Category Archives: Financial Markets

THE STORY BEHIND BIG DATA

John Jonelis

Big DataThere’s a lot of buzz about Big Data these days. By Big Data, we’re talking Big Mountains of Data. The manipulation of this resource will change the world and do it soon. I hear plenty of lofty goals for the benefit of mankind but destructive ends also seem likely. So what can we expect? I’m here to pass along the short version in plain language.

Tonight we’re treated to speakers from Oracle, CABI, and Narrative Science – a business that grew out of the artificial intelligence labs at the University of Chicago and Northwestern.

Pound for pound, Chicago’s MIT Enterprise Forum is always dense with PhDs and Thought Leaders. I spot a VC in a room dominated by businessmen, academics and MIT alumni. Josh London from Wellter moderates this high-powered session.

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Distilled Data

Louis Nagode – Oracle

Louis A Nagode

Louis A Nagode … jaj

Louis Nagode is a self-proclaimed geek, but he’s world-renowned, with 30 years of business intelligence under his belt. When he talks Big Data, he’s thinking an aggregate of an enormous bulk of worldwide information—ultimately all the knowledge in the world. He says we’re creating data at a phenomenal rate. In the next 2 years we’ll create more data than ever existed before. The key to using it, according to Nagode, is distilling it down to useful information. He breaks it down into four “Vs”:

  • Volume—(How do you process it all?)
  • Velocity—(How fast does it change?)
  • Variety—(How do you make use of it?)
  • Value—(How do you make sense of it?)

The big question is this: Can we use Big Data to reduce workload for people, manufacturing, and other altruistic purposes? The next two speakers give concrete answers to that.

Nagode talks about alternatives to databases—alternatives like HDFS, the distribution of data across multiple computers around the globe. That’s data that can be harnessed.

Oracle Logo

To sift out what we need to know he uses a map-reduce pipeline. Look it up if you want, but it boils down to this: You no longer need a structured query language like SQL. Bottom line, it’s getting a lot easier to use data. Let’s move on and see just how easy this gets:

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From Data to Story

Kristian Hammond – Narrative Science

Kristian Hammond - JAJ

Kristian Hammond … jaj

Hammond built the artificial intelligence lab at both the University of Chicago and Northwestern. Now he’s built a Chicago company that takes numbers and symbols and communicates the hidden insights in a more human form. Let me put it more directly: He transforms Big Data into words and narrative. In other words, STORY!

Numbers require expert analysis. Graphs help visualize numbers but we’re still looking at only an 8% penetration. Stories, on the other hand, are highly accessible. They communicate beyond data and tell you things you can’t see. After all, narrative is the way we’ve communicated as long as we’ve been human.

His system produces a short narrative that tells your company the pertinent facts, then gives a summary—A SUMMARY OF WHAT YOU CAN DO THIS WEEK TO MAKE YOUR COMPANY BETTER. We’re not talking about overseas labor knocking this stuff out—no, machines are doing it using artificial intelligence!

Narrative Science Logo

Hammond gives an example of a food chain using corporate analytics. The data says that sales of Reuben sandwiches are down. The STORY gives the company easy-to-understand and actionable recommendations, something like this: “Reuben Sandwiches are this week’s weakest menu item with average sales of 136.7 units. Bringing sales up to norm means $7.2MM in added revenue overall. This requires only 6 more sales per store per day.” Now that’s useful information that people can understand and act on.

According to Hammond, people have forgotten the business reasons for data. By telling them the business side in Story, the data becomes immediately useful. As he puts it, “Story is the last mile in Big Data.”

What about education? His system give feedback on an exam with advice on how to improve a student’s performance: “In physics, you need to focus on the Theory of Relativity. Look back to Chapters 5 and 6 of the text.”

How about a sector report for stock analysis? Or a seasonality report for commodity analysis? Why not pull down the Twitter data of all the speakers at a conference and give it out as written analysis? What about a data-driven narrative for media? Turns out that’s a natural. Hey, this could put me out of business!

So how does it work? They analyze nuance and word choice 200 ways plus adjectives and adverbs. They match the client’s written “voice.” They can generate different styles using the same machine. According to Hammond, “Any data, any story, we can do it.”

Now let’s look into using Big Data on a grand scale:

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Use it for Good

Roland Dietz – CABI, IERG, Focused Connections Partners

Roland Dietz - JAJ

Roland Dietz … jaj

Dietz showed us Big Data in use on the world stage. His organization predicts infestations in plant or animal populations worldwide.

