NOC all its crackberried up to be

Research in Motion (RIMM) is Baruch’s bugbear. He has missed the stock completely, it is a huge winner, up over 100% in the past 12 months. So he feels some Schadenfreude over their latest client loss.

However, he thinks the main point is being lost amid the ballyhoo of the French government’s decision to ban the use of RIMM’s blackberry by its higher level ministers and those in possession of state secrets. Silly French, say the blogs, often adding unnecessary remarks about cowardice and cheese. Baruch’s own beloved Swiss employer, a venerable private bank which shall remain nameless, and which has on its books a number of clients for whom confidentiality is, shall we say, an important concern, made the decision to do the same for its staff some time ago. Baruch is pleased, not having a blackberry gives him a semblance of privacy while on the road, and a certain curmudgeonly satisfaction; in a small way he feels he is standing athwart the path of history and yelling “Stop!”.

Anyway, the point is not that RIMM’s security set up, where everything goes through a central Network Operating Center (or NOC) is in fact insecure. It has double-super-secret encryption layers piled on each other like onion flesh. It is not that RIMM is untrustworthy, or incompetent. The point is surely that data in the NOC may eventually be subject to a subpeona by a US state agency (in fact, we know going without a subpeona seems to work quite well too). US companies (RIMM is Canadian, but 80% of its business must be in the US) are known to respond favourably to “requests” by the government for access to confidential client data. Verizon and AT&T have no qualms about giving up your secrets to Homeland Security in the name of the GWOT. Why, ask the French, and my IT department, is it safe to assume RIMM would not?

RIMM swears blind it has no access itself to the content of the data that passes through its NOC, but then again, RIMM claims the NOC is the key to the security of its system, filtering dangerous content such as viruses, spam and whatnot through its veeblefitzers and triple-redundant doodads (a technical term, don’t worry). Do you really want to bet they haven’t got a backdoor? Baruch is with the French. This is not a judgement on RIMM, it is the reasonable distrust that any sane foreign government and enterprise with a sensitive client base should have in the good faith of the US government, not just in its current iteration.


The Economist. The worst investment adviser ever?

I’ve written before about the tendency of commentators who are Obviously Clever to be negative about the stockmarket, and how in this they are generally completely wrong, at best, or at worst simply confusing. It’s not as if you can use them as contra-indicators because sometimes, just often enough to keep them in business, the stockmarket actually does go down. The negativity is widespread among practictioners and the chattering classes. Some really make clever points (Epicurean Dealmaker never got back to me; maybe he had an associate to torture instead — “now make all these charts Blue, you little shit”. I’ve been there), others merely supply sub-taxi-driver drivel.

But for a really serious case of ants in the pants, you can’t do better than the Buttonwood column in the Economist. The latest one is not on the web yet. Let me describe it from a copy of the print version which I keep next to my toilet:

Signs of the Beast is the title. 2 evil yellow eyes peer out at you from the dark in the accompanying illustration. Despite the rise in assets of the past few years (fought at every step by the Economist) things are “almost been too good to be true”. Investors may be complacent. The “grubby” bargain between high saving Asians and high spending Americans may break down. Steven Roach. Carry trade unwinding. 3 things to panic about when they happen: i) yen ii) spreads iii) inflation. OK, sure, “equities may be the asset class best placed to withstand inflation”, BUT “a world in which inflation, bond yields and short rates were trending higher would be the complete opposite of that which has prevailed in the long bull run”. We’re screwed, or rather you are.

A more priceless regurgitation of received wisdom and consensus hand-wringing I never yet did read. All the more amusing that the day the Economist went to press (I think it is Thursday), the few down days in the market which had inspired the piece were paid off with a major high volume, late day rally to new highs with another big follow-through on Friday, when this edition fell into my letterbox.

Continue reading “The Economist. The worst investment adviser ever?”


Apologies for blogging hiatus. Baruch’s wife went back to work. It doesn’t just mean fewer hot dinners when your beloved correspondent returns, exhausted from a hard day lens-grinding, but also a range of new duties such as baby feeding, child entertaining, baby washing, child washing, child catching before child washing, hula dancing, cooking, shopping, pizza-sourcing, reading out loud, and guarding against horrible monsters living in closets.

