The mantra of Wall St hedge funds was once “only the strongest will survive.” It may now have to change to “the geeks will inherit the earth.”

Hedge fund “quants” who use computer systems to trade financial markets earned more money than some of the industry’s most famous stockpickers, who posted large losses in 2015.

The most prominent among the quants was string theory expert and former code breaker James Simons of Renaissance Technologies, who earned $1.7bn, putting him in joint first place.

He was joined in the top 10 earners by former Columbia University computer science professor David Shaw of DE Shaw who made $750m and John Overdeck and David Siegel of Two Sigma who made $500m each.

Their success came in stark contrast to some of the biggest names on Wall Street who rely on human investment judgment rather than lines of computer code.

{ FT | Continue reading }

quote { Cabinet magazine | full story }

{ Tokyo 2020 Olympics logo, designed by Asao Tokolo — he will be awarded ¥1 million ($8,250) and a free ticket to the opening ceremonies of the 2020 Olympics and Paralympics. }

Almost Nothing About the ‘Apple Harvests Gold From iPhones’ Story Is True

Katy Perry, Billy Joel and Rod Stewart are asking the U.S. government to reform provisions of copyright law that they say enrich large technology companies at their expense.

The three are among the more than 100 artists and managers who have filed petitions asking the U.S. Copyright Office to amend parts of the 1998 Digital Millennium Copyright Act. The office has said it will study the effects of so-called safe harbor provisions in the law, which shield services such as YouTube from liability when users upload copyrighted material without permission. […]

The industry is stepping up its fight as streaming becomes a more significant source of sales. Revenue from such services increased 29 percent last year, according to the Recording Industry Association of America, with most of that growth coming from paid subscription services that license music. Sales of CDs, along with online purchases of music, are shrinking.

{ Bloomberg | Continue reading }

painting { Dan Witz }

MasterCard and Visa didn’t make, or even look, for profits for decades. MasterCard started as a not-for-profit membership association, in 1966, and Visa did the same, in 1971. Both associations managed their brands and ran the clearing and settlement systems for banks that issued cards or helped merchants accept cards. These card networks were allowed to charge their members just enough to cover cost and provide working capital. […]

Then the banks decided to turn the associations into for-profit companies, IPO them, and cash out. MasterCard IPO’d in 2006, and Visa followed two years later. Now they are very focused on making money. […]

Many other multisided platforms haven’t made the leap to making money. […] Standard Setting Organizations (SSOs) are multisided platforms that help members reach agreements over a standard (For example, mobile carriers, handset makers, chip providers and many others have to agree on a common standard — like 4G — for what they do to work together.) The SSO usually publishes a standard and disseminates it at low cost or even for free. That standard may then become a platform for many firms that produce complementary products and their customers.

{ Harvard Business Review | Continue reading }

Piper Jaffray analyst Stan Meyers said animated films generally cost about $100 million to make, as well as an additional $150 million to promote.

An executive producer who wants to drastically cut costs traditionally has two choices: water and hair. Those are the most expensive things to replicate accurately via animation. It’s no mistake that the characters in Minions, the most profitable movie ever made by Universal, are virtually bald and don’t seem to spend much time in the ocean.

{ Bloomberg | Continue reading }

For three years, she has calculated the cost of being different—that is, how much harder do you have to work as a woman, or as a gay man, to get the same jobs and the promotions as a straight, white man? […]

[S]he built models to measure how good people were at jobs they never had. This gave her the cost, or tax, in terms of the lifetime opportunity cost of lost work, the bill for extra degrees, or the extra experience needed to have the same opportunities as men from the dominant demographic group.

These are the results a few of her calculations: it costs about £38,000 ($54,000) to be a gay man in England; women in the US tech industry pay a tax of between $100,000 and $300,000; and women in tech in Hong Kong or Singapore face an even steeper $800,000 to $1.5 million.

{ Quartz | Continue reading }

photo { Chip Litherland, using expired film }

There are 30 US $100 bills in circulation for every man, woman and child, and more than 300 billion euro in 500 euro notes. As Peter’s paper documents, the vast majority of this currency is involved with activity that is at a minimum problematic, and often criminal.