They can show a farmer what might happen to his crop. To do that, they combine data from around the world on climate, soil composition, movement of materials, markets, and many other sources. This model is open source. The data is freely given and freely distributed.

The profit is in what they do with Big Data. As he put it, “We start with tons of information, then identify its significance. That becomes our competitive edge.”

CABI Logo

For example, let’s say you track the movement of a pest that destroys coffee plantations. You know the various soils, plant densities, climates, population centers, and topography worldwide. With this, you can predict where the plague will spread.

Some governments don’t want to join CABI, but the group has done good work, even in Korea and Pakistan. When countries see that the organization isn’t political, they accept them. Some are restrictive about what they share because they don’t understand the consequences. But when they find out some of the unexpected benefits of Big Data, they open up.

Big Data at Emmi Solutions - JAJ

Big Data at Emmi Solutions … jaj

Takeaways

  • Constant Change—The ecosystem is non-linear and always in flux. Using Big Data means doing analysis in real time.
  • Analysis—Data without an expert is useless. But just like any science, you come up with a theory based on the data. Then you test it. The scientific method is very much alive and well.
  • Opportunities—The biggest opportunities identified so far are in healthcare, world agriculture, education, and evidence-based decision making in business.
  • Privacy—This is a huge question that needs to be answered. More and more, people accept constantly observation. But how is the data used? If, for instance, a telecom company has significant insight into YOU, do they keep it proprietary? Can an organization publish information on coffee production in Senegal without permission? I suggested that I’d love to get my hands on coffee pest data to gain an edge trading commodity futures.
  • Ethics—Turns out, these speakers aren’t the ones to address this issue.  “It’s above my pay grade,” said one. But might not Big Data be used for evil purposes? A member of the audience suggested the specter of ethnic cleansing. Like nuclear power, the possibilities for both altruistic and destructive goals seem endless.

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Contacts

Louis A Nagode—

Oraclehttp://www.oracle.com/us/solutions/index.html

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Kristian Hammond—

Narrative Sciencehttp://www.narrativescience.com/

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Roland Dietz—

Focused Connections Partners http://focusedconnectionspartners.com/

CABIhttp://www.cabi.org/ – a not-for-profit international organization that improves lives by solving problems in agriculture and the environment.

IERGhttp://www.iergonline.org/ – (International Executive Resource Group) – A not for profit organization of senior business executives from around the world.

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Josh London—

Wellterhttp://www.wellter.com/ – Enables employees to comparison-shop for healthcare providers.

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The Venue—

Emmi Solutionshttp://www.emmisolutions.com/ – builds patient empowerment solutions for health organizations that measurably impact outcomes. Their offices are a terrific venue for this event. By the way, they’re still looking for talent. Check out this link: www.EmmiSolutions.com/Careers Looks like a great place to work.

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MIT Enterprise Forum, Chicagohttp://www.mitefchicago.org/

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GO BACK TO PART 1 – WHO’S RUNNING THE ASYLUM

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Find Chicago Venture Magazine at www.ChicagoVentureMagazine.com Comments and re-posts are welcomed and encouraged. This is not investment advice – do your own due diligence. I cannot guarantee accuracy but I give you my best.
Copyright © 2012 John Jonelis – All Rights Reserved

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Filed under CABI, Chicago Venture Magazine, Chicago Ventures, Data, Entrepreneur, Entrepreneurship, Entrepreneurship and Politics, Events, Financial Markets, IERG, Information, Innovation, Innovation and Culture, MIT Enterprise Forum, MITEF, Northwestern, Oracle, University of Chicago

THE DUEL

The Story of Ray Markman – Part 2

by John Jonelis

Ray Markman

Friday, 1:30 am

Ray Markman claims, ‘I never worked a day in my life.’ Now I wait for Alexander Harbinger and Loop Lonagan to give their analysis based on boxes of old documents and memories. The clock reads 1:30 when Loop and Alex finally file in. They each carry thick note pads and plunk down in soft chairs across from my desk. From the way Loop pats his belly, I know they’re straight from some heavy lunch spot.

Lonagan is first to speak. “Me and Alex want you should go first.”

“What?” I say. “There’s some problem?”

