Flash boys, is it really flashy (3)?

There is also no concrete evidence such as any HFT company's financial report.  I suppose if the capital gain via stock trading is taxable, it should be available if you look hard enough.  I know the HFT programmer's market price, it is definitely a tiny percentage of Brad Katsuyama's 2 million annual salary RBC was paying him.  I only wish Lewis can explain why Brad should be compensated this way. 

Flash Boys, is it really flashy? (2)

The book is not very clear about how HFT makes money (or rig the market).  One of the theories is Front Running.  The HFT trader finds out that you are going to buy 1000 shares, he buys those and sells them back to you in a higher price to be profited by the margin.  However, there is no way to know the size of an order.  You see trade data published by exchanges, but not the intention of buying/selling stocks and their quantities. 

Market makers stick their neck out to tell the world the bid and ask prices for a certain quantity of a stock, not the average traders trading on exchanges.  How HFT profits from front running? 

In addition, market price is a moving thing.  The price feed you see is always the price of a trade that was done in the past, no one can accurately tells you a real-time price now.  Regulators are trying their best to come up with some solution such as the NMS,  national market system, order protection rule and the SIP- security information processor - which takes the price quotes submitted by exchanges and comes up with the closest to real-time price of a security.  This is not perfect but perhaps it is the best we can do to make sure an investor is not ripped off by his/her brokers. Because the bid/ask price should have the SIP prices as the benchmark. 

NMS is working to keep the market functioning reasonably smooth.  For example, after the flash crash in 2010, SEC and CFTC are contemplating the possibility of shutting down trading for 10 minutes to restore sanity.  This might effectively stop HFT trading algorithm to dump shares without considering the price when volatility is high. 

Flash Boys, is it really flashy? (1)

Michael Lewis is obviously a good writer, his book sells!  He was invited to give a talk on TV, his work has turned into a movie "The big short".  I bought the book "Flash Boys, Not so Fast" by Peter Kovac by accident, instead of Lewis' work "Flash Boy".  It was quite an eye opener.

Lewis is very good story teller, the whole book is condemning HFT traders (or firms), explaining they are rigging the market.  However, there is no concrete evidence or data proving his theory.  Every single trade done in any exchange should be logged.  I do not think it is impossible to find the data to show how much damage HFT has done.  But there is no such supporting document in his book.  All we know is he said "the profit HFT made over the years could be billions".  But from where?  How he reached this conclusion? 

People questioned regulators are part of the game hence they have more incentive to cover up with HFT.  I tend to disagree with this.  If regulators want to make money, they should ban HFT and keep the limited licenses for brokers and market makers (also insists all orders and matching should be done by human beings, human beings who they can have deal with, rather than servers).  That can maximize their profit greatly.  However, the result will be US stock markets lose liquidity and transparency.  No investments would want to get in, and slow down of the capital market movement.  The result no one wants to see.  Although I think regulators and governments are short sighted and greedy crooks, I suppose building a better, faster, more efficient market actually benefit themselves in a way that outweighs short-term gain.  For example, the recognition, sense of achievement and praise/envies from other capital market practitioners. 

In addition to the regulator side, I think exchanges, brokers and market makers are also have good incentive to comply.  It gets harder and harder to cheat since every single trade is logged and price information is so readily available for everyone.  There is no big profit to gain by cheating, why take the risk of losing your license. 

Frederick Forsyth

Funny I am only starting to read about his work just now.  I started with the day of the Jackal, huh, very good, I started to work on his books, the dogs of war, the forth protocol, the Odessa file, the cobra, the Afghan, Icon, short stories, etc.  I will need to get hold of the rest of his work!

The Hundred Year Old Man

Jon and I are thinking what are our hobbies - worm farming, gardening, hiking (when the weather is not so hot), swimming, yogaing (that's me only, Jon thinks Yoga is purely waste of time), kite surfing (that's Jon only, he quit his London job migrated to Auckland in order to surf), roller-skating (um, I force Jon to do it) etc., etc. I think one thing we both enjoy is moving going. Our favorite cinema is the Movie Center in Yau Ma Tei - featuring all sorts of independent or foreign movies. That is very convenient because both of us do not have much appetite to Hollywood films. The Hundred Year Old Man is a Swedish film - Allan's attitude to life and demeanor can be echoed from quite a few Swedish friends I have. I think they are very cool and serious about themselves, very difficult to relax to make fun of themselves in public. Practical, focusing on getting the solution to every question never waste time. Very driven for perfection and cannot tolerate deviation. Allan's life is composed of a series of co-incidents. He is not ambitious to become anything else - in the film, you almost do not sense he has any human desire (apart from wanting to have a drink all the time). He was "fixed" by a racial biologist in very early age, hence he didn't have desire for sex and thought it wasn't such a bad thing after all - (he obediently let the doctor chop his balls off, perhaps it is a Swedish joke or something). In some aspect, apart from being a nice person Allan is quite boring. His only passion is to blow things up, which started a series of events that made him to meet with all sorts of conductors and dictators in Europe around the WW2. Perhaps the film is not able to penetrate into Allan's personalities, we are all viewing him through a piece of colored glass. Not a bad film, entertaining yet has a thread of sadness in it - perhaps it would be better if Allan still has his balls and can have his family later.

