Wednesday, January 21, 2015

Talking to the addicts

Moral: Wherein we just take note of the goo-goo talk going on everywhere, now. Ben/Janet did a good job in that respect.

Canada? Who has been the epitome of good banking? Europe? Poor Germany (worked hard; kept their economy on even keel; they will be like the savers under the FED - slapped silly).

As an old timer, I don't know if I'll see fiscal sanity return in my lifetime.

Remarks:  Modified: 01/21/2015

01/21/2015 --

Saturday, January 17, 2015

The quant-ificational view, again

Moral: Wherein we take up the technical slack with a re-look at Quants and their work.

Quants? Yes, there have been references in this and the related blogs to work that is highly mathematical, in scope, but is computational in practice and need. In other words, lots of things are done under various names (technology, progress) that are ripe for review by other than the players. As in, technical folks who might have a different perspective on these matters.

So, to date (search on quants): FEDaerated, truth engineering, 7oops7. In truth? My view more than differs; I am from an older set who has had a technical focus for several decades now. However, given the discussion, below, you will see that the issue is open.

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What changed? Well, despite the cheeky prose, there never was any "luddite" tendency or leaning. Rather, think of the position as more quasi-empirical (to be discussed further) and as being of a small set compared to those rushing off after the genies and demons related to the ramifications of the philoabstract'd.

Now, recall that my recent thrust is asking us to think about normative mathematics (to be discussed further). Say what? Is there even any definition? Yes, in my mind (which is sufficient for me to keep going). Somehow (to be explained at some point), Galois' work was apropos to my ponderings, and I was doing searches (one benefit of technology has been the increasing set of material that seems to be endlessly emerging). Many times, this type of activity turns of questionable material.

But, I ran across this blog: fermatslastspreadsheet.com. In particular, I landed on what is called a "Leanpost" and looks like a very good idea. How many publications have I seen where people are copying on-line material that is far from complete? Plagiarism seems to have become a norm. I like this; perhaps, bloggers ought to use PDF (or similar) for things that are further along (with the default being that a post is sketchy, at best).

Now, the leanpost that I landed on was this one: Galois Theory for dummies. Great. It is a very good explanation. Too, I remember several years ago that a computational expert (applied mathematics) was using Galois as defense against some venturous approaches (some of these I can recount since I was close enough to know the details; others I need to look at in a deeper fashion as companies using proprietary cloaks covers a whole lot of mischief - and those who role it is to audit/review do not have the proper approach - too, getting down and dirty is beneath a whole lot of folks --- actually, for those of the younger set, I don't castigate yo'all as a group; rather, I would ask that you pay attention to potential, down-the-road ramifications from your current actions and choices that seem so brilliant and creative at the time of spawning).  

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Enuf of that, for now. With the FED running amok like cowboys in the real-time experimentation on the whole of the economy and the world, how can we expect the computer/software people to have any other framework with which to work?

Well, we have ways to weigh in there.

Needless to say, it was good to run across this blogger who has dabbled in the arts and languages as well as in the numerical worlds. Nice.

Remarks:  Modified: 01/23/2015

01/17/2015 -- Two pages that represent good web material: one older (love this site), one newer (see 6 Further Reading - nice).

Thursday, January 15, 2015

Tide that floats us

Moral: Wherein we look for motivations for dark pools (ah, invisible hand, indeed) and other charades. Oh yes, "motivations" means more than just rooking the system.

Essentially, we want to show that the markets are not fair and why this is so. Now, don't go on about life not being fair. This is different; it's basically an issue of the higher class (because they can and are given the right) running a sham under several auspices. You would think that the U.S. would take the high road and show the world how markets ought to be done. We cannot get there until the real story is known and told. 

Too, we are talking from a normative position not unlike that of the U.S. Constitution writers. Let us start real simple and go over the ground work. 

As one watches the markets (yesterday - decline; day before - up then down) gyrate, there are lots of things to ponder and questions to ask. Sometimes, it looks as if something is trying to prime the pump (seeding the chimera, if you would). Say what? Yes, something buys in order to get things up; this would be an attempt to lure in suckers (we'll go into this further).

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So, to a basic view of how we get the Cheshire multiple whose reversal throws so many into the quagmire of losing it all. Built on top of this faulty frame are the management strategies and gaming activities that spawn our chimera.

Essence of the Cheshire multiple
The graphic relates to a scenario that is quite common. The approach is fairly simplified but does cover the essential points. The context is equity, for now, however it applies to all markets in some way or other. Yes, as capitalists like to argue, markets are the key/core item for their economy.

You know what? We have never seen such. Rather, playing around, as shown in the graphic, is the reality.

