Entries from October 2007
Baruch is a bit dazed at the flurry of interest his last post elicited, having been linked to by 3 giants of the econo-bloggy-firmament. I wonder what the hordes of recent visitors thinks of our little project, Bento. This blog was always conceived of as bit of a rara avis, as Spinoza-blogging is a rather esoteric activity, likely only interesting to a few predisposed minds. If however only one of the hordes starts being interested in Spinoza as a result of checking us out it will be a major triumph. In any case, welcome, hordes.
I would like to respond to the always interesting Felix at portfolio.com (by the way, Felix, I am just “Baruch”, no last name given), not to bite the hand that feeds, but to correct some very mild misunderstanding about my position which might have cropped up. He writes that “I make an impassioned plea in favor of humans over machines”, and (astonishingly) that I misunderstand the difference between “ontology”, “doxology” and “epistemology” — I have my terminology “in a twist”. (more…)
Categories: Fellow Collegiant · Lens grinding · Philosophising
“If you think you can find out what you need to know by going to see the management of a company, then I have nothing to say to you.”
says Herbert Blank, a notable Quant, as quoted in an interesting article on quantitative investing last week (via Barry Ritholz). Well, Mr Blank, that is fighting talk. Tremble, for you have roused the sleeping Baruch, who manages a Fundamentalist tech fund and who may indeed want to see the management of a company. I have something to say to you: you and your kind are dinosaurs, Mr. Blank, and the meteorite just hit. We are the small mammals who will gnaw your stinking bones and grow to fill your ecological niche. Read on to find out why.
I have been thinking about Quants now (and trying unsuccessfully to blog my thoughts) for some weeks, and much has been written about them in that time. I think the August stockmarket conniptions we foolishly choose to call the “subprime crisis”, and which I and my fund negotiated so brilliantly, were not about subprime at all. Or rather, they were, but in an unimportant and dull way. The memorable thing about August was that it was a crisis in long short quant, when the majority of funds in that strategy blew up, wiping out billions and making liars of their marketers. Morgan Stanley dropped $390m in a day in August, smashing through its VAR limits. Goldman’s CEO whined about seeing “25 standard deviation days 6 days in a row” as his Global Alpha Fund dropped 23% and had to cut fees to get bailed out. For the Quants it was a “hundred year storm”.
Quant investing will never be the same again, and I think it is beginning to affect the whole hedge fund industry. US inflows fell sequentially for the 2nd quarter in a row this Q3, a 22% decline on Q2 inflows, in an industry that grew assets globally over 30% in 2006. I would bet (but do not know) that the shortfall is concentrated in the quants.
But people need to save, and what is lost by the Quants will turn up somewhere else. I submit that the coming years will see fundamental strategies gain, strategies that posit not mean reversion, but thrive on greater volatility; strategies which rely the ability of single managers and incorporate a human element of “quality” and judgement. Art rather than science. Strategies like mine. (more…)
Categories: Lens grinding · Philosophising
Oh Baruch, you can’t make this up: The secretary general of Iran’s Human Rights Committee, Dr. Mohammad Javad Larijani, defends the Iranian legal practice of stoning adulterers to death because… the victims have a chance to escape. This makes it neither torture nor execution, he says.
Verdict: Larijani is a barbarian.
Categories: Barbarians
Baruch, I am indebted to Elijah Zarwan for pointing us to a recent WSJ article about Yusuf al-Badri, an Egyptian cleric famous for litigating against anything he deems not sufficiently Islamic. The list of “offenses” he’s gone to court against is not nearly as depressing as the number of victories he’s had. Read the article and see. By the last paragraph, the story takes a turn for the surreal:
Another recent case of Mr. El-Badry has Cairo’s intellectual set fuming. A few years ago, he sued poet Ahmed Abdel Moety Hegazi and a local magazine for libel. He claimed an article Mr. Hegazi wrote effectively called him an extremist. In December 2006, a court upheld a ruling ordering the defendants to pay Mr. El-Badry about $3,500.
Verdict: Yusuf al-Badri is a barbarian.
Categories: Barbarians
With the news that the junior “New Potato” of the Kasczinsky duo has likely been ousted by grey-suited (even greyer than the rest of Poland), po-faced so-called “pro-business” Eurocrat-lovers in the latest election in Poland, Baruch has to ask whether the investigation into Tinky-Winky’s (the middle Teletubby in the picture above, here feeling up Dipsy and La La) sexual status will now be derailed for the predictable “political” reasons.
It is also depressing that the twins will now no longer rule Poland together. It was a touching story: identical twins (some say separated Siamese!), ex child stars, grow up (sort of, they are both very short) to rule Poland together as President and Prime Minister, with a political platform inspired by figures like Jerry Falwell, Jean-Marie le Pen, Pat Buchanan and Pee Wee Herman. The only consolation is that no-one actually knows which one of the brothers is or was Prime Minister, so now both are likely to take turns as President.
Tinky Winky, by the way, is definitely gay, with his stupid great handbag and effete ways. It is appalling that, like with Clinton and Tony Blair, everyone who opposes him comes to a sticky end, or languishes in obscurity. How does he get away with it?
Categories: Barbarians
Baruch loves a good quiz. “Where do you stand in the culture wars” sounded great! There are a lot of genuine issues upon which students and adherents to the enlightenment — like ourselves, Bento — can disagree. But this was a rubbish quiz in the end, not even interactive, and most of all so very very obvious and tired. I knew straight away what Iwas supposed to answer to score well. Plus I had to look at a picture of that supercilious nimrod Martin Amis as I did it. Like the stuff you can read on the WSJ op ed page every day, it was full of false choices :
If you think Bush is a fascist and Castro is a progressive, you are not a democrat. If you think cultural traditions can trump women’s rights, you are not a feminist. And if you think antisemitic rants are simply an expression of frustration with American and Israeli policy, you have learnt nothing from history.
