Mystery Economic Theater 2015

[ewmayer]

Originally Posted by xilman

Or like Canada, which managed it in the 19th century. Actually, I meant that the rebellion would likely have taken place 1834-36 or so.

Now that you mention our slow-but-still-quicker-than-the-Aussies northern neighbo(u)rs, I'm imagining a Canadian version of the Boston Tea Party, perhaps in the form of the Great Montreal Beaver Pelt Massacre. "Angry colonist pelted British soldiers and customs officials..."

No dispute about the profiteering aspect from me though. It's just that I enjoy winding up the colonists, wherever they may be. For instance I flew into Sydney a while back. The visa entry form asked if I had any criminal convictions. Once in the country I told the locals that I hadn't realised it was still expected of new arrivals.

I figured it might be a wind-up, thus was happy to serve as straight man. (In other words my response was of the "suitable in either case" variety.) In any event, I hope your Aussie friends stood you a few beers -- down-under-style 'pisswater lagers', of course -- for that opening. :)

The line I have ready for Oz customs, should I ever need it, is "friends tell me I am a man of great convictions. Will that suffice?"

@JasonP: Sounds like some of the folks responsible for the "custom" search algo you describe later made it to Google, Amazon, &c.

[Prime95]

Authorities have found the scapegoat culprit for the 2010 flash crash.

http://arstechnica.com/tech-policy/2...crash-suspect/

By allegedly placing multiple, simultaneous, large-volume sell orders at different price points—a technique known as "layering"—Sarao created the appearance of substantial supply in the market. As part of the scheme, Sarao allegedly modified these orders frequently so that they remained close to the market price, and typically canceled the orders without executing them.

Apparently it is illegal to do what high frequency traders do every day. His mistake is that he didn't do it for one of the megabanks or hedge funds. There he would have collected big fat bonuses and it would have been legal.

[LaurV]

Originally Posted by Prime95

His mistake is that he didn't do it for one of the megabanks or hedge funds. There he would have collected big fat bonuses and it would have been legal.

Ha! +1!

[kladner]

Originally Posted by LaurV

Ha! +1!

Indeed. Second the +1.

[ewmayer]

Originally Posted by Prime95

Authorities have found the scapegoat culprit for the 2010 flash crash.

So the (alleged) Waddell & Reed "E-Mini fat fingerers" are in the clear, or to remain on double-secret probation?

Blast from the not-too-distant past - Dilbert explains HFT:

[ewmayer]

More on the Sarao-scapegoating story via 2 pieces:

o Rajiv Sethi: Spoofing in an Algorithmic Ecosystem | Naked Capitalism

The most sophisticated algorithms would have detected Sarao’s spoofing and may even have tried to profit from it, but less nimble ones would have fallen prey. In this manner he was able to syphon off a modest portion of HFT profits, amounting to about four million dollars over four years.

What is strange about this case is the fact that spoofing of this kind is, to quote one market observer, as common as oxygen. It is frequently used and defended against within the high frequency trading community. So why was Sarao singled out for prosecution? I suspect that it was because his was a relatively small account, using a simple and fairly transparent strategy. Larger firms that combine multiple strategies with continually evolving algorithms will not display so clear a signature.

None of this alters the fact that such 'ubiquitous, every second of every day' HFT price-manipulation (here by way of gaming supply and demand balances) strategies are *all* illegal, as they are in violation of longstading black-letter SEC rules against market manipulation. So this 'ferreting out the culprit' is all Kabuki theater.

o And here is Michael Lewis, author of the HFT expose' Flash Boys, on the story. Lewis mentions Nanex, the specialized analysis firm whose results showed the extent (and 24/7 ubiquity) of HFT algorithmic market spoofing were widely disseminated throughout the rest of 2010 - i.e. the 'none of this is news' aspect, which surely must include the SEC and CFTC since Nanex gave them special briefings, data and the tools to analyze the latter:

Then there is the biggest question of all: How can a guy working from his parents’ house in suburban England whose only actionable orders were to BUY stock market futures cause such a sensational collapse in U.S. stocks? On the day of the flash crash, Sarao never actually sold stocks. He was trying to trick the market into falling so that he could buy in more cheaply. But whom did he fool with his trick? Whose algorithms were so easily gamed that they responded to phony sell orders by creating a crash? Stupidity isn’t a crime. Still, it would be interesting to know who, at this particular poker table, on this particular day, was the fool.

