Sudden Demand For Logicians On Wall Street 525
An anonymous reader writes "In an unexpected development for the depressed market for mathematical logicians, Wall Street has begun quietly and aggressively recruiting proof theorists and recursion theorists for their expertise in applying ordinal notations and ordinal collapsing functions to high-frequency algorithmic trading. Ordinal notations, which specify sequences of ordinal numbers of ever increasing complexity, are being used by elite trading operations to parameterize families of trading strategies of breathtaking sophistication. The monetary advantage of the current strategy is rapidly exhausted after a lifetime of approximately four seconds — an eternity for a machine, but barely enough time for a human to begin to comprehend what happened. The algorithm then switches to another trading strategy of higher ordinal rank, and uses this for a few seconds on one or more electronic exchanges, and so on, while opponent algorithms attempt the same maneuvers, risking billions of dollars in the process."
Well at least... (Score:5, Interesting)
Well at least, they seem to start to realize that perpetual growth is impossible to achieve in a finite universe. For us, right now, this means our planet.
We may need to start businesses on other planets until we have conquered the whole universe in order to maintain the illusion that perpetual growth is possible.
Yet, the whole point of investing in the market is more or less (at least it was traditionally) based on a perpetual growth principle where there would always be new markets to conquer thus, rising stocks on average and a perpetually growing economy.
Since they seem to begin to realize that perpetual growth is impossible and that trading is what they have done all their life, they need to keep the profits coming in anyway. So they figured that by using "high-frequency algorithmic trading" they could keep the profits coming in.
Well, at the expense of whom ? How long can this trend be maintained before major problems arise in the economy ?
Self regulating? (Score:5, Interesting)
Practical Joke? (Score:5, Interesting)
As someone who understands math to at least a certain degree (I publish in what is effectively applied mathematics), I know enough to say that this is bogus. The Wikipedia page on ordinal collapsing functions (http://en.wikipedia.org/wiki/Ordinal_collapsing_function) shows that they relate to transfinite numbers (various orders of infinity). It is, to me, beyond plausibility that this could have any practical application in trading-- unless it's some kind of weird fad that only the mathematicians understand is a joke. I think someone needs to dig down further into this source.
Re:Practical Joke? (Score:2, Interesting)
Comment removed (Score:5, Interesting)
Re:Practical Joke? (Score:4, Interesting)
Re:And the moral is: (Score:5, Interesting)
If things are gonna get worse, buy bonds.
If they're gonna get much worse, buy gold.
If you're still worried, buy canned food, ammunition, and land in New Zealand.
Re:Well at least... (Score:5, Interesting)
And bullshit like high frequency trading (really the entire concept of trading in derivatives, I hesitate to say the entire stock market in general because at its core there is something useful) only makes things worse - and at a faster rate. Every year a bit of wealth from every person in the lower 90% is siphoned off by traders and bankers and given to the top 10% or less. Over the decades a self reinforcing, self perpetuating system has been created, linked with government apparatuses that give it the appearance of legitimacy; this system rewards people who produce nothing of value, make nothing, enrich no one's lives, do not create art, do not expand the sphere of human knowledge, and provide no meaningful service to humanity or the country.
When it's possible to get rich just managing other people's capital and skimming off the top then the way we organize our economy is broken. This house of cards cannot stand forever when you stack more and more of those people on top of the working class, the foundation, that actually produces wealth and knowledge.
Lies, Damn Lies and Theft! (Score:5, Interesting)
Re:Self regulating? (Score:4, Interesting)
If only the circuit breaker worked as quickly as these trades do, then we might avoid destroying a trillion dollars because of a typo.
That trillion dollars wasn't destroyed; it just got redistributed to people that are not me.
Re:Practical Joke? (Score:4, Interesting)
I've done a bit of googling, but nothing else comes up. What did come up, however, was David Li and his copula function. I can barely follow the copula function, and set theory is completely beyond me. However, what I will believe in a heartbeat is that hedge funds will throw million-dollar salaries at people to come up with a mathematical function that will tell them whether to sell or buy or something, regardless of whether they have any clue what the function actually means or does.
