Techniques used by false prophets and charlatans

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This is a guest contribution by Damien Hoffman, editor-in-chief of the very popular Wall St Cheat Sheet blog. Make sure to put this site on your must-read list.

nouriel-roubini

Nouriel Roubini and His Acolytes

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.

TECHNIQUE 3. “Fuzzy Facts”: General broad statement likely to be right.

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.”

TECHNIQUE 6. “Push Statements”: State something wrong and keep pushing it!

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.”

TECHNIQUE 8. “Peter Pan/Pollyanna”: Tell them what they want to hear.

“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.”

TECHNIQUE 9. “Certain Predictions”: Predictions with no time frame.

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

OTHER TECHNIQUES:

“SELF-FULFILLING”

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.”

“VAGUE PREDICTIONS”

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.

“UNVERIFIABLE STATEMENTS OR PREDICTIONS”

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.

This post was researched by my friend Dan who has a passionate interest in educating people about subversive rhetorical techniques. Thanks Dan!!

Source: Damien Hoffman, Wall St. Cheat Sheet, September 3, 2009.

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Read more on Nouriel Roubini at Wikinvest
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2 comments to Techniques used by false prophets and charlatans

  • Leonard S

    Excellent!! Spot on!
    One to add is “keep it short, shout it load and never say you are wrong” This is the strategy of talk radio/TV (or screech radio as I have come to call it)

  • Frank W

    To be sure, there is a lot of garbage in the financial advice sector. The answer to that problem is not to read it. There is too much decent advice to have yourself waste time reading it. Sift thru the authors’ contributions and find the ones who know what they are doing. Roubini is generally regarded as being among the best and is always worth reading. Another one is John Hussman. And don’t forget John Mauldin. There are others as well such as Ambrose Evans-Pritchard that you can discover for yourself. Some good people don’t write very often, so it is harder to uncover them. I have never heard of Damien Hoffman, but I’m sure he has his fans. Frankly, this article strikes me as more than a cheap shot. More like a salvo of cheap shots. I think he may be suffering from what some people call the “Tall Poppy” Syndrome.

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