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.

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: 03/16/2015

02/05/2015 -- 80-year-old manipulator of the markets still at it. ... The questions remains, for the financial engineers: what is the scientific basis for your efforts (as in, real engineering bumps up against nature, which is a hard task master)? ... You guys exploit the multitudes (let me characterize this for you ... in my own time, of course).

03/16/2015 -- Let them eat cake. 

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: 03/22/2015

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

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

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 [will] begin with the foundational start which has actually been going on since the beginning of the blog and before.

Remarks:  Modified: 11/11/2018

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).

03/05/2015 -- First, we had El-Erian saying that people's hope of liquidity had no basis. Now, Cuban is saying the same thing. ... What I was starting here was an explanation. You see, the cheshire multiple provides the supposed equity (illusory in many senses). Then, the dark pool (and similar) activities by those who run the game siphon off the real value (skim the cream). What is left is residue (yes, mere fractions of what was put in - by those who are the guaranteed losers). ... I will start over and make the fictional part more prevalent. ..., Too, the graphic will be more extreme so as to let the message come out (after all, we can use the "thought" experiment approach in order to lay out the framework with which to take the analysis further - for many, it is just incredulity that strikes - how can such crap be? well, it's due to the intellectual/mathematical/computational cloaks that are put out - and, it's pure crap, people). ...

03/14/2015 -- We are talking market capitalization and how modern means allow this to be concept to be mis-used. We are reworking the example to be more extreme. For now, why is not market cap based upon a more sophisticated notion (rather than being a gross estimate)?

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.