So, we have four states read as normally with English. We start with the upper left which is the starting state. Then, we have three events. Each one of these is some transaction or collection of such.

Let's look at a few details for each of these states. We are assuming that there are 10 stocks; the number of buyers is not important (assume that the number is more than five, though - we'll get to the block dealers soon - as in, one or two buyers, 10 stock).
  • 1 - pre-IPO. I used this term since we see IPOs regularly. Someone floats stock whose value has been determined by various means. Either the stock goes beyond the initial price (how this price is determined is ignored here, for now) or falls. In the first case, we have "winners" which everyone loves. 
  • 2 - All sold. So, we'll assume that the 10 stock got sold for $5 (I'm putting the dollar sign to denote some type of value). We then have a total value of $50, and everyone is happy (if the original price was $4 or lower - keep this in mind as it'll come up in a later post). 
  • 3 - One sold at an increase. Now, everyone is happy as their stock is worth $2.5 more without them doing anything (this is how the Mr. Wonderful's of the world like to dream of making money while they sleep - and actually do). The total value now is $75. Only $2.5 was introduced. How did we get the additional $22.5? Ah, that is the crux (multiply this by billions across the board, and the gist of the problem shows up - those running the game do not want this known - raking off the top is their bailiwick). 
  • 4 - Two sold at an increase. Now, everyone is exhibiting (ir)rational exhuberance. The total value is now up to $100. Yet, we have only seen another $5 introduced. Adding that to the last event's amount, and we have $7.5 introduced. Yet, the overall value has doubled (for those who did not sell). 
Now, of course, when anyone sells out after this point, their gain (considering tax, for instance) will be based upon what they paid when they bought.

To summarize:
  • Holdings: 7 at $5, 1 at $7.5, 2 at $10
  • Gains, if sold at $10: $35 (7), $2.5 (1), $0 (2).
The example does not have a sell example. Too, whole lots of attention goes into this market paradigm daily. Some of the talking heads are trying to be helpful; others seem to be mainly self-serving.

But, looking from a distance, that the game is rigged is obvious. The last author who tried to show this caught a lot of grief. Adam Smith is rolling over in his grave at the thought of what is done under his name.

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Finally, one ought not criticize without having something constructive to offer. Do I? You ought to know better than ask. The problem is that we have this to contend with: centuries of practice (not as many as you might think), vested interests to ferret out (they have been at the teat for a long while), convoluted contrivances to counter (theoretics, mathematics, and computing), talking heads densely everywhere muddying the waters (ever think about the amount of money that goes into tracking and telling us about this crooked game?), and more. Hence, we begins with the foundational start which has actually been going on since the beginning of the blog and before.

Remarks:  Modified: 01/16/2015

01/15/2015 -- It is nice to see, today, that the most-read post this week are from years ago. Yes. In particular, the following are in order by read count: Systemic risk (Aug 2009), Why not? (Aug 2009), Von Mises and friends ( Sep 2010), Economic sandbox (Sep 2009), Bean and accounting, thereof (Aug 2009), Value, faired or earned (Sep 2009).

01/16/2015 -- Simple start, but at the core are issues of quasi-empiricism and more. Our approach will stress a re-look at normative mathematics (yes, all connotations apply) in order to regain what we lost with the thrust (modernism et al) which had led us to the state of data-driven purgatory and other ailments (which we have imposed upon ourselves).


Wednesday, January 14, 2015

Dark pools and other things

Moral: Wherein we look at a few recent articles and at what these might mean.

The WSJ always has interesting news. When there are some that relate, we need to pay attention.

Note: As said earlier, this opinion comes from a normatively-oriented view.  
  • The head of one of the large exchanges asked the Fed to not pull the spiked punch bowl. One of his arguments is that money is flowing in. Yes, this late accumulation is from those who are guaranteed losers. By this time, those who know ought to be dampening the fever; are they? No, they are stoking the fire. But, this happens, time after time. Do we ever learn? 
  • This same exchange is also wanting to handle stuff being done by dark pools which are suspect to any discerning mind from the get go. You see, consider that these things cloak trades. At the same time, those involved talk "open" and such as the means for better markets. One thing that a dark pool can do is allow unloading of a huge holding without price depreciation kicking in. That is only one of several things that smell. ... At some point, things being done in this cloaked manner will have to unwind; who will be dragged into the resulting quagmire? Earlier, we said that charades lead to the chimera (see Remarks 01/10/2015)- this is not the only path but is one example of an intentional type; however, this type of activity results (can result) in lots of ramifications. But, the players, by the time the stuff hits the fan, have their pockets filled. So, who cares?
  • Then, we see it touted that the Fed has paid the Treasury $98.7 billion. Think of what this would be if the interest rate was up where it belonged. Oh, so the Fed is that giant board upon which the economic decisions are made? Does this not sound similar to that old thing of the input-output model that (some) western minds deride and castigate? So, it's okay if phrased in terms of the wizards of D.C.?  
  • ...
  • Why not have a "global managed exchange rate regime" to help forestall the coming disorder? Again, input-output planning to the max (who won the Cold War?).  
Of course, the WSJ has to fill its columns. Too, the Street needs it playground, albeit a sandbox sounds very good now and then. That last column does bring in another focus that needs its day. 