Again, I can't tell if this particular story is true or even makes sense. But the basic premise has already been proven.
Re:Well at least... (Score:3, Interesting)
The last book I read about mathematics and physics of human interactions, including economy, was "Critical Mass (how one thing leads to another)" According to the author the best models for predicting the stock market still perform worst than "gut feeling" of an experienced trader.
It seems that the models fail because no one out there plays the game according to the simple rules that are said to define the free market. Or because the system is inherently unstable and prone to collapse. Overall I got the idea that the free market is an illusion, say, like communism. A system that requires people to change themselves first in order to work. Man, such ideologies never work!
Anyway, I totally agree about the growth thingy. I have always advocated that we should self-control our numbers and keep the progress going even if it has to slow down a tad. Restructure our activities in such way as to merge within the natural cycles (like water cycle, carbon cycle and so on) It would mean ever more wealth and possibilities for the everyone. Instead we have a pyramid, a Ponzi scheme. I laughed my head off decades ago when the globalization plans were announced. What, you want to remove the foundation of the pyramid? Make everyone wealthy? Who says that? Oh, the people sitting on top of the pyramid. Right!
T-shirts slogan: "You cannot sustain a progression in a finite Universe moving in cycles"
The markets need to be forcibly civilized. (Score:5, Interesting)
Margaret Atwood once described civilization as the judicious trading of "freedoms to" for "freedom from". e.g. You trade the freedom to murder anyone you like for freedom from being murdered yourself. While a rather distressingly large percentage of Americans would scream "COMMIE PINKO!!!" at me for daring to suggest this, I feel that the stock markets could stand to be civilized a tad.
What is the purpose of the stock markets? Are they meant to be a video game played by A.I.'s for big cash prizes, or a way of facilitating investment and trade? It's time to find ways of restricting high frequency traders. While cumbersome regulations are one option, perhaps a per-trade tax or user-fee would be better. A tiny one, percentage wise, that will only have a significant impact on high frequency traders. Cuts to other taxes could be made to offset them for average frequency traders and perhaps even benefit low frequency traders.
There are, naturally, many other ways to approach this. All it takes is resolve and, in the U.S. at least, thick skin.
Re:And the moral is: (Score:2, Interesting)
If it gets to the point where you need weapons, relying on weapons for more than the last resort of defense would be a bad idea. Unless you're an action superhero, youd get killed sooner or later or live as a scavenger the rest of your life.
You'd need friends. Be part of the strongest gang/army/whatever. And have usefull skills, like farming, mechanics or teaching, so you don't actually have to take part in the shooting.
Re:Practical Joke? (Score:5, Interesting)
Re:Well at least... (Score:5, Interesting)
I subscribe that and add that the stock value concept is indeed useful but has been twisted beyond recognition. If I try to think about it with a clean sheet, I can't find a real reason why a company that manufactures screws is worth 10% more at noon than at 9 am and then 10% less at market close.
The company in my example behaves like most companies. They are going to open the next day and sell a bit more or a bit less, manufacture about the foreseen number of screws, some employees are going to get hired, others fired, others retire... Yet the swing in value of the whole company is based around news and rumours. Traders will "discount" this or that news on stock price of our happy screw manufacturer without even bothering about the steel stock or last month's sales. Some will buy stock and make a profit by noon if they are lucky, or loss at close if unlucky.
Now, what does all this have to do with manufacturing screws? Isn't there much more in common with Casino Royale than with industry and people building things and making a living out of creating something of value?
I attended a conference two years ago where an accountant explained that the concept of stock worth is fatally wounded. His theory, which I also agree wholeheartedly, is that stock should benefit the stockholder with dividends, i.e., with the net value generated by the company's activity. Not by the increase in the value of stock itself in the short term. Now there is a place for investors, he also said, who invest in stock and sell the stock. But that kind of operations ought to be separated by months or years, when actually the stock reflects the increase in the value of the company. Not by minutes, when the increase in value is nothing more than a throw of dice, even if you attach fancy and serious names to it.
