Tuesday, June 30, 2015

Life Imitates Art

Marauders, pirates, outlaws, scallywags, and gangs of opportunistic thugs have, since time immemorial, been the scourge of civilized folk pursuing ordinary civilized life. Some have been officially-sanctioned (think Drake or Surcouf), others officially expelled to life on the periphery (think Ronin), though most, in my anecdotal observations, seem to do what they do as an alternative means to make a living, mimicing nature's bully: the frigate bird.

This threat, ignoring the very exercise of extreme and brutal power by states seen occasionaly in history, has largely been peripheral, though on occasion they've bizarrely intersected (e.g. Queen Ranavalona of Madagascar, or the Chinese Taipings),this being sufficiently rare and weird as to capture the considerable attention of George Fraser MacDonald. So rare and so weird has it been, that the exploits of wanton criminal outlaws, and the good citizens' fight against them, have been a most fertile subject for writers and artists, particularly of the pulp variety.

Oscar Wilde opined that "life imitates art", an astute observation – even more apt in modernity given the multitude of alternatives for mass-distribution. And foremost at this nexus of the criminally weird and the crazy prophets - whether knowingly or unwittingly – is the self-proclaimed Islamic State, eerily resembling the violent and chaotic exploits of DC's villainous Rogues Gallery. Anarky, The Joker, Firebug, Dr. Death, Cypher, Brutale, Deacon Blackfire, The Mad Hatter, Ra's alk Ghul, The Riddler, Proteus, Puppet Master, Thanatos, The Scarecrow, Roman Sionis, all conjured from authors' fertile imaginations, can hardly hold a creative candle to their real-life mimics wreaking havoc across the no-less-fertile crescent. The result begs the simple question: How closely have the IS leaders studied, NOT the Koranic scriptures they purport to follow, but the collected exploits of Batman's colourfully-crazy nemesii???!? For if it was true that Bin-Laden was a big consumer of porn, is it any further fetched to wonder whether al-Bhagdadi, al-Anbari, or al-Turkmani and their henchmen have an accumulated and coveted stash of Caped Crusader pulp providing them with near-limitless inspiration?

As in the world of the self-proclaimed IS, logic flaws also abound in DC's dystopias (as well as most of pop-culture's gangs of psychopaths). Ignoring the most fantastical rogues whose powers defy the laws of the natural world, I've always found it difficult to suspend my disbelief when watching the armies of seemingly loyal thugs and henchmen support their evil mastermind leaders in pursuit of their [rather dubious] goals - be they revenge, sadistic lust, political domination, or financial control of planet earth. This is as true of 007's nemeses, as it is of Dr Evil's and the hordes of baddies perennially threatening Gotham City.

The un-Flashman zeal to sacrifice themselves so their leaders can escape, or in the case of al-qaeda or IS, strapping a bunch of semtex to themselves before walking into a mosque, a busy hotel or a parliament building and pressing the “detonate” button, belies normal comprehension. Some, one might presume, are undoubtedly as bat-shit crazy as their leaders. Others merely desperate, or perhaps motivated by sharing financial gain, or the benefits of power when their New Order prevails. I suppose one might ponder the similar question as to what motivates the disciples of Rupert Murdoch, but THAT question not on the menu today. 

Though these explanations might underpin some villainous actions, IS seems to more closely mimic many archetypical patterns in DC rogue gallery scripts. They employ mind control methods to recruit and maintain their [expendable] army of loyal followers. They were macabre masks and hoods to both terrify opponents and hide their true identities. They typically have family-related motivations, societal alienation or back-stories driving a strong desire for revenge. They pursue more or less psychotic, maniacal and meaningless acts of murder and destruction. They are often driven by a negative hatred of someone or something rather than a positive vision. Their leaders share decided prophetic or messianic-like complexes, and often had previous lives that one would consider “normal”. They share an absence of normal empathy for ordinary people and victims alike. Their leaders are often considered to be highly accomplished evil geniuses with a penchant for the macabre. And they all wear ridiculous costumes or uniforms that is obvious to all observers but themselves.

However much Gotham City resembles Sodom & Gomorrah, most of both's inhabitants were ordinary folk, living ordinary lives – effectively caught in the middle between lunatic wickedness and callous corruption and greed. However apt this might be of the masses' predicament today, the problem remains: how does the (mostly innocent??!?) populace protect themselves from the incursions of The Crazed, as well as from their own predatory elites. History and practical observation suggests random covert acts of terrorism are, by definition nearly impossible to thwart. This is true of an idiot wishing to take out a plane with his “shoe” (saved by only by luck) as it is of an idiot with a AK-47 whose (tragically consummates) a whim to take target practice on a beach of humans..

