Capitalogix

A Jazz Quartet Explains High-Frequency Trading

There was an opinion piece on MarketWatch about how information flow influences how often you should trade.

As part of it, there was a video that explained how algorithms effect trading (using a jazz quartet).

 

via Marketwatch.

The Meaning of Money: Listen to how computer algorithms changed the music of the market.

 

Faster trading brings up important economic questions: What are the costs and benefits to investors for speeding up trading? Is there an “optimal” trading frequency at which the financial market should operate? And does a faster market affect one group of investors more than another?

 

Here are a few of the points made:

• A higher-frequency market is more responsive to new information.

• The optimal trading frequency depends on how the benefit and cost balance each other.

• The more frequently the market allows investors to transact, the stronger their incentive to split orders over time to avoid price impact.

From my perspective, faster trading is inevitable.  However, as more traders gain access to it, speed for the sake of speed will lose its appeal.  What will continue to matter is the speed at which a trader can identify an edge and capture its profit opportunity.

Here Are Some Links For Your Weekend Reading

Apple figured out what caused some early iPhone 6 Plus phones to bend.

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• The 12 Best Business Books of All Time. (Motley Fool)
• Automation Makes Us Dumb. (Wall Street Journal)
• The Business Value of Pervasive Analytics. (Data Science Central)
• How to Get in Shape Using Psychology: 6 New Tricks from Research. (Time)
• Another Reason to Spend Money on Experiences Rather Than Things — The Positive Benefits of Anticipation. (Quartz)

 

Trading Links:

• Central Bank Credibility … Now Here's a Bubble. (Forbes)
• ▶ Masters in Business Podcast: Dallas Mavericks Mark Cuban (Audio). (SoundCloud)
• 10 Reasons The Stock Market Rally Still Has Legs. (Investing)
• Putting the “Underperformance” of Active Managers in Perspective. (Pragmatic Capitalism)
• Elon Musk’s Next Mission: Internet Satellites. SpaceX, Tesla Founder Explores Venture to Make Lighter, Cheaper Satellites (Wall Street Journal)

Here Are Some Links For Your Weekend Reading

Have you seen how they teach math recently?

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• The Complexity of Complexity. (Strategy-Business)
• Computers Projected To Overtake Human Brain By 2020. (ValueWalk)
• This Is How Putin Rolls. (Zero Hedge)
• 17 Essential Mobile Apps for Small Business Travel. (BigIdeasBlog)
• What Democrats can learn from Republicans. (Vox)

 

Trading Links:

• Has Capitalism Reached A Turning Point? (Forbes)
• There’s Rich, Then There's the 0.01%. (Bloomberg View)
• A Peek Inside One of the World’s Most Secretive Hedge Funds. (eFinancial)
• The New Strategic Intent of Corporate Venture Capital. (CB Insights)
• Jesse Livermore's 21 Trading Rules. (Business Insider)

A Look at Black Swan Market Risks - Or Not

Have you noticed that people keep using the term "Selfie" to describe tons of pictures that aren't selfies?

Same with "Spoiler Alert" ... People use the term to mean a variety of things now ... few of which are actually spoiler alerts.

There is something similar happening in the financial world. People have latched on to the term "Black Swan".

Here is an example. 

Wall Street was up for the sixth straight week, despite the oil rout.

What could go wrong?  What are the "potential Black Swan events"?

To annswer, Société Générale releases a quarterly chart  of "Black Swan" risks. 

The most recent example is below.

 

 via BusinessInsider.

The concept of a "Black Swan" event takes its name from Nassim Taleb's 2007 book "The Black Swan."

But there's a slight problem with the chart above: acknowledging an event's possibility means it can't be a Black Swan.

The chart suggests that further deterioration in the economic situation in Europe poses a risk to the market. However, a "Black Swan" is an event or occurrence — a tail event, as Nassim Taleb would call it — that is so remote that it is completely unforeseen. 

In his book, Taleb uses the Thanksgiving turkey as an example.

"Consider a turkey that is fed every day," Taleb writes. "Every single feeding will firm up the bird's belief that it is the general rule of life to be fed every day by friendly members of the human race 'looking out for its best interests,' as a politician would say.

"On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief."

Here's what it looks like in chart form. 

 

 

This is basically the book's entire message wrapped up in one graphic. 

"Consider that [the turkey's] feeling of safety reached its maximum when the risk was at the highest!" Taleb writes.

"But the problem is even more general than that; it strikes at the nature of empirical knowledge itself. Something has worked in the past, until — well, it unexpectedly no longer does, and what we have learned from the past turns out to be at best irrelevant or false, at worst viciously misleading."

And this is really what the problem of Black Swans is all about. 

It isn't that we can't know the future, but that we delude ourselves into thinking we can ... making forecasts about events that are inherently unforecastable and giving us false belief about what can (or will, or might) happen in the future. 

When a Black Swan event occurs, it seems outside what had previously seemed possible.