{ Larry Summers | Continue reading }

related { With fraud getting more expensive, startups are taking a new look at ways to shore up the security of ATM networks and other card transactions — cards are optional. | The Security Ledger }

related { China has become the billionaire capital of the world, with a total of 100 to the Big Apple’s 95. China’s growing clout in the rankings is even starker in the world of female “self-made” billionaires, according to Hurun, where the country dominates with 93 of the global total of 124. | Financial Times }

photo { Twiggy & Justin de Villeneuve }

It was an invitation-only party (crabs, cocktails and a D.J. on a moonlit dock) thrown by Jane Street, a secretive E.T.F. trading firm that, after years of minting money in the shadows of Wall Street, is now pitching itself to some of the largest institutional investors in the world.

And the message was clear: Jane Street, which barely existed 15 years ago and now trades more than $1 trillion a year, was ready to take on the big boys.

Much of what Jane Street, which occupies two floors of an office building at the southern tip of Manhattan, does is not known. That is by design, as the firm deploys specialized trading strategies to capture arbitrage profits by buying and selling (using its own capital) large amounts of E.T.F. shares.

It’s a risky business.

As the popularity of E.T.F.s has soared — exchange-traded funds now account for a third of all publicly traded equities — the spreads, or margins, have narrowed substantially, making it harder to profit from the difference.
And in many cases, some of the most popular E.T.F.s track hard-to-trade securities like junk bonds, emerging-market stocks and a variety of derivative products, adding an extra layer of risk. […]

While traders at large investment banks watched their screens in horror, at Jane Street, a bunch of Harvard Ph.D.s wearing flip-flops, shorts and hoodies, swung into action with a wave of buy orders. By the end of the day, the E.T.F. shares had retraced their sharp falls.

It is not only Jane Street, of course. Cantor Fitzgerald, the Knight Capital Group and the Susquehanna International Group have all capitalized on the E.T.F. explosion.

And as these firms have grown, so has the demand for a new breed of Wall Street trader — one who can build financial models and write computer code but who also has the guts to spot a market anomaly and bet big with the firm’s capital. […]

Here is a small sample of Jane Street’s main traders: Tao Wang (doctorate in philosophy and finance from the National University of Singapore), Min Zhu (master’s in chemistry, Columbia), Brett Harrison (master’s in computer science with a focus in artificial intelligence, Harvard) and Srihari Seshadri (bachelor’s in computer science, Carnegie Mellon).

{ NY Times | Continue reading }

oil on Masonite { Grant Wood, Birthplace of Herbert Hoover, 1931 }

The war against cocaine rests on a simple idea: If you restrict its supply, you force up its price, and fewer people will buy it. Andean governments have thus deployed their armies to uproot the coca bushes that provide cocaine’s raw ingredient. Each year, they eradicate coca plants covering an area 14 times the size of Manhattan, depriving the cartels of about half their harvest. But despite the slashing and burning, the price of cocaine in the U.S. has hardly budged, bobbing between $150 and $200 per pure gram for most of the past 20 years. How have the cartels done it?

In part, with a tactic that resembles Wal-Mart’s. The world’s biggest retailer has sometimes seemed similarly immune to the laws of supply and demand, keeping prices low regardless of shortages and surpluses. Wal-Mart’s critics say that it can do this in some markets because its vast size makes it a “monopsony,” or a monopoly buyer. Just as a monopolist can dictate prices to its consumers, who have no one else to buy from, a monopsonist can dictate prices to its suppliers, who have no one else to sell to. If a harvest fails, the argument goes, the cost is borne by the farmers, not Wal-Mart or its customers. […]

The raw leaf needed to make one kilogram of cocaine powder costs about $400 in Colombia; in the U.S., that kilogram retails for around $150,000, once divided into one-gram portions. So even if governments doubled the price of coca leaf, from $400 to $800, cocaine’s retail price would at most rise from $150,000 to $150,400 per kilogram. The price of a $150 gram would go up by 40 cents—not much of a return on the billions invested in destroying crops. Consider trying to raise the price of art by driving up the cost of paint. […]

A dollar spent on drug education in U.S. schools cuts cocaine consumption by twice as much as spending that dollar on reducing supply in South America; spending it on treatment for addicts reduces it by 10 times as much.