Re:Practical Joke? (Score:4, Interesting)
...The terrifying alternative, of course, being that Wall Street has discovered a way to create a literally infinite quantity of money, and a year from now, the only way to tell who is richer than whom will be by comparing the size of two transfinite ordinals.
(It makes bank transfers insanely difficult because there's no consistent way to perform ordinal subtraction. If I have $^2 and I owe you $ then either I still have $^2 left over afterwards, or I can't pay you at all!)
Re:Well at least... (Score:3, Interesting)
A perpetually growing economy usually involves the average wage rising so average people can buy more stuff while still working less.
- that is a misunderstanding.
In the Free Market the wages are NOT supposed to rise all the time, with the efficiency in the market it is the prices, that are supposed to decrease. In fact the minimum wage law is the single biggest reason for the unemployment. The proof of this is of-course what happened after the WWII, while the Keynesians 'predicted' that the US will be worse off after the war ends (because Keynesians believe that Government must provide consumption, even if fueled by debt or stupid attempt to employ people in public sector to move stones from one side to another and back), by the Austrian school of economics, once the war was over the supply of workers, who would come home, would cause a boom in production and thus a rising economy.
The reason you 'need less people' is because once the USSR fell apart and the world globalized, China supplied huge number of cheaper work force and the Monopolies, which are government created structures and are economies of scale moved production to that country. By following Keynes ideas and propping up a credit economy of consumption, by setting minimum wages and by creating huge monopolies, the US government killed off too many small/medium size businesses in the country and those are the reason for the unemployment and for the failing economy.
Re:Well at least... (Score:5, Interesting)
There is no reason better production methods should lead to unemployment in the long run. When production becomes more efficient, resources (like labour, capital and natural resources) are freed up to do other things, and so far, humanity has showed an incredible ingenuity in coming up with new things to produce and consume.
Three or four hundred years ago, the majority of the population worked in agriculture. Today, we produce more food than ever, with only a few percent of the population tied up in agriculture. If we had said back then, "We must stop the industrialisation of agriculture, or the farmers will lose their jobs!", there would have been no one to work in the factories and produce the cars, toys, medical equipment, cheap clothes and furniture, and all the other things we have become used to today.
The problem with unemployment is not that we have become too efficient in producing goods and services, but rather, that we have become worse at letting new, innovative providers of goods and services establish themselves on the market. Large corporations effectively block out competitors through patents, anti-competitive behaviour and friends in high places. Governments watch the backs of large corporations because they are afraid that they will go out of business and a large portion of their voters would lose their jobs - not realising they are at the same time helping the corporations stunt the growth of new businesses and new jobs.
Re:Lies, Damn Lies and Theft! (Score:5, Interesting)
I would propose that ultra-short-term profits should be taxed at a punitive rate, perhaps approaching 100%, to discourage this kind of cheating of ordinary traders.
Already, short-term capital gains are taxed at a different rate than long-term gains, in order to encourage long-term investment. Micro-timing is short-term trading taken to an extreme, so why not tax it accordingly?
There is no valid reason why anyone should trade a stock multiple times per day - either it is pure gambling or there is some inside information behind it. Companies report their revenues and profits on a quarterly basis, not microsecond by microsecond. (Of course news stories may affect a stock, but even news stories rarely change more than once per day.)
Re:Well at least... (Score:4, Interesting)
...When it's possible to get rich just managing other people's capital and skimming off the top then the way we organize our economy is broken. This house of cards cannot stand forever when you stack more and more of those people on top of the working class, the foundation, that actually produces wealth and knowledge.
I think we need a federal stack exchange tax. If every trade is taxed, then the millisecond trading scheme will disappear. Instead people will think long and hard about investments and invest for long enough periods to make more profit than the initial tax. Of course if they were taxed as heavily as the sales tax I have to pay on food, then they might be investing for dividends rather than profits.