Harbinger responds in his heavy German accent. “Vee are at a point of disagreement. Perhaps, Yon, you vill set ze right tone for this meeting.”

I lick my lips. That sounds like trouble and I hesitate a moment wondering what’s under the surface. Each of us started with a bulging box of documents and I like what I found in mine. Finally: “Okay, I’ll kick it off.” I glance at my clipboard of notes. “Ray Markman is living one of the most interesting business careers I’ve ever researched. Right from an early age, I get the picture of an enthusiastic entrepreneur, just playing with the world. He attends Erasmus—first public high school in the country. Barbara Streisand is there. Ray sees Sid Luckman play high school football. Lainie Kazan, some Nobel prize winners, and other luminaries come out of that program. Ray runs the school paper. He figures he can get a scholarship to an Ivy League college but the faculty sells him on the University of Missouri—the first formal school of journalism in the world. Lots of illustrious figures go there. He sees Walter Cronkite. Meets the head of CBS, the head of NBC—all those guys. Connections that pay dividends later on.”

Harbinger shakes his head. “Zat is veak. You vill not prove your point based on such information. Have you nussing  from his vork life?”

“Well, yeah.” I turn a page. “This one’s interesting. He creates the Britannica Achievement in Life Award—you remember that. The award goes to people like Louis Armstrong, Hank Aaron, Ella Fitzgerald, Olympians, astronauts, singers, artists, athletes, academics, actors—it must be quite a rush doing that.”

Both men nod but nothing registers in their eyes. They’re still waiting.

Ray Markman

Is that Polly Bergen with Ray Markman?

I turn another page. “Okay, try this one. He finds out that National Geographic has lots of fantastic footage—reels and reels of film. Underwater clips of Jacques Cousteau, footage of Americans climbing Everest, Jane Goodall and the wild chimpanzees, even discovering the first Homo Sapiens. But they aren’t TV shows—just footage. So he gets John Allen and a team to help him create shows. Allen is the genius that got the Peanuts shows on prime time. So that’s how the National Geographic Series happens. Certainly you’ve seen that.”

“Yes, ziss I remember vell.”

“Well here’s where it gets good. They make the whole series on spec. Then Ray tells his client—Encyclopaedia Britannica, ‘We won’t sell it to you unless we get prime time.’ Wrap yourself around the moxie behind that. He doesn’t want it aired on Sunday afternoon the way Hallmark does at that time. He figures people are watching football that day and he’s right. After finishing the shows, he’s saying if they’re not a raging success, he’ll chuck ‘em. He’s taking a huge risk.”

Lonagan shakes his head and scowls. “A guy shouldn’t never oughta let his ass hang out dat far on a deal.”

“Maybe, but Ray doesn’t seem to have any fear in his makeup. So he takes the show to NBC. They turn it down. Same old story: They don’t know where it fits—it’s not news and it’s not a documentary. It’s a whole new genre. Always hard to sell a new genre. And ABC? Same story.

“Anyway, he realizes there’s only one man who’ll buy this show—the head of CBS—the king of the documentaries back then. So he spends a whole month and works up a super-detailed 30-minute presentation. All the visuals, the financial projections, the entire picture.”

I lean back and glance at my two guests. “So the big day finally arrives. Ray and the agency meet the head of the network face to face. Ray’s just three minutes into his presentation when the guy says ‘I got it. Let’s do it.’ Just like that.”

Lonagan nods. “I seen stuff like that happen.”

“Well Ray’s not done. He tells them there’s one caveat. ‘We gotta have prime time.’ Seems to me he’s pressing his luck but the guy says, ‘Done. You got early prime time four times a year.’ So Ray goes ahead and gets Britannica to sponsor it for four years. Great show. I don’t think I missed a single episode.”

Lonagan leans across my beat-up desk. “I got somethin’ even better.” That close to my face, his breath stinks of corned beef and beer.  Smells worse than a cheap cigar. I roll my chair back, away from the stench and put my feet on the desk. “Fire away.”

He cracks a malicious grin. “Ray’s one o’ them born entrepreneurs. He loves every part of it.”

Then Harbinger barges in. “Ze man spent his career in advertising, not as an entrepreneur.”

Lonagan reels on him. “Listen, you candy-assed school boy. Everything he does, he goes at like an entrepreneur. It’s impossible to figure out where his corporate work stops and his entrepreneurship begins. When he ain’t bettin’ his dough, he’s bettin’ his job.”