But make no mistake: life imitates art in the realm opposing The Rogues – both publicly and in the shadows. “We”, the good citizens, have a metaphorical NSA Bat Cave in Nevada (and undoubtedly many more). We have our “Alfreds”. We have special forces resembling vigilantes, whose kit & kaboodle - secret weapons, Bat Planes and Bat Drones - together whose power, resolve and destructive force both commands the respect of and infuriates the demented ones. And, like the Caped Crusader, we suffer the duality of an external existence governed by probity and by The Law with a
tacit feeling that something darker, more flexible is required to combat the rogues...something more Kurtzian...irrespective of their long-term soundness. This is, at once, both necessary and fraught with multiple dangers – both practical and existential – and is conflict seemingly resolvable only by/with oversight from the wisest (most uncorruptible) of women (and a few men).

The thing is, Batman never really was the Batman/Bruce Wayne of the 1960's. Truer to his origins, he is The Dark Knight. And he doesn't always get it right in his fight against the sick and twisted fucks. And sometimes his actions, resulting from his own back-story, make things worse, however good his intentions might appear. He is, after all, meant to be, just human...

Friday, June 26, 2015

What Have The Europeans Ever Done For Us

The interior of UKIPs headquarters. A darkened room with a very conspiratorial atmosphere. Nigel Farage and Douglas Carswell are seated at a table at one end of the room. Steve Baker, dressed in Activist gear — black robes and a red sash around his head — is standing by a plan on the wall. He is addressing an audience of about eight MASKED Activists. Their faces are partially hidden...
Steve Baker:
We get in through the underground heating system here... up through to the main audience chamber here... and Junkcer's wife's bedroom is here. Having grabbed his wife, we inform Juncker that she is in our custody and forthwith issue our demands. Any questions?
Graham Stringer:
What exactly are the demands?
Nigel Farage:
We're giving Juncker two days to dismantle the entire apparatus of the European Imperialist State and if he doesn't agree immediately, we execute her.
Kate Hoey:
Cut her head off?
Steve Baker:
Cut all her bits off, send 'em back every hour on the hour... show him we're not to be trifled with.
Nigel Farage:
Also, we're demanding a ten foot mahogany statue of Jacques Delors with his cock hanging out.
Douglas Carswell:
What? They'll never agree to that, Nige.
Nigel Farage:
That's just a bargaining counter. And of course, we point out that they bear full responsibility when we chop her up, and... that we shall not submit to blackmail.
(Applause) No blackmail!
Nigel Farage:
They've bled us white, the bastards. They've taken everything we had, not just from us, from our fathers and from our fathers' fathers.
Douglas Carswell:
And from our fathers' fathers' fathers.
Nigel Farage:
Douglas Carswell:
And from our fathers' fathers' fathers' fathers.
Nigel Farage:
All right, Carswell. Don't labour the point. And what have they ever given us in return?
Graham Stringer:
Freedom of movement, so we can live in Spain and France and...
Nigel Farage:
Oh yeah, yeah they gave us that. Yeah. That's true.
Masked Activist:
And consumer and environmental protection!
Douglas Carswell:
Oh yes... protection!, Nige, you remember how polluted the UK used to be like.
Nigel Farage:
All right, I'll grant you that the freedom of movement and consumer and environmental protection are two things that the Europeans have done...
Bernard Jenkin:
And the Convention on Human Rights...pfewww...we have NO protection under British Common Law...
Nigel Farage:
(sharply) Well yes obviously the Convention on Human Rights... Human Rights go without saying. But apart from the freedom of movement, the consumer and environmental protection and the Convention on Human Rights...
Another Masked Activist:
Single Market...
Other Masked Voices:
Cross border regulation... Food Safety....Reciprocal Healthcare... Regional Development ...
Nigel Farage:
Yes... all right, fair enough...
Activist Near Front:
And the wine...
Oh yes! True!
Owen Paterson:
Yeah. That's something we'd really miss if we left Europe, Nige.
Masked Activist at Back:
Cheap immigrant labour who works hard and does the jobs no one else wants to do!
Douglas Carswell:
It IS safe to use a public toilet...
Steve Baker:
Yes, they certainly know how to keep places clean... (general nodding)... let's face it, they're the only ones who could in a place like this...
(more general murmurs of agreement)
Nigel Farage:
All right... all right... but apart from freedom of movement, environmental and consumer protection, The Convention on Human Rights, a single market, cross-border regulation, food safety standards, reciprocal healthcare across Europe, regional development, wine, speaking with a single voice whern negotiating with USA or China, and cheap labour to do the jobs British people do not want to do... what have the Europeans done for us?
Graham Stringer:
Brought peace and prosperity....! Just look at what things were like BEFORE the EU....
Nigel Farage:
(very angry, he's not having a good meeting at all) What!? Oh... (scornfully) Peace and prosperity, yes... shut up!

