The Witches of Wall Street.

January 27, 2014

Those fingers in my hair

That sly come-hither stare

That strips my conscience bare

It's witchcraft

And I've got no defense for it

The heat is too intense for it

What good would common sense for it do?

'cause it's witchcraft, wicked witchcraft

And although I know it's strictly taboo

When you arouse the need in me

My heart says "Yes, indeed" in me

"Proceed with what you're leadin' me to"

It's such an ancient pitch

But one I wouldn't switch

'cause there's no nicer witch than you

--Frank Sinatra, Witchcraft

. . .

Before science, there was magic.

Lacking logic and rationale, man ascribed much of what he could not understand to magic. Sorcery. Mysticism. Witchcraft and wizardry.

Of course, whenever human beings exhibit fear and ignorance, there will always soon appear the archetypal soothsayer, and his bag of tricks. Magic, sorcery, visions and elixirs - there is nothing these foretellers of fate cannot see and do. Where your vision is clouded and opaque, theirs is clearly focused on the dark, mystical outcomes ahead.

But, good news. Generally, for a meager sum, you too can tap into their divinations.

Sympathetic magic was a type of sorcery based on the metaphysical belief that like affects like. In other words, an object, figure or person could continue to exert some influence or control over another object, figure or person, by having been, at some point in time, connected, related or aligned.

Lacking much else to explain the mysteries of the world, our ancestors placed great amounts of faith and hope in the power of sympathetic magic.

Distant lovers wore lockets containing their beloved's hair in the belief that it would fortify their love. Voodoo priests stuck needles into dolls bearing the likeness of their rivals, hoping it might do their rivals harm. Warriors ate the hearts of their brave but vanquished foes believing they could glean their strength by consuming the flesh. Psychic detectives used psychometry in the belief that touching an item belonging to a vanished loved one might grant psychic contact with the individual.

We are a strange bunch in a strange land.

Sympathetic magic paved the way for many of today's new-age notions. Consider the idea of "morphic resonance," which explains the basis of memory in nature by the idea of mysterious telepathy-type interconnections between organisms and the collective memories of species. Remember Avatar?

Sympathetic magic is also the foundation for most forms of divination, the idea that the lines, shapes and patterns found within everyday objects can be magically connected with the empirical world. Its past, present and future. Using divination, man began his attempts to foretell the future. Or, to reveal occult knowledge through the interpretation of omens, or the use of paranormal or supernatural powers.

For centuries, divination has been a source of comfort and torment.

On the one hand, that lock of hair provided a measure of intimacy to the wife of a seafaring mariner. On the other hand, the accused witches in Salem took little pleasure in the revelation of their innocence as their bodies did, in fact, burn at the stake - so proving their innocence.

Which, my superstitious friends, brings us to today. This so-called modern era. The age of science and empirical thinking. Truth is, we have not strayed far from our magical roots.

Last week, my wife explained that she will be joining some girlfriends as they willingly pay actual money to see "The Long Island Medium" as she makes a tour stop in Cincinnati.

Of course, I've requested a few questions on my behalf. First, the S&P 500 year-end values in one-, three- and five-years. Second, David Chase's intended meaning for the final episode of The Sopranos. And finally, the future World Series and Super Bowl championship victory dates involving the Reds and Bengals.

Yet, the Long Island Medium isn't the only one playing upon our desires to divine the future.

Perhaps you recall the Reverend Harold Camper who convinced thousands of followers that the apocalypse was nigh, and the world would end on May 21, 2012. Yet, the end never came, leaving thousands of Reverend Camper's followers crestfallen and wondering in whom they could place their faith if not a 90-year old retired civil-engineer cum doomsday proselytizer?

Of course, in a world of cyclicality and mean reversion, if you make enough forecasts, you get a few right. Take Nouriel Roubini (Dr. Doom!) or Marc Faber (author of "The Doom and Gloom Report"). These perma-bears have spent much of their careers calling for financial Armageddon. In 2008, they finally nailed it.