What if you think Bush is a fascist and Castro is an unpleasant tinpot dictator? If you would fight someone who would make it compulsory for moslem communities but think banning the veil is illiberal? If you think the policies of Israel in Palestine, and the US’ implicit support of them, are evil and stupid without recourse to anything like antisemitism? It makes me very cross.
Categories: Stupid Cartesians · Uncategorized
Don’t quite know what to make of this (via Andrew Sullivan), Bento: “The way to win the war is to kill so many Moslems that they begin to question whether they can bear the mounting casualties.” — though note this is only a third-hand reading.
Perhaps he was just out to annoy as many people as possible, in the old game of “bait the lefty”. Seems to have succeeded.
Categories: Stupid Cartesians · What Would Spinoza Do?
October 15, 2007 · 1 Comment
Categories: Fellow Collegiant
I am in a surly mood, Bento. I wish we had some nationalistic Armenian-holocaust-denying Turkish readers I could be rude to; I was just watching CNN, and the Turkish ambassador to the UK was giving one of the most weaselly TV interviews I have seen in a long time, on the subject of US House resolution calling the Armenian Genocide a spade, as it were. He even had the temerity to more or less threaten the 70,000 Armenians currently living in Turkey, saying that the bill would put them in a “more dangerous position”.
It is a strange thing, how recently what was quite properly taken to be an indisputable fact of history — that such a genocide, or “state-ordered mass-killing of an ethnic minority” if you prefer a less emotional term, did in fact happen — has become somehow debatable, or in doubt. It has become something you need to have 2 sides to bring “balance” to in a news story. At no point in the CNN interview was the ambassador challenged on whether the massacres did in fact happen. The shrill stridency of the modern Turkish state on the subject seems to have had some effect; that, and also a certain supineness on the part of the news media and various Western governments.
It brings into question what the Turks, a majority of whom seem to be genocide-deniers, really think. Do they really think the whole world is out to “get” them? That contemporaries who described or commented on the genocide as far apart politically as Teddy Roosevelt, Winston Churchill, Gertrude Bell, Adolf Hitler and the New York Times were together engaged in some wild anti-Turkish conspiracy? Are the Turks all somehow brainwashed? Have they simply not had the evidence put before them or do they simply not want to see it?
What also gets me is that the events happened 92 years ago. That’s a long time now. There is nothing that will materially affect anyone alive, there would be no reduction in the wealth, prestige, power of Turkey and the Turks should the government accept that the crimes against the Armenians took place.
Bento, I know you are a big fan of Turkish entry into the EU. But the hysteria of the Turkish political class on this subject disturbs me greatly. I think I might be with the French on this one.
Categories: Barbarians
Felix opens a can of worms when he picks on the Standard Deviants at Morgan Stanley, who, reliant on standard-deviation-based risk limiting measures, got their butts well and truly kicked in the recent Troubles which we choose to call “The Subprime Meltdown”; losses exceeded a 95% confident -$85m Value-at-Risk assessment 6 days in a row. More than that, they dropped $390m on the worst of those days, over 4 times the assessed VAR. Commenters jump on him, I think unfairly, accusing him of misunderstanding the er value of VAR measurements as a risk limiting tool. Tremble, commenters anonymous, jck, and Sandy, for it is YOU who are the hidebound know-nothings here. You have awakened the sleeping Baruch! His dislike of standard deviation models is legendary.
VAR for banks is like the sacred, magically fireproof, undergarment worn by Mormons, meant to protect them when the fiery apocalypse comes; it gives a false sense of security. With Mormons, this is fine, as they are generally unable to start the fiery apocalypse themselves. Let them continue in their harmless and mildly amusing superstition. Surely the point is that with large banks it is different; they themselves control the levels of risk they carry, and if they get it worng they can hurt a lot of people. Believing themselves protected when they are not can thus be very dangerously misleading. Felix is right to be incredulous when commenters point out that VAR is a “useful” measure when “employed properly”, except of course when conditions in the market change and the old certainties no longer hold true: that is precisely when you are most vulnerable to risk! To have a risk-limiting measure which stops working when it is most needed makes the top of my head fly off it is so stupid.
It is much as Taleb says; the business of banking — in this case, more properly prime-broking, liquidity provision and prop-desking – is one that is marked by gross misconceptions of the level of risk. It is a classic nickel and steamroller business model, one admittedly with a rather slow but very heavy steamroller. Blowups occur very rarely; but when they do they wipe out multiples of the profits of past periods. The events of August and the carnage in the financials are probably only mild occurrences of what can happen, and has happened in the past.
And the VAR fallacy is very widespread; my own beloved employers have a new multi-strategy project they are starting. They have hired multi-million-dollar-earning hotshots from “top players” from prop desks on Wall Street. One of the major criteria that will be used in daily risk-assessment, imported by said hotshots, is, you guessed it, VAR.
So excuse Baruch’s getting exercised about this; it’s just getting a bit close to home. The only point Felix is wrong about here is his opening statement that “Morgan Stanley has some of the most sophisticated risk-management systems on planet earth”. In fact they merely wear some of the frilliest fireproof underpants.
Categories: Lens grinding · Stupid Cartesians