Is there any better way to convert our casino-like stock exchange into a real investment system?
Wouldn't this help with our federal deficit?
Re:Well at least... (Score:3, Interesting)
The casino doesn't produce any "real" wealth - it just distributes it.
Sorry, stopped reading at that point, as your ignorance of economics is obviously profound. How wealth is distributed has an enormous effect on a society's ability to produce new wealth. Many dirt-poor native tribes in Canada, for example, are "wealthy" on paper, but the ordinary people have no access to that money, only the band council does. A financial system that allowed ordinary people access to that money would make everyone but a few assholes at the top enormously richer.
Likewise, systems that attempt to "spread the wealth" uniformly across all individuals, the way Sarah Palin's socialist Alaska did with oil revenues, are also vastly less productive than systems with moderate gate-keepers that try to ensure capital is deployed in somewhat productive ways.
Learn a tiny bit of economic theory and--far more importantly--economic history before making up lame analogies, please.
Re:Practical Joke? (Score:3, Interesting)
I am wondering whether this story is some kind of practical joke.
Given that most of what passes for mathematical logic is pretty much a joke, and mathematical logicians are for the most part far more logician than mathematician, and therefore some of the stupidest people in math, that's my read as well.
Pretty much every logician I've ever dealt with has thought that Leibniz's Law is not only reasonable, but true, whereas we've known it to be emprically false for nearly a century. But logics that violate it are considered cutting edge, and are mostly toy models.
On the other hand, logicians are also amongst the most obtuse and incoherent people on the planet, so selling a line of bullshit to the morons on Wall Street would be just their thing, and they're so dumb they probably aren't even aware that the whole thing is just a scam.
High Frequency Trading is not necessarily bad (Score:3, Interesting)
The siphoners add no value to the market, in fact exactly the opposite. They take advantage of market anomalies that can only be detected by ultra-high speed trading to remove money from the system. A simple example of a market anomalies would be taking advantage of the distributed market place whereby you can trade the same stock on many exchanges and none of them perform at the same speed. So you see which way the stock is moving on a fast exchange and then take advantage of that on a slow exchange before it has had the time it needs to react. Just like betting on a horse race after it has finished because you know the result before the bookmaker is aware the race is over.
The other high frequency shops are adding value to the markets in the same way a market maker used to. They serve a function of keeping the market liquid. This means that a buyer can always guarantee to buy a stock or a seller can always guarantee to sell a stock because the market maker keeps some inventory to bridge any transitory lull when there are more buyers than sellers (or vice-versa) and yet the price is deemed to be correct. They are the brokers who reduce fluctuations in the market and offer a valuable service, even to a joe who wants to sell his 50 shares in IBM.
Just like anything, there are good guys and bad guys. The tool is high frequency trading. It can be used for good or bad, depending on who is using it and what they are using it for.
Disclaimer: I don't do any high frequency trading.
Re:Well at least... (Score:3, Interesting)
There's a difference between allowing people to write a contract, and allowing another party to agree to it, and allowing unlimited parties to treat such a contract as if it were a real thing, reselling it willy-nilly.
I have no problem with two parties working out whatever contracts they want between themselves. I do have a problem when we decide that a specific type of contract somehow should have a multi-trillion dollar market to repeatedly sell and resell it in some abstract form, somehow magically making money.
The stock market has the same problem, incidentally. Stocks should be parts of companies. They should be valued, and sold, for the value they earn in dividends, aka, company profits. Not in an attempt to make money on the actual variations in stock prices.
At some point our entire financial system stopped being backed by actual things.
That's okay when people are actually purchasing hypothetical stuff for themselves. You want to own part of Coca-Cola, fine, go buy part of them. You want to hedge some possible future loss with a countering bet, or, hell, just play casino, fine, go find a company willing to make that bet, aka, a 'future'
The problem shows up when people take these already imaginary things and start trading them around for some sort of imagined value to make money on the imaginary variations in said imaginary value. The problem, believe it or not, is that it's a market, that it's behaving that they're selling and trading big containers of golf balls that randomly change the amount of golf balls they have in them, and the point of the entire exercise is to magically predict which container will next have golf balls in it.