Anyway, these are all impediments to philosophising Spinoza didn’t have to deal with, which is my excuse for not yet having developed a new system of thought to take humanity to the next level of development, as he did. Nevertheless, my mind remains active and engaged. Coming up on Ultimi Barbarorum:

  • The Economist: possibly the worst investment adviser ever. Buttonwood gets a deserved fisking, I hope.
  • Didn’t Empirica go bust? Naseem Taleb’s new book. What does it all mean?
  • Baruch plows through the Tractatus. This is slow going, however, as he is trying to read it off his computer; he is too cheap to actually buy it.

Stay tuned, absolute excitement is imminent!

Right, said TED

Someone called The Epicurean Dealmaker (TED), found via Felix Salmon’s finance blog at Condé Nast’s Portfolio magazine, got me thinking. Now I think I like this TED guy, not least for his slavish adherence to a dead philosopher, and not just because the one he chose is the classical philosopher most like MY dead philosopher, who too “considered an imperturbable emotional calm the highest good and . . . held intellectual pleasures superior to transient sensualism.” He also, like me, has no readers.

Anyway, one of the interesting things that exercises Thinking Minds in the money business at the moment is the sheer resilience of the markets, for so long, in the face of:

  • the lack of any follow-through from the suprime collapse,
  • the blowing-up of highly levered multi-zillion hedge funds like Amaranth;
  • the noticeable lack of any serious emerging market financial crisis (unless you count Iceland) in the 9-10 years since the last Asian meltdown;
  • the refusal of stocks to freak out in the face of both rising inflation and slowing economic growth in the US,
  • the carry trade seems largely over, the USD collapse has seen to that
  • blah blah blah etc etc etc ad infinitum if not nauseam (god cues stockmarket crash, right now, just to serve me right for my lack of respectful capitalisation).

Yes, there was the 2000-2002 bear market, but if you look at e.g. the Dow, the FTSE, and a whole bunch of other indices, the long term uptrends from the 1980s are pristine, intact, and enticing.

Sadly, most Thinking Minds in the market tend to be bearish. It always seems smarter to be negative about stockmarkets, as the vast majority of investors (qua investors) sort of have to be bullish, duh, and smart people have got to go against the crowd, if only because if they don’t, no-one will know how smart they’ve been when they’re proven right. The Thinking Minds at the FT (who never had an actual, money position on anything in their desk-bound lives) are consistently bearish in their stentorian editorials and their ridiculous LEX column. Those arrogant morons at the Economist are, too. We are conditioned to think of them as smart.

There also exists, however, a semi-smart argument explaining the puzzling strength, which said TED links to, put forward by Nobel Prize winner and spectacular LCTM hedge-fund loser Robert Merton. He believes that the resilience of the market comes from the huge increase in derivative volumes. Everyone uses them. I use them. They are cool. They transfer risk, which would otherwise have gathered up in concentrated pools, into many hands. A shock which would have wiped out a sector of the market in the past, causing knock on effects throughout the financial system, merely succeeds in blowing up a few. The rest of us suffer minor losses, shrug, have lunch, and go and buy stock next day. 

TED doesn’t buy it. Or rather he sees the point but remains sceptical.

But note his (Merton’s) critical distinction that derivatives “transfer” risk. They do not eliminate it. . . people argue that this broad-based, system-wide transfer of risk has indeed made the world’s financial markets safer and better able to withstand shocks. . . But can we say that systemwide risk has indeed been reduced? To say that convincingly, you would have to argue that the hedge funds and others buying credit risk are somehow “better owners” of such risks.

TED fears they are not, and worries that there might be, somewhere out there, “correlated pools” of risk waiting to blow up in the faces of the “horses asses”, the hedge fund managers who own them. It is a cleverer rebuttal of the semi-intellectual bulls than you will read in the Pearson-owned rags above. Anyway: I have 2 points.

1) We do not need the horses arses to be better owners of risk. We only need another group of equally ridiculous idiots to bet on the other side. The beauty of the credit default market, for instance, is that what was once only a destroyer of wealth, a corporate bankruptcy, can be the source of a great many speculative fortunes. Maybe not enough wealth is created to offset the destruction of a really big blowup, but it’s a start.