The sad truth? Gloom and doom sells. We watched with morbid fascination as the tidal surge swept away the Thai coastland. As earthquakes destroyed Haiti. Or as any number of stock market sorcerers predicted the next economic implosion (click here for, Economic Pessimists Gain Cache.)

Besides the average baseball locker room, there is no more superstitious a corridor in the land than Wall Street. Each day, tasseographists turn their tea leaves in an effort to forecast the future. Using esoteric bits of graphology, the practitioners of Wall Street witchcraft tell us our likely fates. Sounding poised and mysterious on CNBC. Then charging $1,700 per year for a newsletter detailing all of the sorcerer's market magic.

Today, its the alleged "January Barometer." And its portent of the bad omens at hand.

Originally identified by Yale Hirsch of the Stock Trader's Almanac, this touch of present-day sorcery posits that January's performance will in turn influence that of the remaining calendar year. Good January? Good year. Bad January? Witchcraft!

According to the Stock Trader's Almanac, since 1993, when the S&P 500 rose in January, the rest of the year saw an 11.2 percent gain. A negative January, in turn, resulted  in a meager 0.2 percent rise the rest of the year.

January 2014 saw the market decline 3.46 percent. Accordingly, the January Barometer indicates a miserable year. According to the sorcerers of finance, you may as well sell stocks and go to cash, because this year has about as much to offer as a Kardashian in calculus class.

Last year, it was The Hindenburg Omen. Last Sunday, it was those nutty kids in Pennsylvania, planning their springs around the sleep habits of a groundhog named Punxsutawney Phil.

We remain a superstitious bunch. Under girded by technology and science, only to invoke mysticism and superstition when an explanation is not ready made.

Today, in the age of mass spectrometry, particle acceleration and online dating, we are still prone to superstition, sorcery and fear. Even in the 21st century, we remain one panic away from another witch hunt.

Which questions any rational-minded market purveyor should ask?

Is there any logical explanation for the causality of such omens? Is there a repeatable, historically documented variable leading to a proven correlation between cause and effect?

Given our weakness for superstition, one begins to understand why the herd mentality is so dangerous. Particularly when it comes to investing. Or, for that matter, the identification of witches. Once we seek our teeth into an idea, we are loath to let it go.

And yet, there remains no significant reason as to why a negative January would portend a difficult period throughout the remaining eleven months.

As I write this, the market is down roughly five percent year-to-date, having fallen 3.5 percent in January alone. Any tasseographist worth his salt might tell you that his tea leaves are telling us to sell. Get out. Go to cash.

But, in January 2010, markets fared even worse, falling 3.7 percent. And as the oracles began reciting their incantations to vacate the market, the S&P 500 proceeded to post a 14.8 percent calendar-year return.

That year, mystics lost their asses.

Sometimes, regardless of which of the twelve months in which it occurs, the market simply drops. Moreover, following a 10,000 point, five-year gain in the Dow, sometimes the market has to give a few points back. That is to say, sometimes markets don't go up.

I don't need a medium to tell me as much.

Wall Street knows this all too well. And when the not-so-convicted buyers of Main Street panic and sell shares in XYZ Company, the smart money picks those shares up on the cheap. Because the smart money knows that one bad purchasing managers' index number, one shoddy employment report, or one sub par ISM reading does not a recession make. But the herd will always shoot before aiming.

The market has risen for five years. We have not had a legitimate correction in a year and a half. The pundits have discussed a pending correction, ad nauseam. Well, this could be that.

At some point, the market will drop. Meaningfully. Right now, with markets falling like Justin Bieber's Q Score, investors' behavioral biases are going off like smoke detectors in a Colorado coffee shop.

Yet, so long as we're not on the precipice of another 2008-style meltdown, and all signs say that we're not, then stocks will likely recover over the next two to three months.

If we are, in fact, on the verge of another global meltdown, then batten down the hatches and go short, because all bets are off.

For the time being, however, the U.S. and Europe remain in stimulus mode. The economic recovery is intact, inflation is in check, and bonds are holding up well.

So, unless your horoscope or Ouija board says otherwise, give stocks the benefit of the doubt.

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