this piece, a man named Martin Armstrong, has determined that lots of different things happen according to a rhythm of 8.6 years, or multiples of that, down to the day.

Radke: Well did you find that there seems to be anything to these theories?

Paumgarten: You know, there are occasional uncanny hits. It’s possible that you could throw out a thousand predictions and when two of them hit, you can trumpet those predictions. What I think it does is it forces you to think about things in a different way. It’s always healthy to think about things in a different way, think about markets in a different way. You know, perhaps there are forces at work that we don’t understand. I think it’s at least wise to consider the possibility.

Radke: New Yorker staff writer Nick Paumgarten. Great to talk to you. I guess I’ll see you again exactly in 8.6 years?

Paumgarten: I hope so. Thank you very much.

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