The Hunger Game

I fell soon after this picture was taken. The buckle of my skate in the left caught the right while I sprang out to catch the crowd (I was sitting down and adjusting my boots). I was literally flying out and fell on my tummy, flat on the ground. Ha ha ha ha
_________________________________

The story is very similar to a movie I watched long time ago, Battle Royale - a group of Japanese high school kids were dispatched to a remote island to kill each other. The rational was absurd, I don't remember the details. The hunger game has a better background reasoning and the story is very engaging. Starting from page 1, I know the protagonist, a starving heroine, is going to win the game. It just has quite a few twists that her counterparty from the same region is secretly in love with her (or he is just pretending to enhance his chances of surviving). The idea is pretty interesting that all the participants need to win the crowd's heart to get support. The whole event is like the crooked trueman show, with more violence. It is a role playing game, live!

It is a ok read, no need much brain power to digest, perfect vacation kill-time reading. I suspect there will be sequal soon, and not sure how good it will be.

Legends in Autum-Spring and Warring State Period China

I am not very happy with the translation of 春秋戰國 in East Zhou Dynasty in Wiki. Spring-Autum is actually the name of the history written by Confucius, who wrote the history on the surface but implied the wrong-doings of the current authorities in the back. The phrase "spring-autum" has developed a separate meaning, such as eventful or under-current dynamics. Warring-state is the true translation of the tension-bound international relation at that period. Not really internationl, but the competition between states. There was a powerless central authority, that was time before Chin dynasty unitfied China, the unity has lasted for roughly 2 thousand years.

In that period, Chinese didn't behave like Chinese today. The talents were only loyal to power (preferably power that will be given to them eventually). One of the most well-recognized talents were politicians who gave advise to the state lords in order to defeat, out-prosper his neighbors. The other branch is military strategists.

It is actually not very easy to survive though you are super smart and talented. The key to rise is to handle your boss, the state lord, who can give you the glory and also get your head off your shoulder. You also have to pay attention to the subtle dynamics amongst other advisors. You'd better have the sensitivity to know when to flee to the neighbors, which most of the time is the enemy you are fighting for. This is amazingly similar to the highly developed capitalism society. The principle is not to have any principle.

The Sculptress

First read of Minette Walters' work. The obese and ugly inmate might be in the prison for the crime she didn't commit. The writer vowed to get to the bottom of the mystery, and met the love of her life after a painful divoice (handsome and depressed ex-cop is attractive?). The seemingly innocent girl (hard to use this word to describe her, because she makes people fear her because of her size and ungliness) really killed her angel-like sister and mother? The author is trying to depict her as the super intellengent manipulative freak, who controlled the rythm of every meeting the innocent writer had with her.

The story has all the Hollywood movie elements, I am surprised it is not on the big screen yet. Easy read and quite entertaining (who would think the father's lover also sleep with the daughter?) But what makes me think more if why Minette spent such a long time to describe the unpleasantness of Olivia. That can easily build up the agreement among readers, oh yeah, the ugly obese girl is of course behaving the way she described.

Suppose pretty face people have less chance of dealing with the negative emotion caused by the being disliked or bullied?

La Saombra Del Viento - the shadow of the wind

The story telling technique is pretty good. But what attracts me is not the mystery of the writer Julian Carax but the small side line of the main character, Daniel Sempere's friend Fermin. He is almost like the clown in the whole story, being sheltered by Daniel and his father as a homeless, his history slowly unfolded. He was arrested and tortured during the Spanish civil war, yet no one really knew what he did to annoy the authority (though you didn't do much, but in that environment, everything can be used against you in the court of, um..., totalitarism). Though he still wet his pants when hearing the head police office name (that was his tormentor in the prison time), he is actually the most loveable character in the whole story. Not sure why I wasn't quite attracted to the young, pure and innocent Danienl, the puppy love between him and the blind girl was pretty interesting, and his later relationship with his best friend's sister was also quite intense. But somehow I feel that he is lacking something more powerful in his character, being very young of course if one of the reason.