Once I watched a debate between Loop Lonagan and Alexander Harbinger almost escalate to blows and I need to head that off quick. “You guys are off on a tangent. Entrepreneurship isn’t the question on the table. I’m looking to prove or disprove his statement that he never worked a day in his life.”

“No John, yer wrong,” says Lonagan. “Bein’ an entrepreneur’s the heart of it all. In da mindset of an entrepreneur work ain’t work. It’s doin’ what you love for the love of it. It’s creatin’ somethin’ new, then creatin’ somethin’ else that’s new. That’s why Ray makes that statement—‘cause that’s how he lives his whole life. Don’t matter if yer workin’ in a startup or a big organization. If you got enough freedom and love what you do, you’re an entrepreneur. Ray’s a serial entrepreneur. Anybody says different don’t know his keister from a hole in the ground.”

Harbinger scowls. “I cannot agree wiss you. Your premise—it iss badly flawed.”

I’m keeping a close eye on Loop’s reaction. He doesn’t respond immediately and his face slowly swells purple. If they start swinging, I sure hope they take it outside.

Then Lonagan blurts out, “Ever hear of a little thing called a hedge? That’s how the smart guys do it. A paying job’s nothin’ but a ‘covered call.’ It counters da capital risk on all dem companies he starts. That’s a real smart setup if you got the energy to pull it off.” He raises his voice. “But then, you never been in the trading world riskin’ real money. You hang out at that college and teach bullshit like ‘random walk theory.’ You don’t know nothin’ about business, you lousy Kraut.”

Harbinger rises from his chair. Stands erect like a soldier.  Dignified—all six foot five of him in his impeccable gray handmade suit. “I cannot accept such personal abuse—zis slur on my nationality—and ziss from an inarticulate, uneducated, and ignorant man. I demand an immediate apology.”

Lonagan jumps to his feet, pulls off his sports jacket, and throws it to the floor. “Apology nothin’. And whadaya mean, callin’ me ‘little’?” Standing in a crouch with his fists raised, he cranes his neck to meet Harbinger’s eyes. “You kin cram that where the sun don’t shine, mister.”

Harbinger looks down his nose at Lonagan and hands him a card. “Zen I vill have satisfaction. Ze Union League Club. Vee meet at Five p.m.”

I can hardly believe it. I am witnessing the preamble to a formal duel. The only thing missing is a slap to the face or a glove hurled down. Will it be pistols or foils?

“Okay, Mr. PhD.” Loop flashes an evil grin. “You’re on. Boxing gloves. Three rounds. And make sure you show up.”

I let out a sigh of relief.

A boxing match.

And after a moment’s thought, I’m actually looking forward to it. But somehow I need to find a way to get these two back in their chairs and working on the subject at hand.

 

Continue to Part 3

Go back to Part 1

Comment on this article — Name and email optional

Find Chicago Venture Magazine at www.ChicagoVentureMagazine.com Comments and re-posts are welcomed and encouraged. This is not investment advice – do your own due diligence. I cannot guarantee accuracy but I give you my best.

Copyright © 2012 John Jonelis – All Rights Reserved

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Filed under Biography, Characters, Chicago Venture Magazine, Chicago Ventures, Conflict, CORE Insight Story, Entrepreneurship, Financial Markets, Innovation, Nobel Prize

DEATH SPIRAL IN EUROPE

Euro

European Meltdown

I’m at the Federal Reserve Bank of Chicago to find out more about the financial crisis in Europe and why I should care. This is the keynote address–the second in a series of speeches sponsored by Northwestern University. The topic is economics, but don’t let that scare you away. I’ll translate it into everyday language and reduce it to a few pertinent facts that mean something to you and me in a real way.  (My editorial comments are in parens.)

Prof. Martin (Marty) Eichenbaum is good—really good and quite entertaining. He’s a PhD in Macroeconomics at Northwestern University. A Fellow of the American Econometrics Society. A consultant to the International Monetary Fund and the World Bank. He’s currently a consultant to the Federal Reserve Banks of Chicago, Atlanta and San Francisco. He’s co-editor of the American Economic Review, one of the nation’s oldest, most respected and revered scholarly journals. This guy’s got credentials. I’m impressed. You’re impressed too, right? Well you should be. Like President Schapiro, who spoke before him, he’s an excellent teacher and knows how to make his points in ways that everybody will understand.  Here’s the skinny on his speech:

“The recession is global in scope. Europe could easily spiral out of control. The consequences could be enormous.” We all know that, but then he brings up a sage point: “It’s tough to cut spending and raise taxes during a recession to get back to a surplus or even back to reasonable numbers because it slows the economy in the short term. If you wait for the crisis to balance your budget, it ain’t gonna happen.” He goes on: “Spain is at 25% unemployment—like our great depression. Debt is 160% of GDP in Greece.”