Sunday, June 07, 2015

Farewell Alan Bond

So Farewell

The most

You gave
Laurie Connell
a "run for
his money".
(no pun intended)

Few young specs
will recall
your name;
they should.

For you were
a case study on
the peril(s)
of paying
way too much.

you also
lots of things -

But at least
you stole THE Cup
from the Yanks
fair and

(With apologies to Private Eye and EJ Thribb)

Wednesday, April 22, 2015

FIRE !!!! (J.K.....)

Guy walks in to the shadows of a crowded movie theatre. Yells "FIRE!!!!!". People scramble to exit. Some get trampled and hurt. It's ugly.  A few skeptics remain (for the movie's still running).  Of course, there's no fire. But people are prudently herd-oriented by nature so react viscerally.  The guy emerges from the shadows, and coolly takes a prime seat - perhaps his objective all along?  Some return to recoup their sunk cost, discover the predictable ending, or just watch Clooney, Pitt et. al. remove his shirt one more time. Sure, the guy runs the risk that he will be discovered as the causation of the chaos and mayhem. Sure, one of the larger and more muscular of the "victims" might punch him in the nose or break his leg(s). Or theatre management, might call the police, whether for civic purpose or liability containment. Others have employed the ruse successfully to obtain prime seats, with similar consequence. And despite its occasional reporting in the press, patrons, out of self-preservation, still react with the same visceral flight response. Sometimes they act in concert as two FIRE!!-Criers!! are more credible than one.  

But somehow, in electronic financial markets, such ruses, ploys, and games, are discounted by apologists - be they HiFTers, libertarians  (despite prevailing laws and regulations) and the recent arrest of the alleged perp accused of initiating the cascade. Why should one think it decidedly unacceptable in civic life, but somehow victimless, harmless and tolerable in financial markets?  I think there is some hypocrisy about.The beauty of electronic exchanges is that there is there is a record and audit trail that easily permits measurement and enforcement of acceptable behaviour as defined by the rules. Egregious behaviour (spoofing, layering, etc) should be glaringly apparent and is easily discoverable by the even the most amateur of data tinkerers. Canadian SEDAR requires blue-sky disclosure of MF time and sales (something the US should emulate for MFs and HFs). The failure of exchanges themselves to investigate and exorcise the demons (or facilitate availability of the entire package of participant-specific quote-level data to all investigators) leads one to imagine that commercial conflicts are rife (as if we needed further evidence. 

That exchanges themselves, and industry organizations have ignored/are ignoring this is perhaps not surprising. However the most striking [risk-management] issue - whether at the exchange, clearing-house, or executing broker or clearing broker level is the apparent total untethering of what a modestly-capitalised west-london punter can firmly enter and display on one of the most visible and largest exchanges in the world from the resources of that same modestly-capitalized punter can muster to make good the entry of orders for purchase, or sale of the leveraged positions, let alone the underlying magnitude of these positions. One wonders whether markets would have been similarly effected if participant-level disclosure indicating that  Navinder Singh Sarao's modest account was touting these bids/offers or merely some indicator that the posted buyer/seller had no chance of fulfilling commitments.

Tuesday, March 24, 2015

Yellen Isn't Yellin' Anymore

During times of liquidation, panic, and revulsion, when authorities are trying to establish a definitive floor under asset prices, and create an atmosphere of greater confidence in order to assuage fears and encourage longer-term capital investment, there is reasonable benefit clearly telegraphing policy intentions. Speculators may (and probably will) use this elevated level of certainty to front-run actual "real" flows. And this is fine and good since desired policy outcomes (at such times) tangibly benefit from the reduction and/or elimination of speculative short positions (or at the very least refraining from disinvestment or erstwhile liquidation). Policy objectives, are further hastened by speculative flows, at least initially, whether by confidence-bolstering or behavioral feedback effects.  While the promise of backstopping is real, the primary effect results from old-fashioned "jawboning" to harness otherwise pro-cyclical flows to stabilizing, counter-cycling effect. At such times, it likely that just credibly stating that one will pursue certain stated policy(s) with defined objectives is often more efficacious than the implementation of the policy itself - the operative word being "credibly".