Fermin is not the most wealthy nor intellegent, he is very certain about what type of woman he wants. After he met his godness, he still flirts with women of all ages (I guess he cannot change that, he was born with it), but his mind is set. He thinks love is about stepping out of your comfort zone, challenging the unknown. His godness gave him the reason to become a better human being more than yesterday, he wants to be good because of the thought of she is going to be so proud of him. Interesting character.

ひょうてん (Freezing Point)

Fresh Hamachi sashimi in London, I cannot believe this is happening...
___________________________

ひょうてん (freezing point) is the novel of a female Japanese writer, 三浦綾子. As a part-time novelist and housewife, her work had won the highest honor in literature in Japan in 1964. I got the book from Old Ho, he got them over the special sales. Strangely this book was getting popular again because a couple of the website I frequent mentioned this book at the same time. The story reveals the subtle, supressed side of Japanese culture. I highly recommend it for anyone who would like to understand Japanese society.

The story started with a prestigeous doctor's family. The beautiful wife was tempted by a handsome young physician, who works for her husband. There was not real betray and cheating occurring but the innocent daughter of the doctor went out walking along the river by herself while the mother was meeting the young physician. The tragedy unfolded when the little girl went missing and found dead the next day. She was killed by a mentally ill man, wondering around the neighborhood. Devastated, the doctor got suspicious about the secret meeting between his wife and his colleague, he pieced things together and got to his own conclusion that his wife is unfaithful to him. Furious and sad, he decided to avenge his wife by adopting the murdurer's daughter after the mentally ill man committed suicide in the prison cell. The orphan was sent by one of his best schoolmates, who is running the orphanage and was pursuing his beautiful wife before the doctor won the battle.

As story developed, we came to realise that everyone has something to hide, something against the other(s). But no one dare to break the ice shaking the seemingly ok equilibrium. Everyone is trying to preserve the small piece of the dignity he/she thinks he/she deserves and no one yell at each other to bring things out. It is really unthinkable in my world, I cannot bear the thought just to keep these emotions hidden for these many years, perhaps people in the cold north (background as in Hokkaido)behaves very differently from the hot/humid/violent south.

Another question is infidelity. Though the beautiful wife never had any thing physical with the young doctor, she has drifted away from her regularity, she was tempted, she was preparing for an affair, is it considered a more serious crime than actually having it?

Fooled by Randomness

Rollerskating around Tokyo street is very fun thing to do
____________________________

Just read Gladwell's outliner, the ran into Taleb's "Fooled by Randomness". I guess there is all fate. If I have read Fooled by Randomness, I guess I would have laughed by way through the outliner. The 1000 hour rule, the connections, and all other factors deciding why some people outstand others in any field... are all becoming objects of my skeptism.

According to Taleb, there is no prove why you should put your money to a fund manager because of his track record of not lossing money (when time is good, he is even making money) for the past 10 years. Why is he famous? Because no one can be bothered to study the 99.9% of failing fund managers. There is really no enough statistical data to support any pricing models or money making strategies.

In financial market, randomness is the king. The book "Millionaires next door" depicts frugal people saved money and invested wisely, they eventually become rich. That's all pure luck! What if they bought the loser stocks that went under and, thus, losing all their investment?

It's depressing, all our work in financial market has been depending on luck.

Predictably Irrational

Just finish reading another very interesting work, by a behavioral economist at MIT, discussing how people make decision. It is focusing on the irrational part of our decision making. Why we overeat, marry too early, driving too fast. There seems to be a reason behind every action we do (weighting the benefit over damage all the time).

We are actually very predictable, we are falling into the perceptual trap again and again. We cut off the coupon to save a penny when buying toilet paper, but waste huge amount money to buy alcohol. Belows are those interesting points Dan Ariel has discussed

How price of items is determined by a class of MIT students. Dan asked them to use the last 2 digit of their social security number as the price of the item, the prices were displayed. Later, the items were sold to the class in an auction, the prices of those items were positively correlated to the random numbers generated at the first place. We remember the first answer to a question. Anchor prices are determined in a very strange way, strangely, people are willing to pay for that. Another interesting point he brought up is that we value things we possess higher but not those we dont possess.

People are miopic, take placebo effect for example. We feel better when taking placebo and thinking that's real medication. Our bodies react to the white coat (despite the fact doctors spent 7 years in medical school, 75% of the healing comes from the way they dress??)

If given the chance to cheat and allow them never be caught, people cheat to the level they feel comfortable. For example, soft drinks were stolen but not money if left in the fridge without label. Or people change the incentive date on the option because it doesn't feel like stealing.