It would also be interesting to know how it occurred to Sarao that his trick might work. There’s a fabulous yet-to-be-told story here, about a smart kid in the U.K. who somehow figures out that the machines that execute the stock market trades of others might be gamed -- and so he games them. One day while he is busy trying to trick the U.S. stock market into falling, the market collapses, more sensationally than it has ever collapsed. And instead of digging some hole in Hounslow in which he might hide for a decade or so, or fleeing to Anguilla, where he has squirreled away his profits, he stays in his parents’ home and keeps right on spoofing the U.S. stock market -- and then is shocked when people turn up to accuse him of wrongdoing. He’s not some kind of exception to the standard operating procedure in finance. He’s a parody of it

Lastly, note that it is important to distinguish the above kind of illegal algorithmic market-manipulation with the parallel-evolving and legal HFT based on "automated newsfeed-based trading" going on in the same markets, and also extending to the options markets:

What we're talking about here are options trades based on breaking rumors. And because options are derivatives - you're buying the right to buy shares, not the shares themselves - it's possible to achieve larger wins for a smaller outlay of cash. What makes these particular trades so striking is that they were made at the very tail end of the day, when the bought options were all only minutes from expiring. The odds that any given stock will suddenly rocket in the next few minutes are extremely low, which makes buying expiring options cheap and the bet very lucrative if it pays off. Consider that if the purchaser of those Altera options had taken his $110,530 and simply bought regular stock in Altera with it, he would have cleared about a $34,000 profit by the end of the day. Instead, using options, he made $2.4 million.

[ewmayer]

o Bill Black: Obama & TPP – Every One That Doeth Evil Hateth the Light | Naked Capitalism

o The Asshole Factory | Medium: Our economy doesn’t make stuff anymore. So what does it make?

How depressing. Three guesses as to which "iconic brand" that might be under discussion.

o Looking Up Symptoms Online? These Companies Are Tracking You | Vice.com

Quintin ... suggests that it’s plausible that the medical data these brokers vacuum up could eventually be factored into your credit score—and even used to determine how much you pay for health care. “Look, this is all speculative, right? But if I’m a bank and you’re applying for a loan, there’s no reason I would not want that information.” And the data brokers could provide it. “There’s this advertising demographic of you, and now you’re getting healthcare data in there, too. How much are we going to charge you for healthcare, if you’ve been searching for ‘cancer’ and a bunch of illnesses? Health care services could raise your rates.”

“Another nightmare scenario is applying for jobs,” Quintin continued. “A company might get a demographic profile from one of these data brokers and use that information to decide whether or not to hire you.”

But the chief problem is simply that just about all of the above, under current laws, is legal.

“The only thing dictating what will happen with the data is who can make money from it,” Libert said. “The only thing that guides the use of this data is profit. No oversight, no laws, no nothing.” That’s true, in the US, of both Google’s data-vacuuming habits, and of Experian’s vast for-profit health tracking enterprise.

[only_human]

Got Patents? Google Wants 'Em

Looking to offload some patents and make some extra cash? Google may be an interested buyer.

The Web giant on Monday launched a Patent Purchase Promotion, an "experiment to remove friction from the patent market and improve the landscape."

This particular usage of the term friction may be familiar to purveyors of the ebook marketplace.

[ewmayer]

Sleeping Through a Revolution: Letter to the Millenials 2 | Medium

Lots of good stuff - not all of which I agree with, but all of which is thought-provoking - on trends with a huge "creepy factor" like The Internet of Things and the ill-named "Sharing Economy." Author takes anti-democratic definitely-non-sharing oligopolists like Peter Thiel to task, but reserves special venom for top digital pirates like Kim Dotcom who would wrap themselves in the mantle of true social liberators like MLK:

While the revenues of movie, music and news purveyors were falling rapidly; the revenues of the “Internet Platform” providers were exploding. Google’s revenue went from $1.2 billion in 2001 to $66 Billion in 2014. Amazon went from $4.8 billion in 2002 to $89 Billion in 2014. Apple went from $7 Billion in2002 to $199 Billion in 2014. One could argue that a massive reallocation in the order of $50 Billion a year from creators and owners of content to platform owners has taken place since 2000. And make no mistake, while the movie studios, record companies, newspapers and magazines operate in a very competitive environment, the platform providers are monopolists or at the least, oligopolists. Competition is for suckers and by now Negroponte’s notion of decentralization and harmony has been replaced by Thiel’s beneficent monopoly.