None of it is 'company ownership', or 'hedging bets' or 'insurance', it is, indeed, all a casino, they're just gambling using things that nominally have some other value, but in actuality the gambling is for random fluctuation in some imaginary value that has nothing to do with said nominal value.
Re:Well at least... (Score:2, Interesting)
And what do you propose is a productive employment of capital? Reemployment in the casino scheme? Isn't that the most likely thing to happen in practice? Nobody is producing anything.
Re:And the moral is: (Score:3, Interesting)
HAH! Says who? The value of ANYTHING is relative to other goods. There is not and never will be a meaningful 0,0,0 .
People have this false perception that because gold is a physical thing that it can not be used in complex financial shell games. The truth is that it most certainly can be used in complex financial shell games.
The history of the abandoning of gold is the history of the pain caused by various complex financial shell games causing the need for quantitative easing as a band-aid. Is quantitative easing the cause of the problem? No, it's a band-aid. Is the ability to print money the cause? No it's the ability to apply a type of band-aid. The cause of the pain is the damage done by complex financial shell games enabled by the mother of all complex financial shell games, the financial shell game that ultimately finances most of the other games, fractional reserve banking. ( which was first done when goldsmiths created virtual gold to lend into circulation increasing the 'money supply' of gold to many times the physical gold in existence )
Why not decrease the M2 money supply by raising the reserve ratio, simultaneously paying off much national debt with newly printed money in the same amount that was lost from the money supply due to raising the reserve ratio? In the US this is about half the national debt. This NON-Inflated money would flow into the hands of bondholders who would be forced to invest or purchase goods with it or else be stuck with non interest bearing currency.
What effect would this have on the M3 money supply? What importance (if any) does the M3 money supply have? Anyone?
Re:Well at least... (Score:3, Interesting)
Indeed.
I don't like that plan because it still allows casino-like behavior, though, and it introduces even more randomness, of which there will invariably be complaints about.
I often say make people wait a month, although I've always conceived that as a delay from original purchase.
The GP's idea of on-the-minute trades, and your idea of delaying it longer, has merit though.
But I have a better idea. Let's leave things as they are, where people can buy and sell as fast as they want...but during each week, each piece of stock can only be transferred once. That's it.
Every company just gets a weekly or fortnight reset, on randomly assigned days, after the market closes. (And I'd make the reset have to happen right after the quarterly report. Any week where official company announcements happen, the reset should be scheduled that night, so people can get in or out the next day. Possibly even an extra reset.) Between resets, stock can only move once.
This would actually result in a bunch of trading early morning the next day, with 90% of the entire week's volume for the stock in about an hour, but the interesting thing that it would also allow 'real' stockholders, who had their stock since before the last reset, to sell their stock early if something happened during the week.
Re:Well at least... (Score:4, Interesting)
That's pretty much his point - which seems to have gone whooshing right over your head. The value of a stock is (theoretically) tied directly to the value of a company, yet the price varies even when the value doesn't - and he doesn't see why that should be. I tend to agree with him, the stock market has increasingly become an abstract game unrelated to the underlying real world it's (theoretically) based on.
One result is that we take the market to be something it isn't - an accurate reflection of the underlying structure, despite the fact that the two increasingly bear no relationship to each other.
The other (and more dire) result is that we increasingly hold CEO's responsible for matters they have no control over - which leads to them indulging in all manner of what are regarded as reprehensible activities in a vain attempt to raise the value to meet the price. (The whole 'nothing but next quarters bottom line' mentality so often derided.) This also happens at the other extreme, if for some reason everyone decided GE was worth (priced on the market) 30% less at the close of trading today than at the start - the CEO of GE would be held responsible even if absolutely nothing had changed regarding the value of the company.
Re:Well at least... (Score:4, Interesting)
They were designated as a Market Maker, and their supposed purpose was to provide quotes on financial instruments.