Outliner

Finished reading Melcolm Gladewell's outliner in 3 days. This is really cheating, double spaced and thick papers (but I also complain if the words are too small, women are hard to please). The ideas are pretty much very Melcolm, I mean, just like his previous "Tipping points" and "Blink", what he said in those books are very very common sense. However, he is just a very good story teller, who organized the idea in a better way such that the dull, mundane common knowledges become very interesting.

In one of the chapers he said that the middle class family tends to train kids to speak with adults with ease, thus, they tend to conform with the society better (knowing how to deal with the authority, filling up the forms to apply for scholarship, etc). However, kids grew up in poor family tend to be against the authority because they have been rejected all their childhood. Anti-social, or has difficulty to communicate or to bargain for a better deal for themselves in school, or in life.

It took me a long long time to talk to adults with ease, ha ha ha ha, even after I have turned into an adult myself.

Phantom in Our Brains

I am reading "Phantom in the Brain" by doctor Ramachandran. It is really amazing, we think we know it all? We know nothing, completely nothing about our brains. The chapter about the zombie in our brains is very interesting. The case study is about a girl who was in coma for a while because of CO poisoning. The portion of her brain to receive image into her brain was damaged. She is literally blind. When asking her to put a letter into a letter box, she unconciously tiled the envelope horizontally and slided it into the slot without difficulty. The portion of "what" is damaged, however, the portion of "how" is not. Her brain coordinated the image with action perfectly. The Zombie in our brains might be the key for any sport, do not let your seeing decieves you, what you feel is often more true than what you feel is right.

Our brains also does a lot of tricks to "fill in the blank". With all the information we receive from hearing and seeing, nevertheless, we are not the almighty who can understand everything. Our brains extends the available situations and creates a reasonable explanation so we can make sense of the world. Of course, the ultimate goal is to survive, the guessed answers are meant to help us to make decisions at the moment in order to avoid danger.

Old Flame

My mom came to Tokyo with a small luagage, filled with my Chinese books (ecstatic I am). I finished reading Feng Tong's "Everything Grows". What a sharp and hullarious writing, I am so glad that I am chinese who can enjoy the sacastism and twist because I understand the language and culture heritage. Though I have read his latest work, and found that his style hasn't changed much since 5 years ago. Perhaps that's all he can do but I am still very very entertained by his work.

Feng was reciting his dog's years in medical school in Beijing. From his eyes, Beijing all of sudden become so attractive. The careless remorseless barbarousness is so appealing. Nothing can be seemed exciting as in the old Beijing, couple of hundred of years living undernearth of the emperor's feet. They have seen changing of dynasties, killing innocent civilians, invasion by other countries. Ha, quite a good read. Hard to imagine this type of metality in Tokyo, Kyoto might have got a bit of it, or perhaps it is the Kansai people metality of being careless and open?

The protagonist was the medical student who is fasinated by literatures, had a the most healthy girl friend you can imagine (it is odd that there are so many stern mind and strong head women in China). She knows exactly what she wants, how to take care of herself (and the boy friend). She is hard working as the fellow medical student. She broke up with him because, she said, "You will never love me as much as I love you". Her rational sense was singing victory but her emotional right hemisphere brain was torn into pieces. The protagonist's weak protest stood no chance of protesting the girl's strong will. They split and he brought her back everything she prepared for him. The duvet (hard to imagine but pretty pratical thinking for poor medical students studying in Beijing in the 80s), the bento box, the tea cup, etc. That's the way to cut things out.

Quite an interesting read, I burst out giggling in Shinkanshen all the time while reading it. Speaking of returning your ex-lover's stuff, I think most man would not have the sense to do as the protagonist's done. Unless their girl friend on duty forces him do to so (man are just so not having the complete set of nerves). My first love gave me a whole paper bag of letters I wrote him 2 years after we broke up. I was shocked to realise how naive and passionate I was in my 17. I reviewed each one of them sitting on a bench in a park after our last meeting. I laughed and tore the letter into pieces by hand, their final destiny can only be the dumpster, no where else.

Life in the Undergrowth

Isn't she beautiful?

_______________________________________

I first watched the series when in London and my jaw dropped for one whole hour. I am always fasinated by BBC's high quality TV drama, documentary and news (there was a series about cosmetic surgery, have seen some scene that American audience would not even dream in their wildest dream, that deserved another blog). The cinematography (uh... there is no script) and music were definitely at the top of the game.

That episode, invasion of the land, has the scene about slugs. A slug is both male and female, however, it has to receive another slut's sperm to be impregnated. They move slowly and gracefully, tangled by each other while hanging by their slimy fluid from the tree bark. The reproductive organ sprung from the back of their heads, transparent and moist. Again, those interwinded elegantly while both of their bodies swirling, rotating in slow motion. Wow, this is almost as sensual as porn.

