traders

‘Not necessity, not desire, the love of power is the demon of men. Let them have everything, they remain unhappy.’ –Nietzsche

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{ while ordinary people are struggling, those at the top are doing just fine. Income and wealth inequality have shot up. The top 1% of Americans command nearly twice the amount of income as the bottom 50%. The situation is more equitable in Europe, though the top 1% have had a good few decades. | The Economist | full story }

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{ Netflix performance burns hedge fund short sellers }

Yes, tid. There’s where.

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Twelve years ago, my now-Bloomberg colleague Joe Weisenthal proposed that startups that planned to disrupt an established industry should short the stock of the incumbents in that industry. That way, if they were right — if they were able to undercut big established public companies — then they’d get rich as those public companies declined. […] Their profits would come from the incumbents’ shrinking.

Weisenthal’s proposal was for disruptors offering a free product; the idea was that the entire business model would consist of (1) offering a free service that public companies offer for money and (2) paying for the service by shorting the public companies. But there’s a more boring and more widely generalizable — yet still vanishingly rare — version of this approach in which it just augments the disruptors’ business model: You sell better widgets cheaper and make a profit that way, while doubling down by also shorting your competitors. It’s a more leveraged way to do the business you were going to do anyway, an extra vote of confidence in yourself.

{ Bloomberg | Continue reading }

Olympic gold medals contain only 1% gold — would cost $25,000 if pure

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You know, someone invented the XIV ETN. And someone invented the VIX, and VIX futures. And when you read the technical specifications for all of those things, it is clear that they are not trivial feats of engineering. Teams of marketers and traders and quants and technologists and lawyers put many hours into getting them just right, so that they would work as intended. They are technologies, highly engineered tools designed to help customers do things that they couldn’t have done before. They are financial technologies, built not out of screens and circuit boards but out of formulas and hedging strategies and legal documents, but that is what you’d expect: Financial firms ought to innovate in financial technology.

Yesterday Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein presented at the Credit Suisse Financial Services Conference, and his presentation is kind of a weird read. The running theme is that Goldman is doing technology stuff to win business. “Engineering underpins our growth initiatives,” says a summary page, and it doesn’t mean financial engineering. In fixed income, currencies and commodities, engineers are 25 percent of headcount, and the presentation touts growth in Marquee (its client-facing software platform) and “systematic market making.” In equities, Goldman touts its quant relationships. In consumer banking (now a thing!), the centerpiece is Marcus, Goldman’s online savings and lending platform. And in investment banking, “Engineering enhances client engagement through apps, machine learning and big data analytics.” […]

Instead of developing new financial technologies, Goldman is developing new computer technologies for its financial clients.

{ Bloomberg | Continue reading }

related { Hedge-fund mediocrity is the best magic trick. Never have so many investors paid so much for such uninspiring returns. }

lithograph { Ellsworth Kelly, Camellia III, 1964–65 }

The June snows was flocking in thuckflues on the hegelstomes

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There are 1,036 virtual currencies out there, from Bitcoin to — no joke — BigBoobsCoin. The price of almost every single one was down Friday morning.

{ Bloomberg | Continue reading }

Mermaids have more fin

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Stock trading strategies: competition is so stiff that there are only two ways to succeed: (1) insider trading, e.g. you try to obtain job interviews with small publicly traded companies, then based on information glanned during the interview, perform trades and (2) use trading strategies that professional traders will never use, e.g. stay “all cash” for several years on your trading account, and when the right event occurs, massively trade major indexes for a couple of days, then go dormant for another few years. You need sophisticated statistical models to succeed in this, with good back testing, walk-forward and robustness based on state-of-the-art cross-validation.

{ analyticbridge | Continue reading }

art { Rochelle Goldberg, The Cannibal Actif, 2015 }

Do you know she was calling bakvandets sals from all around, nyumba noo

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Two hedge fund “quants” have come up with an algorithm that diagnoses heart disease from MRI images, beating nearly 1,000 other teams in one of the most ambitious competitions in artificial intelligence.

{ Financial Times | Continue reading }

Qi Liu and Tencia Lee, hedge fund analysts and self-described “quants,” didn’t know each other before they won the competition, beating out more than 1,390 algorithms. They met each other in a forum on the Kaggle site, where the competition was hosted over a three-month period.

{ WSJ | Continue reading }

Holzwege proved a disarmingly difficult title to translate, or even understand: Holz means “wood,” and were means “paths.” Thus: “Paths in the Forest”—but Holzwege are not just any paths. They are paths made not for the forest but the trees; paths for finding and carrying wood (back to your hut), not for getting from point A to B. And when you are on one, you are, proverbially, on the wrong path.

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The mantra of Wall St hedge funds was once “only the strongest will survive.” It may now have to change to “the geeks will inherit the earth.”

Hedge fund “quants” who use computer systems to trade financial markets earned more money than some of the industry’s most famous stockpickers, who posted large losses in 2015.

The most prominent among the quants was string theory expert and former code breaker James Simons of Renaissance Technologies, who earned $1.7bn, putting him in joint first place.

He was joined in the top 10 earners by former Columbia University computer science professor David Shaw of DE Shaw who made $750m and John Overdeck and David Siegel of Two Sigma who made $500m each.