2), and this is less easy to explain pithily, I have an idea in my head that the increasing complexity of the financial system creates extra resiliency. It is hard to argue that something we understand less and less can be more stable, but that is what I think. I am beginning to view markets as enormous, self-sustaining computing entities, which compute nothing but themselves. They exhibit some of the traits of modern, distributed computing. We could speak of “multiple cores”; bond markets and equity markets may not be discrete, but each has a different set of practitioners who rarely talk with each other, who necessarily interact, but may sometimes do so out of differing motives which generate diferentiated outcomes. Inverted yield curves have predicted recession for some time now; equity markets have been consistently, and rightly (so far) bullish on corporate earnings. We can add the various derivative markets to the mix.

Adding to the complexity, where before in say 1987 the vast majority of the market was plain vanilla long-only, we have vastly different approaches to investing all coexisting at once: macro funds take equity positions no vanilla long short manager could justify on fundamentals; god knows what strategies the infinite number of quants out there are following right now; I know most of my current positions are shorted by someone else, I can ask my stock lending department, who do brisk business; someone is crossing or writing the options I buy; speculative default protection buyers hover, vulture like, over the very names value longs are thinking will make their fortunes; Chinese domestic guys bid PEs up to the 40s, 50s and 70s, while Hong Kong investors won’t touch largely the same type of equity stories over 20x next year. I could go on. There’s a lot of stuff happening all at once; I am not saying there hasn’t been in the past. There is just more and more of it, in more places, in a bewildering display of variety, calculating clearing prices, providing shock-dampening liquidity to the participants.

The craziest thing of all is how in this system expectations adjust, how the perceived behaviours of the participants change the behaviours themselves. This is where things get whacky in my head, and I have to stop with my complex computing metaphor.  The power management system doesn’t try to screw around with the graphics processor.

Maybe someone gets to read this one day. I am off to bed now, I have to lie down. I hope I made my point.

More stuff to blog, no effing time

Things I wanted to write about this week, and still hope to:

  • Allan Bloom is (or rather was) NOT, as previously advertised, a dick. I apologise for that. Although he did like them. I finished The Closing of the American Mind and understood and appreciated the thesis. Some small nits to pick, but a valuable thing to read and internalise as to why we have forgotten not just Spinoza, but the foundation of classical liberal thought itself. We see the results around us.
  •  It is clear I need to understand more about the nature of information and entropy (see comments), so I read a book about it. Seth Lloyd says the universe is a quantum computer whose computations are the movements of information that define the world we experience. Mixing this in with Spinoza’s conception of god and nature, and the thesis that god is information itself, seems a very promising avenue for the Spinozist to amble down. God as Multivac.
  • If the universe, or any spontaneously generated complex system, can be thought of as a type of computer, with bits and ops, which can sometimes halt or crash, then surely so can financial markets. Information theory, and the 2nd Law of Thermodynamics, would also seem to apply here. Is the increasing complexity and multi-core built-in redundancies of financial markets, and thereby their computational power, one of the factors behind the amazing stability of the global financial system in the past 20 years? Could it even be a quantum computer? Probably not. Probably a multi-core Santa Rosa. How would financial markets perform AND, NOT and COPY ops? Can I make money off this?

More on these when I have time.

Vote Icahn!

I, Baruch, am supposed periodically to rant about my job under the category “Lens Grinding” — so called because that was the way that Spinoza earned enough money to philosophise; grinding glass lenses for telescopes, microscopes and other uses. It was highly specialised work, extremely technically demanding, and very much on the hard cutting edge of C17th high tech. Spinoza was very good at it: “the lenses that the Jew of Voorburg has in his microscopes have an admirable polish,” wrote noted Dutch scientist Christiaan Huygens. This is sort of like Steve Jobs praising one’s ability to design computer hardware.

Unlike Bento, I actually have a proper job. I am what they used to call a “stock operator”; I co-manage a global tech fund. I pick stocks by analysing high level trends and financial minutiae, make hard decisions based on woefully incomplete information, act on it anyway and take the consequences. I wouldn’t do anything else. I surprise myself by being right quite often, and by generally making pots of money for other people. For my first trick I will tell you about Motorola, a particular bugbear of mine, and a story you can find nowhere else. IN NO WAY, OF COURSE, IS ANYTHING THAT FOLLOWS TO BE VIEWED AS ANY SORT OF INVESTMENT ADVICE. Although as I am a genius, you’d be crazy not to do as I say. Continue reading “Vote Icahn!”