virus: Mechanical Faith

Gifford, Nate F (
Tue, 28 Oct 1997 08:45:18 -0500

I vaguely remember a formula for pricing initial public offerings of
stock from Finance cost. The formula was based on the future worth of
the stock's current income and then adjusted with fudge factors for risk
and potential growth. My point being that using that formula and
picking very conservative numbers for the fudge factors we should be
able to come up with a bottom line valuation of the market barring
overwhelming disasters such as nuclear war. These are the prices we'd
see for stock if the supply of stock exactly equaled demand ... but
given that the boomers still have 5 to 15 years left in the job market
demand has been chasing supply over the past 10 years. Particularly
since we're not even paying the interest on Mr. Raygun's bill for
supposedly ridding the world of communism so no one has faith in the
social security Ponzi scheme. So anyway you have all this boomer demand
being funneled into the market via various mutual funds and driving the
price up. Suddenly the Hong Kong dollar is devalued ... a butterfly
flaps its wings in China ... and enough boomers move their funds to the
bond market to cause the third derivative of some program's equation for
the market to move from positive to negative. The program sells,
causing other program's derivatives to go negative ... the market begins
to decline ... eventually the human's catch on and we have A CRISIS OF
FAITH. What is reality? What are those pieces of paper really worth?
Who is right ... the objective program running infinite iterations of
the Monte Carlo method or the arbitrageur's "gut feeling"? Can the
Priests of commerce keep the spirit of capitalism alive for another day?