Theoretically, the price for the same instrument should be the same on all exchanges, but in reality, there is lag. So, this company would pay for the fastest possible connection to each of the markets, and then sit and watch. Although What their real bread and butter was arbitrage, and they have automated systems that take advantage of lag between updates of the same instrument (usually derivatives) on different markets.
Basically, they'd see an instrument raise a fraction of a cent on one exchange, and they'd then buy a TON of it on another exchange and sell it back to the first exchange, all within a few milliseconds. Dumping all this would then cause the price to drop on the exchange they just sold it on, because the buy they executed on the second exchange would sometimes take a while to get back to the first exchange. Once all this instability started happening, it'd spur other people to start buying and selling - and they'd have an even greater opportunity to take advantage...
The whole system was very "clever" - but completely devoid of adding any real value to the market.
The company was investigated for some criminal behavior, but because they were very careful not to break the letter of the law in what they were doing - the law couldn't touch them.
I could give more details, but I'm afraid I've already said too much - because I certainly do not want to be identified by the company for fear of some kind of retaliation, either above or below the table
Re:Well at least... (Score:3, Interesting)
Your fatal misunderstanding of minimum wages is where your model fails....Also, empirical evidence is against you, with higher minimum wages actually triggering even more employment since (among other reasons) the lower incomes don't save, they spend.
I agree. There's another, more important, reason why minimum wages trigger more employment, though: below the subsistence threshold the law of supply does not hold. Think about it: if you were working forty hours a week just to barely scrape by, and your wage was cut by 1/2, would you work less hours because you'd rather have leisure than the lower wage? No? Well that's exactly what both neo-classical and Austrian models say you would do. In reality, you would find a second job and try to increase your hours to roughly double what they were to maintain the same type of subsistence you had before. So if then your wage is increased by a government mandate you will go back to working less and open up a job to someone who was previously unemployed. Minimum wage increases actually decrease unemployment unless they are set at absurdly high levels. It's totally common sense but has yet to break into the mainstream of economics. If you're interested in the formal model of this concept, economists Robert Prasch and Maryke Dessing have each given it a theoretical treatment, which you can find on Google Scholar.
Re:And the moral is: (Score:3, Interesting)
Re:The markets need to be forcibly civilized. (Score:3, Interesting)
The stock market is not a casino. It's RISKIER. The odds at Blackjack remain the same regardless of the weather, failed casinos, or the price of business.
In fact, if the casinos didn't 'regulate' it, would could make money reliable with card counting and wager differentials.
Re:Well at least... (Score:3, Interesting)
Wall Mart, Best Buy, Clear Channel and pretty much all other large businesses are working with the government, they are Government propped Monopolies. They have been paying politicians to get tax breaks and various other perks forever, something that small and medium size businesses cannot receive out of government.
That only supports my point that government creates giant monopolies by its policies and kills off small/medium size business.
Your fatal misunderstanding of economics if where your model fails. It's where this economy will fail. It's the main cause of the current collapse: Government creating giant monopolies that easily move jobs out of the country on one hand, while propping up debt based consumption and dictating various laws that are designed to kill economy in the long run, while in the short run helping politicians to stay in power. That's the minimum wage laws and various other regulations.
I am not going to argue about this much, I will be just setting more short positions against t-bills and various municipal bonds and taking more long positions in gold.
Re:And the moral is: (Score:3, Interesting)
Gold certainly can be used in complex financial trades, but that does not diminish the value of gold.
That diminishes the value of paper currencies. If you don't get it, look at the current market from 15 years ago till now. Gold has been going up steadily while all currencies have been going down measured in gold.
All currencies start with a fixed value to gold, then they diverge when politicians find it politically profitable to do so and then currencies start the slow process of deterioration until they are destroyed. This has been a very consistent theme throughout thousands of years of history. If you think today will be different from all those other times, well maybe you are right, history will tell. But I bet on the consistency that was shown previously every time.