Why is this happening? I feel a real need to know.

Martin Eichenbaum

He tells this story: “Back when Portugal, Ireland, Italy, Greece and Spain joined the European Union they said, ‘We’re not so good at monetary policy. We do other things. We do cuisine, we do art, we do literature…’ (Laughter from the audience.) ‘We’re going to hand over the steering wheel to the Germans because they do inflation well.’ But if you can’t pay the bills you can’t pay the bills. If the Germans won’t let you pay them with inflation, then you’re going to default. You can’t raise taxes—they’re already too high. So we’re looking at real sovereign default risk.”

“If you look at unit labor costs in these countries when entering the euro. Germany is little changed. All others have experienced a huge rise. They’re not competitive with Germany and people are going out of business. Only Germany has a trade surplus against everybody else’s trade deficit. Bond spreads between Germans and other countries are huge. Italians, Spaniards, Portuguese, and Greeks have to pay a lot more for money. So much that you can’t borrow at those rates.”

(It sounds like letting the Germans take the wheel was great for Germany, but lousy for everybody else. That’s something I didn’t know before.)

The Crisis is Simple

(It occurs to me that it’s really simple for us to understand the underpinnings of this crisis. I’ve picked the metaphor of housing because so many people can relate to it and understand it.  Let’s compare Europe to your own home mortgage. Say you’ve got a $200K house and rates are low, so you borrow to the hilt. Then, let’s say you take all your cash and invest it all in more real estate. If real estate prices drop, you’re underwater, both on your house and your investments. If your home is really your castle, you’ve got a sovereign debt crisis. You’re broke. And you can’t print money to buy your way out.  Turns out that’s a problem in the EU as well.)  Here’s how he explains the situation in Europe:

“In 2003,” says Marty, “Interest rates were at historic lows and there was no fear of sovereign default.” (So countries borrowed big because rates were so low. I can relate to that.) “The ECB told them to invest in a safer portfolio:EU Logo Sovereign debt.” (Sure—what’s safer than that?)  “So the banks in Europe bought sovereign debt at urging of the ECB.” Now that’s not good diversification of risk so he goes on to explain that they tried to avoid any run on a bank by creating deep pockets. To do that they set up Long Term Refinancing Operations—LTROs—which lent them a trillion euros at 1%. The result? Banks are run by people, just like everything else. People do what looks good to them, even if it’s too good to be true. According to Marty, they doubled down: “They used the cheap money to double down on high-yield sovereign debt.”

(I can picture them doing just that. The interest rate spread must have seemed like free money. So they licked their chops and plunged. A big bet got a lot bigger. Casinos make a business off people who do that.)

As it turned out, it was a bad bet. In 2009, sovereign debt got downgraded. Now these banks faced accelerating capital losses on non-diversified investments that might default.

(They’re heavily invested in themselves and each other. That sounds like a form of incest and something even more embarrasingly personal. Again it’s like the homeowner that took out the maximum mortgage and used the money to buy a vacation home and a time share just as the housing bubble burst.)

Death Spiral

The Death Spiral

Let’s watch it unfold step-by-step:

1—European banks are highly exposed to sovereign debt. Then they double down.
2—If rates rise, the old low-rate bonds go down in value. Every time there’s an interest rate rise on sovereign debt, the banks suffer capital losses on the sovereign bonds they bought.
3—Banks look shaky and the government bails them out. Spain spends billions to prop up their banks. Where will the money come from? Nobody wants to hold their debt. Money is leaving Spain in huge gobs. No solution in sight.
4—As a result, the rate charged governments goes up. The rates charged Italians, Spaniards, Portuguese, and Greeks are way higher than what Germany pays. You can’t borrow at such rates. So the banking systems in these countries are in trouble. Because the banks are in trouble, they won’t lend to the people of the country.
5.—When banks don’t lend to the people, recession deepens. Tax revenues plummet. That causes countries to spend more on unemployment and other social programs. That raises the rates on sovereign debt. That hands the banks further losses on their sovereign bonds. Add to that, banks get walloped with non-performing loans. So the banks look even worse than before.