But this does not account for the role of the Digital Bandits. There is a wonderful picture of Kim Dotcom, who made $200 million in two years off of the stolen music and video of countless artists on his Mega Upload Pirate site. In the picture, the fat German thief stands on a picturesque beach with his Playmate of the Year girlfriend sprawled on the sand in the foreground and his 200-foot mega yacht in the background. Kim, in an attempt to fight the lawsuits against him has appropriated the message of Martin Luther King, assuming the stance of the man who freed everyone from the slavery of having to pay for creative works. Exactly how the hard work of artists got exempted from the notions of the market economy escapes me, but for Kim to pose as some new sort of freedom rider brings us back to the whole fallacy of the Libertarian economy. Ayn Rand’s most famous quote is “the question isn’t who is going to let me, it’s who is going to stop me.” This is how Kim Dotcom has functioned from day one.

The larger question then becomes, who enables the Kim Dotcom’s of the world? Put into your Google search box the words “watch (your favorite movie) online free” and you will have the answer. Google is the enabler for the Digital Bandit Economy. Whether it is illicit drugs, stolen music or Jihadist lessons on how to blow up an airplane, Google with a 70% market share of all global searches is the beginning point of a great deal of online criminal activity.

[ewmayer]

This is worthwhile for any follower of the MET thread series, but of special interest to our UK readers:

Bill Black: New Labour Leaders Want to Go Back to Blair’s Policies That Blew Up the UK | naked capitalism

And speaking of "best Orwellian style" - yes, he really said that! (And in the context of thoughtcrime-evincing legislation):

[ewmayer]

o "The Art of the Gouge": NYU as a Model for Predatory Higher Education | naked capitalism
Among the reader comments is this one by professional heterodox (a euphemism for 'dares to question received wisdom') economist Michael Hudson:

NYU is to education what Scientology is to religion.
Remember a generation ago, when NYU bought a spaghetti factory and claimed tax deductibility for its profits because the spaghetti was part of a tax-exempt “educational institution.”
There’s a metaphor here.

o The second job you don’t know you have | Politico

Shadow work is squeezing out entry-level jobs that have launched countless careers. These jobs at the base of the economic pyramid pay little but lay the foundation for everything that rises above them — and as with any structure, when the foundation crumbles, the superstructure may collapse as well. Entry-level jobs provide more than a paycheck. They are the sidewalk of the workplace, the platform that allows entry to all the businesses on Main Street.

Consider my father, who in 1937 began on the bottom rung of the ladder as a messenger in a small-town bank in New Jersey. In 1963 he became president, chairman of the board and CEO after having been promoted through the ranks as a teller, bookkeeper, loan officer and executive vice president. He understood every facet of banking by the time he took the helm of the company. Contrast this with the preparation many banking executives get today: an M.B.A. with specialization in finance and a penchant for high-risk derivatives. If these bankers had gone out on hundreds of mortgage appraisals like my dad, seeing the actual houses for which they were lending money and meeting real, live borrowers, would the 2008 banking crisis have happened?

Starter positions, including summer and part-time gigs, are where young people learn how to hold down a real job. (That means a job with wages — not a volunteer job, not an unpaid internship, not an NGO project in a developing country.) This is where they learn to show up on time, appropriately dressed and groomed, with a professional attitude, and learn habits like cooperation, punching a clock, service with a smile. But how does an aspiring banker work his way up from the teller’s window if ATMs and shadow-working customers have displaced tellers? How does a secretary become the office manager and later an executive if shadow work eliminates support staff — so there are no secretaries?

For those without education and skills, these low-level positions often are their careers. If such jobs vanish, a throng of unemployed young people will find themselves with little money and too much spare time. This is a dangerous development in any society. Unrest and violence throughout the Arab world have erupted from streets teeming with young men lacking jobs — angry youth who congregate online through social media. Such mobs can become unruly. In 2003, the dissolution of the Iraqi army put 400,000 young men out of work, triggering a bloody insurgency that still continues. In today’s global village, where citizens network and congregate in political flashmobs, we cannot risk creating an immense underclass of idle youth.

Yet this is exactly what we are doing...

o And to reward readers who patiently made it this far, on a lighter note ... I believe the apt descriptor is "weapons-grade snark":

I Don't Think David Brooks Is Okay, You Guys | The Concourse