BTW, arbitrage (misuse of, especially given the "smarts" of computing) is one culprit (remember the Nobel winner needing to be bailed out by the Fed and us - sheesh); as in, too many creating these moments (of liquidity need) just to allow their thrashing? How did this come to be? 

Remarks:  Modified: 01/15/2015

01/14/2015 -- See what Investopedia says about dark pools which are used to cloak. In other words, large block sales can happen without depressing prices. So? Someone down the road eats it. The "pedia" does have a pro/con section, however this "pedia"writeup is from the viewpoint of these types of markets. The blogger sees this as silly gaming and not of necessity. Of course, it's his duty to show why these approaches are bogus (at their core).

01/15/2015 -- At last, a series that will establish the basis and extensions, as required. We are going to go back to some simple and come forward to the modern, complicated economy. Why? My long chain of ancestors (inherited via Prof. Lucio Arteaga) is one motivation.

01/15/2015 -- It is nice to see, today, that the most-read post this week are from years ago. Yes. In particular, the following are in order by read count: Systemic risk (Aug 2009), Why not? (Aug 2009), Von Mises and friends ( Sep 2010), Economic sandbox (Sep 2009), Bean and accounting, thereof (Aug 2009), Value, faired or earned (Sep 2009).

01/23/2015 -- So much fun. Now, bankers are wanting their own dark pool in order to separate themselves from the front runners (who? yes, HFT, what else?). Our next post on this will show how such dealings (block trades) pull value from the other holders of equity (or whatever else might be the focus of a market). In other words, we see, with this, the proverbial skimming the cream (leaving, over time, less fat for the rest) or the butchers thumb on the scale (I showed that type of thing to the FEDS and was told to, as an individual and an old guy who sees, sue the perpetrators). --- Lack of consideration for the normative is one concern.

Sunday, January 11, 2015

Normative means I

Moral: Wherein we look at normative issues as we think that Janet could (ought to) turn that way.

Normative? Yes, more wisdom, potentially, than the data-driven purgatory approach will allow. Guess what? The blogger has a lot to say about such an approach that is well thought out (and independently conveyed - no academic or other constraints on the truth).

But, first, let's look at some recent stories that apply to the theme.
  • We have talked of the slapping of the face and flaying of the skin, in a metaphoric sense. This WSJ story tells a real tale (normative taken to an extreme). 1000 lashes and 10 years? That is assuredly fatal. Why allow the sadistic executioner and judge the right to such an inhumane bit of behavior, on the part of the former, and of ill-will, on the part of the latter? 
  • So, part of that "flaying" is having no, or very little, return (in the real sense) on reasonable amounts of money (say, middle-class amounts). Yet, those playing the game (as silly as it seems, at times) have made oodles. Case in point is the government bond gaming where some gained enormously in 2014. Now, "returns" was used in the article, however, they are talking ill-begotten types. 
  • Zoellner passed on in December. He was one of the pioneers in arbitrage which  morphed into HFT (we are not done with this topic, yet). First of all, a normative look might have a say or two about arbitrage (in fact, we'll get to that this year). Zoellner's take will be central to the discussion. 
  • ...
Now, as we're describing, slowly, this viewpoint is very much supported by academic studies, real world experience, and a well-formed grasp of normative issues. Here we are talking improvements in economics and finance. Related to this will be similar thrusts in computing and related.

Remarks:  Modified: 01/23/2015

01/13/2015 -- Dark pools and other examples.

01/23/2015 -- So much fun. Now, bankers are wanting their own dark pool in order to separate themselves from the front runners (who? yes, HFT, what else?). Our next post on this will show how such dealings (block trades) pull value from the other holders of equity (or whatever else might be the focus of a market). In other words, we see, with this, the proverbial skimming the cream (leaving, over time, less fat for the rest) or the butchers thumb on the scale (I showed that type of thing to the FEDS and was told to, as an individual and an old guy who sees, sue the perpetrators). --- Lack of consideration for the normative is one concern.


Thursday, January 8, 2015

Chimera and the dismal

Moral: Wherein we look, again, at chimera. Recurrency, so to speak. Due diligence, from another view.