It’s a death spiral.

A Problem of Perception

Who cares if the banks look bad? Well, it’s actually a huge problem when people feel that the banks are no longer safe. It results in a kind of suicide called “a run on the bank.” Even if the bank is okay, it can go broke if everybody demands their money at once. It’s a self-fulfilling crisis. Greece and Spain really are broke. What about the others?

Let’s look at Italy. Their economy is huge–so big, they make Greece seem insignificant. Italy carries1.2 Trillion in debt. But actually, they’re doing fine—as long as the markets think they’re not broke. They’ll keep paying 2% on debt and chug along, fat, dumb and happy. But if people think they’re broke, they’ll get charged 6% or more and then they WILL be broke. At low interest, Italy is in surplus. At high interest, they’re broke. Their fate is tied to market perception. It’s self-fulfilling.

So the banks take out Credit Default Swaps or CDS to insure their portfolios. But that type of insurance keeps getting more and more expensive and the death spiral continues.

Euro Ten Dollars

Takeaways from the Speech

1—Can the EU orchestrate a short-term stimulus and impose long-term fiscal reform? Probably not. That’s hard to do during a crisis.
2—They can raise taxes. But taxes are already way too high and this is a recession.
3—They can print more euros—it’s illegal but there are ways around it. But Germany doesn’t like that option because Germany hates inflation.
4—One non-intuitive solution is to raise German wages. That would stimulate German consumer buying and boost the economies of the other EU countries. A happy solution for the German worker. But again, Germany hates inflation.
5—Yes, Greece may actually exit the European Union, but there’s a bigger option than that—one considered unthinkable three years ago: Germany leaves the euro. Then other countries can print more euros, create inflation, devalue their currencies, and take all sorts of measures to buy themselves out of trouble.

(I notice that he hasn’t raised the specter of war.  History shows us that it tends to breed at times of financial crisis.  My bet—for what it’s worth—is that Europe will wring its hands and delay any meaningful decision as long as possible. Then, at the last possible moment, they’ll take the only course left open to them—the worst one.)

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GO BACK TO – THE CLIFFS OF INSANITY

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(Afternote–I find it amazing how much of this has already come to pass–actually come to pass in the short time it’s taken for this article to reach the head of the line.)

Contacts

Reach Prof. Martin Eichenbaum PhD Email: eich@northwestern.edu

Download PDF version of this Article

Find Chicago Venture Magazine at www.ChicagoVentureMagazine.com Comments and re-posts are welcomed and encouraged. This is not investment advice – do your own due diligence. I cannot guarantee accuracy but I give you my best.

Copyright © 2012 John Jonelis – All Rights Reserved

9 Comments

Filed under Chicago Venture Magazine, Fed, Federal Reserve, Financial Markets, Kellogg, Northwestern

HIGH-FREAK TRADING AND DA REVOLUTION

Read white paper – AI FOR THE INDIVIDUAL TRADER (pdf)

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An open letter to my trading buddies about the white paper –  AI for the Individual Trader

Loop Lonagan comments on the White Paper:

I just heard stats that nowadays, 70% o’ the action in the financial markets is these high-frequency trading outfits. Them high-freak syndicates enjoy the right of first look before they trade. You got it—they SEE YOUR ORDERS and FRONT-RUN YOUR TRADES. It oughta be against the law.  No, I ain’t talkin’ about them Occupy Wallstreet hoodlums.  This is big money.

Why’s it allowed? Hey, 70% o’ the volume adds up to a whole lotta money for the exchanges. That clear enough for ya?

Just to clue you in—used to be only the Market Specialists got those kinda rights. And for a good reason.

  • Market Specialists gotta maintain orderly markets.  BIG RESPONSIBILITY.
  • Market Specialists gotta participate whether they like it or not.  BIG RISK.

But these high-freak syndicates ain’t got no duties. No allegiance to the public. No nothin’.   They’re speculators, plain and simple—in if for themselves and the rest ‘o the world can go take a flyin’ leap. They wait till the time is right, run their bombing raids, then disappear over the next hill.  At 70% of the volume, that explains a lot about what’s been goin’ on in the markets.

