No Mean Sum

"Many shall be restored who are now fallen, and many shall fall who are now in honor." -Horace

Apr 23, 2015

Bring Up The Bodies – Spinning the Flash Crash

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Regulators don’t like being embarrassed and the Flash Crash was an embarrassing episode for the people who are in charge of supervising financial markets. From a regulatory perspective, the problem with financial markets is that they are by their very nature distributed amongst many participants, and therefore it is very difficult to assign blame when something goes wrong. When you can’t assign blame to a single entity you have to do messy, complicated things like make changes to market structure or, perhaps even worse, admit that you are powerless to stop things like the Flash Crash from happening. Luckily for regulators, after five years of searching they have found a 30 something year old London day-trader to pin the blame on.

As far as I know, nobody can say for certain what caused the flash crash.  But from what I’ve read it was probably a combination of a large futures order and high frequency trading firms exiting the market due to the strong downward bias that, that order caused. What’s important for the purposes of interpreting recent headlines is that it is very unlikely that it had anything to do with this single guy who got arrested in London. I say this for two reasons;

1) The accused was not doing the accused spoofing at the time of the actual flash crash but rather leading up to it, and he did it for multiple days before and after with no additional flash crashes.

2) The accused was only targeted by authorities after a tip from a Whistleblower from within the high frequency trading industry, an industry that is hurt by his practice of spoofing.

Matt Levine and John Hempton have very good write-ups for those who want to delve further into this:

Guy Trading at Home Causes Flash Crash – Matt Levine

Our Spoofing Hero – John Hempton

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Apr 5, 2015

Howard Marks – Links

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Howard Marks is one of my favorite investment luminaries. I’ve read his book, “The Most Important Thing” twice and listened to the audio-book version more than once as well. Below you’ll find links to his talk at Google and his most recent memo on liquidity. The memo on liquidity is especially interesting because it is […]

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Jan 8, 2015

Energy Recovery – $ERII – Insider Buying and The Fear of Missing Out

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Energy Recovery Energy Recovery (ERII) was incorporated 1992 and went public in 2008. The company produces energy saving solutions for desalination plants. Over the past few years, it has been developing a number of products to address the needs of other fluid intensive industrial processes, mainly related to the oil and gas industry. Legacy Business […]

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Dec 29, 2014

Elliot Management – Paul Singer Interview

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Also from the NYT Deal-book Conference, an interview with Elliot Managements founder Paul Singer. I think there is a lot of truth to what he says about governments implicitly or explicitly allowing central bankers to do the heavy lifting in terms of economic policy.

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Dec 26, 2014

Holiday Readings

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Some holiday reading links and video materials: Ray Dalio at the NYT deal book conference: Aswath Damodran writes a good note on the Oil price drop and its implications <LINK> Tim Ferris Podcast with Dr. Peter Attia <LINK> More interesting Dr. Peter Attia Articles: Is Sugar Toxic <LINK>  Success Versus Failure – (His thoughts on […]

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Dec 24, 2014

ALJ Regional – A Mini BRK In The Making?

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Background ALJ Regional holdings is a micro-cap holding company. The company’s largest shareholder, Jess M. Ravich owns 47% of the outstanding shares and is also the Chairman. Mr. Ravich has had a long career as an investment banker, and thus far it seems he is putting that experience to good use in assembling the holdings […]

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Dec 17, 2014

Readings – Healthcare In America – The Bitter Pill

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If the test of a great article is that it makes you realize how ignorant you are, then “The Bitter Pill” succeeds brilliantly. Published in 2013, in Time Magazine of all places, this piece was recommended to me by a friend who works in the health insurance business as “the best summary of what is […]

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Aug 21, 2014

Hellfire and Brimstone – Electromagnetic Swans and Some Thoughts On Hedging

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Electromagnetic Swans Recently I have been re-reading Nassim Taleb’s Fooled By Randomness and The Black Swan. So I was primed when I saw the headline, “Elliot Warns of Greatest Danger in Electromagnetic Pulse”. Understanding my own bias, and the fact that at any given moment there will be at least ten different hedgefund manager’s warning […]

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Mar 23, 2014

Weak Shorts, Weak Longs – My Mistakes of 2013

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Preface “I like people admitting they were complete stupid horses’ asses. I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn.” – Charlie Munger A lot of things went right in 2013. My portfolio handily beat the S&P’s stellar performance. But I don’t want to […]

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Jan 23, 2014

Coattailing Sears Canada – $SCC

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You don’t have to think of everything, you know. It was Isaac Newton who said I’ve seen a little more of the world than others because I stand on the shoulders of giants. There’s nothing wrong with standing on other people’s shoulders. – Warren Buffett Sears Canada is an example of what Warren Buffett calls […]

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