There comes the point in the inevitably-cyclical process - recent context being QE2 or QE3 or the present (choose your poison) - where fear of the abyss has passed, and when prevailing policy's "certainty", is extrapolated and viewed as providing perennial and asymmetrical risk-reward, or a proverbial "free lunch", irrespective of the extraordinary conditions for which it was originally conjured, and its decidedly-temporary nature when seen in an historical context. This is the moral hazard that policy certainty can wreak in general, and what disturbs me about ZIRP/QE in particular. The macroeconomy, in its aggregate investment decisions, typically overshoots sufficiently well without the further help of leveraged, speculative flows. There is little to done about The People making overenthusiastic coincidental investment and consumption decisions on the basis of the recent past, outside the modulation of traditional fiscal and monetary policy. This IS the business cycle.

Given the size of the financial economy in general, the increasing size of trading-oriented, leveraged investments, and feedback-related trading and risk-management styles, and the general hordes within the momentum-driven electronic herd, much of which is focused upon, and driven-by observing rather arcane nuances in policy, central-bankers in particular should, rightfully, be mindful of aligning the aggregate animal spirits in the general economy with leveraged financial speculation attempting to game perceived policy certainty.  In short, in order to deter leveraged speculative activity at such times, when it is, as Rumsfeld might have termed, "decidedly unhelpful", i.e being pro-cyclical well-after the sell-by date of its usefulness, markets periodically NEED to be spanked. They NEED to understand that policy should, and will be, data-dependant. That might include whipsaw moves in rates and prevailing policies, even if sub-optimal with perfect hindsight. They [markets] need to understand there is no certainty, and no free lunch. And as more and more investment becomes rote, algorithmic, and systematic, these models (and their programmers), too must incorporate uncertainty at levels that incorporate longer-frame regimes than many systematic macro and risk-parity strategies contemplate or integrate, or other endeavors that overweight recent regimes at the expense of the more-distant-but-not-wholly-irrelevant past, or the next. Should one doubt the benefits of such an uncertainty principle,  simply imagine the wild rumpus that would ensue following universal pursuit of the free lunch. Some would argue we're already there (though I am not so stridently convinced despite sympathetic caution).  

Pulling away the milk-teat is never easy. Markets will need to get used to a return to policy uncertainty. There is significant momentum in the real economy, and it is likely it will not be derailed by a bias towards higher rates, or marginally-increased financial market volatility. We should not shed a tear for those Icarii who get run over by it's process.  I've no problem with the authorities acting as "Lender of Last Resort", or the idea of their provision of liquidity as systemic backstop. But precisely "where", and "at what cost" should remain ambiguous to prevent the cleverly rapacious psychopaths amongst us from [trying to] test their boundaries and aggressively game it. In this regard, the fact that Yellen isn't yelling [specific certain forward policy guidance] anymore is highly appropriate.  Get used to it. Embrace it. And remain mindful of charlatans with strategies overly-dependent upon mindless extrapolation and leverage.

Thursday, March 12, 2015

That FANUC Reply to ThirdPoint (in full)

Giving is Easy - Taking is Hard

Despite the occasional satirical joke, I've never had a grave problem with QE. Like many other sober-minded observers, QE, seen in its temporal context, was one of the few available weapons to put a floor under floor asset prices, finance the large counter-cyclical deficits thus preventing the worst of a delveraging-induced revulsion and associated dislocations of unemployment and output gaps, in an otherwise spartan policy armory. The limited policy options were partly due to rates' proximity to the ZLB, partly because of the difficulty in building consensual responses in an acrimoniously-divided polity and, yes, partly because of the moral furore surround culpability four the crisis.

Though my concerns about tin-foil hat hyper-inflationary fears were near-zero, so too were my expectations that QE would be a panacea. QE, was, never going to be a cure-all, but was decidedly positive whatever critics may say - if only for psychological, confidence-boosting affirmation that the authorities would not stand idly by, holding their willies, passively witnessing a liquidationist resolution, however-much Austrian School proponents were hankering for one.

With memories of Japanese premature fiscal withdrawal still fresh, I believe history will see QE2 as a useful example of trying to avoid past policy mistakes, by making sure foundations of recovery were sufficiently strong before modulating countermeasures. In isolation, it will not be judged harshly. QE3, from the start, was seen by many, as more contentious, and I also agree with their reservations. Growth IMO was sufficiently on its way, and would, (again IMO), have continued similarly without further asset purchases. However, seen in the context of Euro jitters, the silly sequester battles, Arab Spring upheavals, QE3 should also be seen as the Fed's attempt to prevent large political uncertainties from systematically undoing the meaningful progress. And while I was, and am, concerned about the embedding of Pavlovian behavior, I believe there was (at least some) merit in their response and we should accordingly throttle our harshest judgements. The alternative outcome will remain hypothetical, but the actual result of continued growth, faster-than-expected fiscal consolidation, straight-line drop in unemployment and emergence of real wage growth is hardly worthy of too-severe recrimination.