David Attenborough is another reason why the series is so successful. Born in 1926, it is amazing that he was close to 80's when making these series. You can feel his passion toward these beautiful creatures. He's passionate but subtle, he acts but not to the degree you feel annoyed or embarrassed for him. The dull science suddenly becomes so mysterious that you want to know more about it. That's what a great educator should be.

Derman

After reading "Trader, Guns and Money", "My Life as a Quant" was the living proof of Amazon's business model. I ordered this book simply because it says "People who possess Das' book also bought it". Shopping online for books though hard to replace the joy of finding a good read in bookstores, I still reward myself of new books every months by ordering from Amazon Japan (their English books are usually 10% less than Kinokuniya or Maruzen).

Derman implemented the famous BDT (Black-Derman-Toy) model for bond option valuaiton. Not consider myself a hardcored Financial Engineer, but I am very curious about how the serious academic transit, adopt and perform in the dog-eat-dog investment banks. Almost finishing the book, quite interesting in reading it as if it is a story since the stories, names, mathmatical equation and concepts are so familar. Even the experience of jumping ships (transfer from one company to another) is damn similar.

I am not sure what Derman is doing now, given a chance in particle physics academia research, would he ever wanted to end up in Wall Street? Or would he surrender to the reality and money?

Tumor in my Brain

I swear I wash my shirt every week, it just happens that the light blue polo shirt came in handy everytime I need to go hiking.

_____________________________________


It took me a couple of seconds to realise that I am OK after waking up. In my dream, I was found having a brain tumor and immediately needed medical attention. I was in the doctor's clinic with my friend, T, who was suffering from the acute lymphatic leukemia. The nurse came to me and gave both of us some pills, huge as candies, saying this is the ones that could supress the cancer cells. T took the candy-like pills obediently, and waiting for the surgen to take him to the operation room.

I clearly know that these type of medication results in all kinds of side effects. Yet I was weighting the pain if letting the cancer slowly eats away my brain. I walked out the room and do not want to be treated.

On my way to work this morning, I started to think people do want to live less if childless. There is less obligation and responsiblity. Is that a recipe to a care-free life?

I am reading James Olivers' Affluenza. The selfish-capitalism epidemic spreads in English-Speaking world. Young people who have wealth, youth and widely accepted success are depressed. It is quite interesting when Oliver explores why young Chinese do not suffer as much as their western counterpart. He thinks, Chinese do not think too much beyond the material world (I disagree, I think that's because Chinese are just getting the taste of Capitalsim. When materials are abundant enough, this viewpoint can easily be challenged). He also thinks that Confusious' teaching which make us (yes, I am Chinese) think less of self, and attribute glory and failure to the society.

Concise English-Chinese Dictionary

This book was another surprise of the year. I never really like reading novels in English because I read much faster in Chinese. I guess the other reason is that I don't quite buy into the western way of thinking. Western fiction is more fictional if reading the translated version, further away from my real world. My English reading is mostly non-fiction or work-related. I think I am still in the exploring phase of English literature. The message expressed in English is only informative rather than entertainment.

However, this book quickly drawed me into this tiny Chinese girl's world in London. This 24-year-old, broken-English woman came to UK for 1 year English study. She is like most stereotype young generation in China, blunt, rude and not refined. She fell in love with a British guy. The whole book was her own monologue. There are questions everywhere at the first half of the book. Seeing the English world via a pair of Chinese girl's eyes, what privacy is? Why everything is old? Why women with kids living without a man? Her curiosity drown her into this 20 year older English artist's life. Her love to him was suffocating, she is constantly demanding attention and security. When he cannot provide enough, fighting started yet there is nothing they can change because they are still hooked into each other. The relationship was like storm, like fire, it came with all the destructive power.

All these are too familiar, that was me when I was in my twenties. It is too hard to imagine myself being in this type of madness again, too cynical and rational to avoid the embarrassment.

Money Laundrying

Finished a pretty good Japanese novel about money laundrying. The protagonist understand every single loophole in Japanese taxation laws and is familiar with financial insttitution operation. 400 million USD was supposed to be invested in an offshore company, which will in turn come back to Japan and buy those investor's bad debt. The investors would like to take the bad loan off their balance sheet. However, the money disappeared. The story developed as the protagonist got involved with this massive amount of money. It is exicting just thinking about the zeros trailing behind the single number 5. I really do love money, ha ha ha ha.

When asked how to get rich, he replied "Do not invest and do not pay tax".