However, Taleb suggests, the event only seems outside previous beliefs about what was possible because of how we arrived at those possibilities ... by using the past to forecast the future.

Here Are Some Links For Your Weekend Reading

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• The 25 Best Inventions of 2014. (Time)
• Peter Thiel's Very Negative - And Very Useful - Advice For Entrepreneurs. (Fortune)
• Google Glass Failed, but Here’s the Path Its Successors Will Take. (MIT TReview)
• Why Do People Believe in Conspiracy Theories? (Scientific American)
• Will NFL Broadcasts Ever Embrace Advanced Stats? Sabermetrics changed pro baseball. Now comes football. (MMQB)

 

Trading Links:

• The Science Behind Casino Profits. (The Week)
• Facebook 'Newspaper' Spells Trouble For Media. (BusinessInsider)
• U.S. Economy: Four Indicators Paint Very Negative Picture. (Business2Community)
• USPS Takes on FedEx and UPS with 7-day Delivery This Holiday Season. (B2C)
• Black Friday Online Sales Up 8.5% Over Last Year, 20% Of Sales Came From iOS. (TechCrunch)

Here Are Some Links For Your Weekend Reading

Turkeys don't often have happy Thanksgivings ...

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• Are You Doing The Wrong Things Right - or the Right Things Poorly? (Forbes)
• Will Artificial Intelligence Destroy Humanity? Here are 5 reasons not to worry. (Vox)
• A Manifesto for Playing God with Human Evolution. (New Scientist)
• The Divorce-Proof Marriage. (The Atlantic)
• This Website Will Tell You Which Stores Have the iPhone 6 in Stock. (Time)

 

Trading Links:

• Inside The 2014 Forbes 400: Facts And Figures About America's Wealthiest. (Forbes)
• Raising Capital: The Advice Andreessen Horowitz Gives Its Founders. (A16z)
• CyberCriminals Eye Financial Markets for a Better Return On Investment. (FT)
• Banks Agree Not to Blow Each Other Up Too Quickly. (Bloomberg View)
• Images Showing How Surprisingly Small One Year's Worth of Mined Commodities Is. (BusinessInsider)

Here Are Some Links For Your Weekend Reading

We just landed a spacecraft on a comet for the first time.

One reason you should care is that Space Mining will be big business in the near future.

Here are other reasons why it matters.

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• The Science Behind Jeff Bezos’ Pizza Rule. (Business Insider)
• Why People Love Costco-Sized Portions. (The Atlantic)
• 7 Practical Life Lessons from Albert Einstein. (Lifehack)
• People Really Do Look Like Their Dogs, And Here's Why. (HuffingtonPost)
• Malware Traffic Could Forewarn of International Conflicts. (MIT Technology Review)

 

Trading Links:

• “Internet of Things” Will Become Multi-Trillion-Dollar Market by 2020. (Infoworld)
• US Financial Industry Launches Platform To Thwart Cyber-Attacks . (FT)
• Meet The PayPal Mafia, The Richest Group Of Men In Silicon Valley. (BusinessInsider)
• Organized Crime Pays. (Vice)
• This Man's Job: Make Bill Gates Richer. The Secretive Money Manager Helping Gates' Fortune Balloon to $82 Billion (Wall Street Journal)

Facebook Is Now Bigger Than IBM

I just saw something that made me look twice ... Facebook is now bigger than IBM.

This represents a a major changing of the technology guard for corporate America.

 

 

 

 

via Quartz

 

Facebook’s market value has surpassed a number of the icons of American industry, including Verizon, AT&T, Coca-Cola, Walt Disney, Bank of America and Citigroup.

 

Surprising?

Seasons of the Economic Cycle

Just re-looked at this chart depicting the four seasons of our basic economic cycle. 

 

Pretty clear where we are. 

 

 

LPL Mid-Year Outlook via Josh Brown.

 

I like maps (like this one) because they help you anticipate, rather than simply react to what happens. 

Here Are Some Links For Your Weekend Reading

The virus on your computer is NOT Ebola.

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• If Brainstorming Doesn't Work … Try This Technique Instead. (FastCompany)
• 5 Radical Business Quotes from Tesla Motors, Inc.'s CEO, Elon Musk. (M-Fool)
• Bill Gates's Favorite Business Book. (Wall Street Journal)
• 10 Malware Removal Apps Tested: Malwarebytes Comes out on Top. (Lifehacker)
• Which Country Does The Most Good For The World? (TED Talk Video)

 

Trading Links:

• Netflix Surpasses HBO in Subscriber Revenue. (Mashable)
• Harry Dent Predicts Central Banker Economies Will Collapse, Including Ours. (M-Oracle)
• New ETF Tracks the Billionaire Dream Team. (Bloomberg)
• USPS: 3D Printing Could Increase Shipping Revenue by Hundreds of Millions. (GigaOM)
• Math Nerds Are Taking Over Wall Street. (Money)