Magical multiplier

Moral: Wherein we get out of the pause mode and start the long trek to founding a better normative view of economics.

Yes, and we will be mathematical (in our own time and by our own means). First, though, we have to establish the basics of the discourse.

So, these three images start to tell the story at its inception. Which is? How the heck does this magical multiple (cheshire state - wild dreams) come about? Why is it allowed? Then, many questions arise.

But, to address the last question, first, we only have to say that the history of markets (and the capitalistic devolution of such - as in, if you have to ask, ca-pital-sino) is an age-old thing (for now, search results on markets, this blog). And, we will cover that topic at the necessary lengths.

Now, about the multiples that occur in finance and economics, they all relate to near zero (see it in this and the associated blogs) and to the emergence of the chimera (ah, that which sucks values from the pockets of the hapless to those who have been able to fleece the public (by shell games, for one) for millennia).

Of course, we have to weigh in real soon on dark pools (especially, their motivations). See if you can guess how we are going to explain these machinations (yes, implicitly there, in the following images).

First, we need some overview and discussion
of the elements being used.

Now, let's consider a real simple case to see the effect.
(Hint: on the bottom right, note the predominance of the brownish)

Then, consider one permutation of many. 

There is more on the topic on the way, including an essay (PDF) that will pull the fundamental aspects together. From that, we will cover a few of the variants.

Then (at some future point after a proper unfolding of the theme), we will start to describe how to make the problems (ah, so many of these problems are, folks, due the brains that been allowed to proliferate schemes - made-off was a crook - there are so many unfounded (unrecognized) ploys of this nature that it could be truly disheartening if the nature of these were not so obvious -- let's shed a little light and see what we can do) amenable to being understood. Perhaps, then, we could talk possibilities of choice and such.

Remarks:  Modified: 06/01/2015

03/15/2015 -- We have to start this way since the infatuation with STEMish thoughts runs deep (without the proper foundation, folks - albeit, that operationally that thrust looks to be sound). Too, the computer's (cloud'd or otherwise) appeal is part of the package, as it ought to be. However, the present state has many troublesome aspects. Now, for the Piketty picker-oners, what I am alluding to here is what he ought to have used -- we'll get there -- Minsky, and many others, hinted at things about which we ought to have more concern. ... My bailiwick is computational (the gamut) -- we need not fear technology, any more than we may have had concerns about our bros - all the way back to Cain and Abel and before.

03/16/2015 -- Updated the images. Let them eat cake.

03/17/2015 -- Dogs of the Dow: Market Cap table, Most active. Beyond the wildest dream.

03/23/2015 -- Pew Research's reports will be useful: Only upper-income families have made wealth gains in recent decades. In some of the responses to comments, one author expresses disbelief in the Fed's influence. Well, we can work on helping clarify that (by more than griping about the addicts). Our research deals, in part, with how many simple folk get to experience, and enjoy, the book-based wealth that their financial reports offer them. That is, that which is beyond Social Security (but, being sensitive to take-backs as we see, recently, happening with retirees being informed that their pension is being cut). From my experience, it is a small percentage (comparatively). The one fact of the upper crust? They have more protection which we can enumerate and illustrate.

05/08/2015 -- The magical multiplier in action.

06/01/2015 -- Dampening the magical multiplier.

Markets, arbitrage, etc.

Moral: Wherein we are still in a pause, but events continue to roll along.

On Monday, 03/09/2015, there were several articles in the WSJ which had the typical flavor, being reflective (Friday was over and done with; there was time to look at what happened during the week; such times can offer to those who are thoughtful some slack time with which to get it right). This post at 7oops7 briefly describes three of these. Actually, the three require a lot more attention than being given now, but these posts (see link) are a reminder.

In this post, we are looking at the Bull and Bear charting for the past several decades. The graphic comes from one of the articles (How to Survive a Bear Market).

My time is from the 1970s and onward. In fact, in the mid-80s, I had the opportunity to see up close the floor and back office computational methods (Wall Street). That, coupled with my academic studies and general knowledge of the human economic experience, is the basis from which I will (continue to) argue the points. Much of what has been written, here, from the beginning is still apropos.

Note please, that the line is flat-ish from the 60s to the 80s. We can point to all sorts of influences, but I will argue strictly from the enabling influences of technology. The whole psychology has changed; too, you have the "brains" running amok with their mathematical prowess (when characterized properly, it's obvious). The resulting cloaking effect covers a whole lot of mischief.

Ah, Janet, you are talking ethics and the Wall Street in the same breath?

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So, we need to look at the progress over that period since the early 80s. But, we really need to go back to the beginning and see how the floor and the back office adopted automation, as well.

Other changes, such as pricing methods, etc., came about, too. The effect of these will be duly noted.

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We have looked, albeit cursorily, at markets. Arbitrage was mentioned a time or two. This was all a rage when I was a graduate student, but it did not interest me as much as it did others. You might say, my reaction was the same as with "financial engineering" (what a misnomer).

We will be getting back to arbitrage. These three papers are offered, for now.