Hey, I ain’t got no beef with speculators. I’m a speculator. But givin’ one group special rights and privileges is against the spirit and the ideals that made the good old USA a country of opportunity for the common man. A few years ago we had, maybe 7,500 floor traders working in Chicago. Today? About 2,500 and dwindling. I know. I was one of them guys. Now I’m out. And the people trading on their own computers? Think they don’t get hurt? Think again.  But I ain’t takin’ it layin’ down.  I joined da revolution.

The thing about these high-freak guys is they trade like hit men. Don’t leave nothin’ to chance.  They cram their operations real close to the exchanges so the wires from their computers to the trades are real short. They pay $100K and more a month for super-fast internet access—and they can afford it. You ready to plunk down that kinda cash? I didn’t think so. The high-freaks trade in and out in milliseconds using super-powerful computer programs.

How does the common man compete against that?  Sure, some folks got enough capital and the right connections and they buy-in to these outfits. If you can’t beat ‘em, join ‘em, right? But what about the masses?  Markets is supposed t’ be fair.

Turns there’s stuff we can do about it.  Lemme lay out a few ideas and you can give it some thought:

1.) SLOW DOWN – Whatever you do might just work a whole lot better on a higher time frame.  If you’re a scalper, try holding for at least a few hours.  If you’re a day trader, try swing trading.  If a swing trader, think about long term holds. If you’re already long-term, think about the new crowdsourced venture capital funds or maybe even distressed real estate.

2.) LOOSEN UP – Ya can’t use them tight stops no more.   These high-freaks see them orders and scoop up volume whenever they want by spiking price for just an instant. Yeah that’s right—runnin’ your stops ain’t hooey no more. It really happens. Nobody likes gettin’ kicked outa a trade just before the thing takes off to the moon. But anybody with any brains knows ya can’t make a living long-term without protectin’ yerself with stop loss orders, so my advice is just back off a bit.  And while you’re at it, how ‘bout some good old-time diversification? How ‘bout putting on a hedge? Ya gotta protect yerself. I know—you heard it before. But now we got no choice.

3.) BEAT ‘EM AT THEIR OWN GAME – Here’s where it gets good.  Do all of the above but do it smart.  Nowadays you gotta get way more high tech. Big time. You gotta adapt and keep adapting, again and again. The faster your trading style, the sooner ya gotta switch systems.  That means you need automation, ’cause nobody’s got enough hours in a day to do all this stuff alone.  Some guys run new simulations every night.  This market’s not efficient and random like the professors say but the easy money keeps moving around.  You gotta find where it’s goin’ on and get there first and grab it up. And I’m finding out it’s not so hard to do with the right tools. Sure I try new ideas – all the time. Yeah, I test ‘em. But if you wanna stay ahead, ya gotta teach your computer to figure out when there’s money layin’ on the floor. That’s right—get that electronic gizmo working for you for a change. Just don’t go head-to-head with the high-freak syndicates – you’ll get stomped.  Run right around them guys.  Go high tech.  Join da revolution.

So I read a white paper “AI FOR THE INDIVIDUAL TRADER.” That’s where I get most o’ these ideas.  It lays it all out plain and simple and it doesn’t cost me nothin’ to read.  And it ain’t selling nothin’ neither.  So I’m sending it to ya.  Yeah, I been givin it a go.  So far so good.


So what’s with da Bears hat?  Sure I like da Bears but that ain’t the point.  The white paper tells a story about “The Parable of the Hats.”  But most of all, it talks about AI—that’s Artificial Intelligence—yeah I can say the word and now I can use it. Neural Nets vs. Rule-Based Trading.  Genetic algorithms. Simulations. Walk-Forward Analysis, Auto-trading. Hey, I can understand this stuff so I think most of you won’t have no problem with it. And it’s written up by a guy I know and trust.  Give it a read and make up yer own mind.

Good trading, youse guys. Loop Lonagan *

* [Verbatim transcript of an MP3 file dictated by Loop Lonagan]

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Read white paper – AI FOR THE INDIVIDUAL TRADER (pdf)

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Find Chicago Venture Magazine at
www.ChicagoVentureMagazine.com
Comments and re-posts are welcomed and encouraged. This is not investment advice – do your own due diligence. I cannot guarantee accuracy but I give you my best.

© 2012 John Jonelis – All Rights Reserved.

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