Why this? Well, the dictionaries have several connotations of chimera. Here, the intended use does not deal with mythology or biology or genetics. Rather, the sense of this example from Merriam-Webster applies: Economic stability in that country is a chimera. By the way, here is a list of synonyms provided at the same source: fantasy, conceit, daydream, delusion, dream, fancy, figment, hallucination, illusion, nonentity, phantasm (also fantasm), pipe dream, unreality, vision.

Yes, we are saying that pieces of the "market" are about as illusory as one can get. Not all of it (see below). And, economics, which is as dismal as it can get, is where markets are studied.

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Now, having mentioned the sense, it might be fun to think of the beast that is represented by the inflated market that we see. Bulls and bears are commonly invoked metaphors. It may very be in our interest to bring that type of usage up to date (too, the younger set's infatuation with the beastly may be motivation).

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So, back to markets. How can they be of the chimera type? Note, please that we point to the specifics of the ca-pital-sino as the problematic issue. Too, evaluation conventions allow for a whole lot of slop. Then, we get computation added to the equation which brings up other problems. Really want to know what these are? Well, stick around.

Now, yes, there are other parts of markets that are not chimeric. We will be looking at this from the basis of viewpoint up to wherever it is necessary to go. If you want to leap ahead, you might look at this example from berkeley.edu that uses apartments to lay out the foundation'l issues, to develop the model, and even to bring in game theory's contributions.

However, in our thorough method, the foundation'l piece here will be the focal point for some time. Think a redo of Chimera: sellers and buyers. Too, a couple of series concerning capitalism deserves another look (or two or ...) and, perhaps, even an extension.
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Like Warren, many have made money with markets (there is no coveting (the 10th in one milieu) here, rather arguing near-zero realism and what such pertains). The chart is an example of one firm's experience of increases by going long. This firm, by the way, shares their wealth of knowledge with the argument that everyone can participate. Even in that case, the run up, via multiples, is still problematic without some fundamental changes. What these might be is pertinent to the discussions here.

So, tru'eng will be looking at how "chimera" applies.

Remarks:  Modified: 01/15/2015

01/15/2015 -- At last, a series that will establish the basis and extensions, as required. We are going to go back to some simple and come forward to the modern, complicated economy. Why? My long chain of ancestors (inherited via Prof. Lucio Arteaga) is one motivation. 


Tuesday, January 6, 2015

Atlantic articles

Moral: Wherein we, briefly, top and look at a couple of recent articles in The Atlantic (Jan 2015).

  • How the Fed flubbed it - Review of Barry Eichengreen's Hall of Mirrors book. They say that he is going against the grain; well, we need that. The particulars might not match the theme here exactly, but the ramifications of years of largess are yet to be seen. 
  •  
  • William D. Cohan,
    Wall Street Rises Again
    The Atlantic, January 2015
  • Wall Street Rises Again - Now, we have four banks, in their aggregate, who encompass trillions of dollars.  Thanks, Fed and others. I deal with three of these (who have been slapping us silly and attempting to flay us, it seems, to within an inch of our lives) behemoths and have notes on how things have been seen from the bank customer over the last seven years. Not pretty at all. 
Of late, I have been puzzling about the use of "chimera" when some are obviously having very large pockets filled. Too, the talking heads go on about everyone's (those who have them) 401K have gains (hypothetical money that evaporates with the least amount of stress). Retracting the use? Are you kidding me?

Now, the argument is not against equity, per se. Debt, if leveraged and not collaborated, can be problematic, too. Allowing a co-owner or incurring a little debt are age-old choices. Is running finance like a stacked game fair?

No, the argument is that we ought to run finance like plumbing. That is, remove the Lords from other than some ceremonial roles.

The ca-pital-sino is the bad guy that we have spawned upon the world (at which, we can get beat, to boot). It is an over seer of markets with implications that its use denote capitalism (hah). Evaluations float; the most who might try to get their portion find the trough almost empty (what is left is basically a residue, and consequence, of fat cat consumption).

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For now, to quote Cohan: For the rest of us, sadly, the best hope is that the next crisis will be sufficiently existential to finally force fundamental, long-overdue change to the way Wall Street does business.

Remarks:  Modified: 01/10/2015

01/10/2015 -- Chimera comes about from charades: uninformed, error, intentional. The first one is reality; that economics talks about market efficiency, rational players, and perfect knowledge really tells us a lot about the dismal subject. The second relates to misused mathematics, as in, applying, almost by rote, algorithms/methods based upon a faulty basis and poorly understood framework. The last? Well, this is where the meat is (the rubber meets the road). The way the market system is stacked against the regular investor (many ways to define this) through various means, most of which are computationally framed (see error) provides the house of cards that we see on close observation. Janet would be handle this last group through some type of normative approach (to be discussed).