• Too good to be true? - Somehow, we need to get the proper perspective back to fore. 
• Historical perspective - People have studied the evolution of markets and arbitrage. Why is no one, beside me, looking at the computational aspect (especially, those that are obvious - to most except the STEMers)? 
• Ancient roots - Indeed. Note, one example of an approach was to circumvent the strictures on usury. Yes, financial innovation is not new. 

Remarks:  Modified: 03/22/2015

03/10/2015 -- The one constant, as many say, is human greed. Too, the gradation of humans in all sorts of ways is age old. The current state seems to be especially attuned to the success of a small percentage (congratulations, guys and gals, for getting things to go your way). However, the problems that arise (imbalances) do not look favorably for sustainability of the mismatch. ... My experience leads to proper discussion (see Grind's little thing of remembering 5% -- yes, that and a lot more is my response).

03/15/2015 -- Finally, getting around to the pending business.

03/17/2015 -- Dogs of the Dow: Market Cap table, Most active. Beyond the wildest dream.

03/22/2015 -- Jealous? No way, Jose. FED gives Wall Street what it wishes.

A pause

Moral: Wherein we let ourselves step back and survey the madness.

Madness? Yes, Yellen flaying the savers and talking abstracted views. But, Ben is the culprit.

We'll get back to the whole thing, technically and otherwise.

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Yellen might need to think of the Fed as rusting the economy. The Fed as a corrosive agent? How's that? She, and they, play into the pockets of the big guys. Who are? Those who take from the economy, essentially, without giving proper attention to infrastructure. Ah, arguable points there?

See this article at The Atlantic: Rust never sleeps. We all know that the infrastructure is failing (near-zero, folks - of course, I'll need to get back to that). From the investor side, all they want is their return irregardless of the side-effects (why let this stupidity continue?). Then, we have the looker-forwards (ala the computationally-enhanced maniacs) who expect to be carried by those not of their ilk. Ah, it's cool to be STEM, computer-literate, numerically fluent, etc. But, at the same time, that view forgets the reality that requires attention, care, manual effort, etc. by those who have the wherewithal to do the dirty work (when it could, the social used slaves -- indebted living, with no limit to the indebtedness, is not far above slavery).

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Elsewhere, I mentioned that returning the draft would be a good thing (see Epstein in The Atlantic, January, 2015). Not to collect warriors. No, let's have KP and latrine and other duties in the mix. Especially, the favored (coddled) need to have some experience (notion) of where their crap goes once they flush (ah, how did such a class come to be? wait, they have always been here - well, revenge of the nerds has been fun to watch, but it has limits that need to be considered).

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Yes, we are prepared to follow up with the proper framework and discussion. How long will this take? We are not on anyone's schedule nor do we accept anyone's deadline. However, motivation is sufficient to bring the new view to light, albeit a little step at a time.

Yellen deals with oodles of bucks and has no regard for those of the little bucks. But, then, who actually cares for other than the 1% (or even a smaller set)? Obama's jaw-boning about financial types having no ethics is one clue of the present situation and what we need to consider (too, see recent article on the five ways that financial types can ruin your retirement - not this guy, except the idiots did spill some trash my way - and I mean idiots of the worse variety).

Did Obama really use the golden rule? We know that on the Wall Street, the thing that is golden is the sacks (as in, golden sacks).

Remarks:  Modified: 03/17/2015

03/01/2015 -- Let's say this: the next downturn will bring back to focus the things that are (and have been) under discussion here. When will that be? Well, the longer it takes, the more we will see the hapless, and those who cannot afford to lose their means, pulled into a no-win state (since Yellen (and her ilk) wants people's money thrown into risky approaches).

03/05/2015 -- Cuban talking lack of liquidity (2000 like). See Remarks 03/05/2015.

03/17/2015 -- Dogs of the Dow: Market Cap table, Most active. Beyond the wildest dream.

Illusion of liquidity

Moral: Wherein we let ourselves use some of the jargon though we wish to appeal to the general intelligence of those who are affected (namely, all good people).

El-Erian talks the illusion of liquidity. Is that not of the same issues as addressed by the Cheshire multiple?

Context: market liquidity, efficient-market hypothesis, and a lot more.

Related topics: Dark pools (allows manipulative trades in order to circumvent effects), HFT (adds to the illusion), ...

The plot will thicken as we go along. 

Remarks:  Modified: 03/15/2015

02/18/2015 -- The term "Cheshire multiple" was coined by Marilyn vos Savant during the last downturn  (time frame was 2009). 

03/05/2015 -- Cuban talking lack of liquidity (2000 like). See Remarks 03/05/2015.

03/09/2015 -- Cuban also brings in another dimension related to web/cloud efforts at funding. This, of course, can take money away from the traditional markets which have evolved to be giant siphons of value (we'll get back to this). Actually, a luddite recoil from computation ought not be considered as the theme here; on the contrary, the view is the epitome of human/computing interchanges (spiritually found, at the basis - hence, no room for the greedy mindset that looks to exploit things in their favor - which type of behavior was nicely exhibited (is now manifested) by the Lords of the earth - many of whom are the best and brightest). Earlier, FB was said to be a metaphor (did not go into how it is so), but that conceptual framework is being applied here (to be explained, where necessary -- actually, the God-give intuition ought to (will) come to fore if it were to be given a chance -- G*d, of course, as other than delusion, ...).