Maybe one-day, social scientists will accurately factor-analyze the transmission mechanism. Was it the QE-induced, low rates themselves? the psychological boost of asymmetrical forward-looking asset-price expectations given a newly-communicated floor?; the asset price market values, capital gains and their multipliers resulting from QE?; the multiplier effects of seamlessly funding counter-cyclical government expenditure - both automatic stabilizers and pro-active stimulus?; or was it just the generalized normalization of economic activity by removing fear of A Great Depression and feared Zerohedge-like survivalist dystopia? I invite readers to offer their attributions of choice and associated weight of contribution.

Whatever one's attribution, no one can ignore the obvious cumulative result of QE and its interactions: asset prices far and wide have soared as a result of the policy, creating unimaginably-large "windfalls" to asset-owners through little cause of their own. Attempts should have been to "sterilize" at least a portion of windfalls - through targeted fiscal policy - partly for reasons of fairness and equity, and partly to deter the systemic gaming in speculative leveraged bets upon one-way economic and financial policy.

How quickly investors forget. If you'd asked large asset owners in late 2008, or early 2009: "Would you give up a tranche of the future capital gains in asset prices in exchange for a floor under prevailing prices, and the near-assuredness of significantly higher asset prices in the future?", I am quite sure of the answer, given the widespread systemic fears and paucity of alternatives at the time. Investors, after all, pay 2&20 to HFs and PE for essentially the same (pre-tax) premise. Was not QE effectively the same proposition multiplied across the entire economy? The liquidationist alternative was clearly unpalatable to asset owners, and sub-optimal for nearly everyone else. IF, as the result of a policy directive, you bestow large windfall gains, it would be only fair to harvest a an additional share of those for the Public's Interest, since the goal of QE policy was NOT to further stoke inequality, nor accelerate the growth of fortunes for existing asset owners, but rather to prevent unnecessary liquidation, and deflation so private-sector balance sheet deleveraging could work its course, and to foster stability, so reviving private investment decisions in the real economy. But, as it happens, giving is far easier than taking away - irrespective if you're a welfare deadbeat (not my language) or a leveraged rentier.

Pundits and critics from the right rarely miss an opportunity to point out the inherent difficulty of unwinding government programs and bureaucracy. It is a criticism worth noting. For bureaucracies and organizations often assume lives of their own and wills to survive long-beyond the sell-by date of the problem or policy purpose, defending their mission and rights to exist with intensity and vigor. Once laws are enacted and forces mobilized, introspection is a novelty.

Yet, the same pundits and critics refrain from similarly-inspired criticisms when it comes to the beneficiaries of QE, and the protection of their windfalls. It is baffling. The right, politically, hates QE, and all that it stands for, but surely all of Jim Bunning's or Rand Paul's tirades would have been put to better use to promote some sterilization policy that would ameliorate the less-desirable side-effects, efforts that would not damage their populist dogma (excepting perhaps their relationship with Grover Norqvist)

Asset owners peculiarly act as if such windfalls somehow resulted from their own brilliance. Many, through every over-leveraged fault of their own, were a pubic-hair's breadth away from financial obliteration, saved by US - and I don't mean the United States, but rather you, and I, as representations of the taxpayer, or bag-holder as the ultimate underwriter of newly issued debt. Others - particularly in the tech world and on the left coast - are blind to the benefits wrought by munificence of The People, and the abundant liquidity finding its way into every inane crevice, and spilling over to provide VC's and PE investors exits at multiples unimagined even three years ago. And the "thanks" that all those west-coast libertarians afflicted with self-attribution bias, is to piss on the under-class who serve them, and wish for a Randian offshore tax-haven to insure they share as little as possible with the undeserving multitudes. These gripes are academic, but asset-owners would do well to reflect upon their self-attribution bias.

As a markets person, my concerns with QE (particularly QE3) remain consistent with concerns expressed in the past at one-way CB interventions. That is to say, it likely creates a moral hazard whereby financial institutions and speculators lean on the policy backstop to front-run, lever-up (be it risk-parity; duration, credit), in ways that ultimately create more systemic risk, volatility, sowing the seeds for future dislocation, and likely requirement for public market stabilization [again]. Such hazard is amplified by lack of sterilization. I admit I don't know precisely how it might be implemented, or the optimal boundaries or details, just that fiscal policy deterrents would help diminish some of the negatives to society of one-way unsterilized monetary policy largesse gifted to large asset owners caught in the happenstance of monetary policy.