Their success came in stark contrast to some of the biggest names on Wall Street who rely on human investment judgment rather than lines of computer code.

{ FT | Continue reading }

quote { Cabinet magazine | full story }

‘Nothingness haunts being.’ –Jean-Paul Sartre

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It was an invitation-only party (crabs, cocktails and a D.J. on a moonlit dock) thrown by Jane Street, a secretive E.T.F. trading firm that, after years of minting money in the shadows of Wall Street, is now pitching itself to some of the largest institutional investors in the world.

And the message was clear: Jane Street, which barely existed 15 years ago and now trades more than $1 trillion a year, was ready to take on the big boys.

Much of what Jane Street, which occupies two floors of an office building at the southern tip of Manhattan, does is not known. That is by design, as the firm deploys specialized trading strategies to capture arbitrage profits by buying and selling (using its own capital) large amounts of E.T.F. shares.

It’s a risky business.

As the popularity of E.T.F.s has soared — exchange-traded funds now account for a third of all publicly traded equities — the spreads, or margins, have narrowed substantially, making it harder to profit from the difference.
And in many cases, some of the most popular E.T.F.s track hard-to-trade securities like junk bonds, emerging-market stocks and a variety of derivative products, adding an extra layer of risk. […]

While traders at large investment banks watched their screens in horror, at Jane Street, a bunch of Harvard Ph.D.s wearing flip-flops, shorts and hoodies, swung into action with a wave of buy orders. By the end of the day, the E.T.F. shares had retraced their sharp falls.

It is not only Jane Street, of course. Cantor Fitzgerald, the Knight Capital Group and the Susquehanna International Group have all capitalized on the E.T.F. explosion.

And as these firms have grown, so has the demand for a new breed of Wall Street trader — one who can build financial models and write computer code but who also has the guts to spot a market anomaly and bet big with the firm’s capital. […]

Here is a small sample of Jane Street’s main traders: Tao Wang (doctorate in philosophy and finance from the National University of Singapore), Min Zhu (master’s in chemistry, Columbia), Brett Harrison (master’s in computer science with a focus in artificial intelligence, Harvard) and Srihari Seshadri (bachelor’s in computer science, Carnegie Mellon).

{ NY Times | Continue reading }

oil on Masonite { Grant Wood, Birthplace of Herbert Hoover, 1931 }

‘History is the science of what never happens twice.’ —Paul Valéry

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A recent Wall Street Journal/NBC News poll found that 49% of Americans still believe the U.S. economy is in recession, even though we are now in the sixth year of the recovery. […] If investing when others are skeptical has historically been a successful strategy, why don’t more investors do so? […] Taking advantage of the findings discussed earlier requires investing when the economy and market seem to be at their worst, and rebalancing when conditions appear to be the best. This is counterintuitive for many investors, who tend to wait for confirming evidence before acting. This is related to herd behavior, the tendency to follow the crowd with portfolio decisions. Investing when others are skeptical is emotionally difficult but, as we’ve shown, tends to be when rewards are the greatest.

{ JP Morgan Funds | PDF }

related { It is not possible for a human to know whether Bank of America made money or lost money last quarter. }

art { Jim Campbell, Ambiguous Icon #1 Running Falling, 2000 }

‘Nothing can come of nothing.’ —Shakespeare

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Since The Fed’s extension of Operation Twist (and subsequent unveiling of QE3) in 2012, the stocks of “weak balance sheet” companies are up over 100%. In that same period, the stock prices of “strong balance sheet” companies are up a mere 43%.

{ ZeroHedge | Continue reading }

The last 5 days saw “strong” companies outperform “weak” companies by the most in 3 years - something appears to be changing.

{ ZeroHedge | Continue reading }

If you can look into the seeds of time, and say which grain will grow, and which will not, speak

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A quarter of all public company deals may involve some kind of insider trading. […] The study [PDF], perhaps the most detailed and exhaustive of its kind, examined hundreds of transactions from 1996 through the end of 2012.

{ NY Times | Continue reading }

If at first you don’t succeed, skydiving is not for you

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Long ago, stock trades were reported over ticker tape, and one type of manipulation was called “painting the tape.” Traders would enter orders to give the appearance of activity in a stock to entice others to buy shares, thus pushing the price higher.

Today, a slightly more sophisticated scheme is called “banging the close,” in which transactions are made in one market at the end of the day to benefit a trader’s positions in another market, say derivatives. Same scheme, different means. […]

The growth of high-frequency trading firms and transactions executed on alternative trading systems, called dark pools, have made it more difficult to police potential manipulative conduct. High-frequency traders buy and sell millions of financial instruments but rarely hold a position for more than a day. While such trading provides greater liquidity to the markets, helping to lower costs for all investors, it can also offer new opportunities for manipulating prices. […]

Manipulation can also involve benchmark indexes, which are incorporated into a wide variety of transactions, including mortgage interest rates. When an index relies on reports provided by rival market participants, the temptation to furnish false information to affect its value can be powerful because a small shift in value can affect billions of dollars. Several large banks have already paid billions in penalties for manipulation of the London interbank offered rate, or Libor, and investigations are gaining steam into how currency prices were reported in the foreign exchange markets.

{ NY Times | Continue reading }