03/10/2015 -- Today is a slump day (1% as of noon) which does not mean much, as each lower sale brings down the total level. On the upswing, it looks like magic to have "value" appear out of nowhere. On the downturn, it's like a bug being squashed under a car tire. Yesterday was a seeding day. These have been more prevalent than the other for the past few years with the FED supporting the manipulation, albeit indirectly, albeit through various means. Ever notice how the seeding takes longer to recoup from a loss? You see, real money is put in to create the lure (trolling the waters) so that the suckers fall into the trap and bring in their money. Then, as each little bit comes in, the whole thing rises (as, if only nature worked that way - fortunately, it does not, otherwise life would not be sustainable) due to the magical multiple. ---- Now, the question is: do we have a better way?

03/15/2015 -- Finally, getting around to the pending business.

Zero interest rate policy

Moral: Wherein we let Wikipedia do the talking (we have talked enough about flaying) after last time looking at a market manipulation stance.

Sufficient is this cutout from a page: Zero interest rate policy

Zero interest rate policy
courtesy of Wikipedia

Notice the warning sticker about the tone. Per usual, the drive-by sticking had no justification. People raising issues need to explain themselves or their views on the Talk page.

Any action by the Fed to unwind this thing is way overdue.

Remarks:  Modified: 02/11/2015

02/11/2015 -- Source for the list that is on Wikipedia: Barry Ritholtz. See the discussion. One asks why the consumer is leveraged. Oh, really, now. It is because that is the only way to survive, the system allowed such, entrapment that is perpetual is attractive to who want to fleece (move monies from the pockets of the hapless to that of the elite), etc.

80-year-old whiz

Moral: Wherein we look at financial engineering.

We will let the article speak for itself: Bloomberg Markets (March 2015). The image, from the article, describes how an e-bond is constructed.

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There are words, like reduce risk and maximize liquidity. The former? Did we not hear financial types bragging that risk was no longer in our vocabulary? Yes, right around the time of the downturn. So, a Nobel guy has bought in. So, too, did we see the almost take down of the economy of such types; King Alan had to bail them out.

The latter? Seems to me that liquidity's purpose is to allow constant raking off the top of the cream; thereby, diluting the milk, people.

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As said, this is informational. However, bear in mind the context in which discussions will resume. 

Remarks:  Modified: 02/03/2015

02/03/2015 --

When Boston was the Frontier

Moral: Wherein we look at a review of a recent book.

Theme: Our heritage (see backbone series, for instance) as the twain of old England and of our own doings (far enough away from home to learn to want to be independent).

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Quote from the review which quotes Taylor (my emphasis): On the other hand, “more than has been recognized . . . American ‘innovation’ used English models.” Those models included the pursuit of “prosperity and liberty for some” by requiring “others to be poor, subordinated, dispossessed, and shackled.” Indians died, and African-Americans worked so that some Englishmen could get rich (but others remain poor) in a new land of inequality.

Between Two Worlds, Alan Taylor (WSJ review)

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We need to get back to the series on Economics/Finance. From the get-go, capitalism creates classes. Oh, I know. The gospel for this worldview says that anyone can lift themselves (note, above, the American delusion).

It's more like this, folks, We ought to have a draft (national service - of course, being sensitive to limits [many types] that some people face) in which all get their hands dirty. And, I'm not talking what the military academies put their students through as being enough. No, exposure to down-and-dirty jobs ought to be included in everyone's little step to maturity.

Then, we could work ourselves away from the type of social bifurcations where idiots who fly on their magic carpet (internet/web morons, to boot) have no regard for the myriads of folks who clean their diapers, labor for their comfort, etc.

And, folks, it's a long litany. Reminder. As a youngster, I was into hard labor (examples - [1] also, capable of handling advanced material - in fact, in one graduate math class which I attended with dirty fingernails, having come from my laboring job, my desk mate wondered how such a person as I could score higher on tests; [2] worked with a crew out on the rail, in the summer; as in, heavy, physical crap, okay?; ..., [n] many more ...).

My favorite example of an American? Someone of old New England stock who has a PhD but who can, and does, tear down and reassemble an engine (and capable of a whole lot more).

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BTW, there are a slew of things to bring up here, including the need for peripatetic views and ways (especially for some of these clowns who are almost disembodied in their intellectual focus - to be explained). ... Don't get me going on these types (I just read of some hardball players who like to use CDS [ah, let's really look at those] to browbeat others and to fill their pockets - if you must know, look at recent WSJ articles on such) who manipulate financial matters to their advantage (the whole of the ilk that think that things like dark pools are a necessity, etc.)

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Anyway, from where we sit, we are just observing and suggesting improvements (in our own time - the upcoming 400ths will allow us to relook at the American experience, again, and hopefully get the warts more fully exposed).

Remarks:  Modified: 01/29/2015

01/29/2015 -- This year? The 800th of the first sealing of the Magna Charta.