{ Wall Street Journal | Continue reading }

photo { Robert Frank, Bar, New York City, 1955-56 }

We investigate the role of networks of alliances in preventing (multilateral) interstate wars. We first show that, in the absence of international trade, no network of alliances is peaceful and stable. We then show that international trade induces peaceful and stable networks: Trade increases the density of alliances so that countries are less vulnerable to attack and also reduces countries’ incentives to attack an ally.

We present historical data on wars and trade showing that the dramatic drop in interstate wars since 1950 is paralleled by a densification and stabilization of trading relationships and alliances.

Based on the model we also examine some specific relationships, finding that countries with high levels of trade with their allies are less likely to be involved in wars with any other countries (including allies and nonallies), and that an increase in trade between two countries correlates with a lower chance that they will go to war with each other.

{ Proceedings of the National Academy of Sciences | Continue reading }

photo { Mark Cohen, Girl Holding Blackberries, 1975 }

Most fans in many popular sports pay less for their tickets than conventional economic theory would predict.

Which poses the question: are team owners therefore irrational?

Not necessarily. There are (at least?) four justifications for such apparent under-pricing.

First, say Krautmann and Berri, owners can recoup the revenues they lose from under-pricing tickets by making more in other ways: selling programmes, merchandise and over-priced food and drink in the stadium.

Secondly, Shane Sanders points out that it can be rational to under-price tickets to ensure that stadia are full. […]

Thirdly, higher ticket prices can have adverse compositional effects: they might price out younger and poorer fans but replace them with tourists […] a potentially life-long loyal young supporter is lost and a more fickle one is gained. […]

Fourthly, high ticket prices can make life harder for owners. They raise fans’ expectations.

{ Stumbling and Mumbling | Continue reading }

oil on wood { Ellsworth Kelly, Seine, 1951 }

A decade ago, negative interest rates were a theoretical curiosity that economists would discuss almost as a parlor game. […] Now, it is the stated policy of some of the most powerful global central banks, including the European Central Bank and the Bank of Japan. […]

So how do negative interest rates work?

It depends. In the cases of interest rate targets set by central banks like the E.C.B. and Swedish Riksbank, they set a negative target rate for banks, and banks in turn pass it along to their customers. The E.C.B., for example, currently has a negative 0.3 percent rate, meaning that when banks deposit money at the central bank overnight, they pay for the privilege.

Banks have different ways of passing the negative rates on to depositors, often framed as fees for keeping money in an account, which is basically negative interest rates by another name.

{ NY Times | Continue reading }

screenshot { David Cronenberg, Scanners, 1981 }

…the immaculate ultrawhite behind the French doors of a new GE Café Series refrigerator […] the white hood of a 50th anniversary Ford Mustang GT […] the white used to brighten the pages of new Bibles, the hulls of super yachts, the snowy filling inside Oreo cookies […]

All this whiteness is the product of a compound known as titanium dioxide, or TiO2. A naturally occurring oxide, TiO2 is generally extracted from ilmenite ore and was first used as a pigment in the 19th century. In the 1940s chemists at DuPont refined the process until they hit on what’s widely considered a superior form of “titanium white,” which has been used in cosmetics and plastics and to whiten the chalked lines on tennis courts. DuPont has built its titanium dioxide into a $2.6 billion business, which it spun off as part of chemicals company Chemours, in Wilmington, Del., last fall.

A handful of other companies produce TiO2, including Kronos Worldwide in Dallas and Tronox of Stamford, Conn. Chemours and these others will churn out more than 5 million tons of TiO2 powder in 2016. China also produces large amounts of the pigment, and its industries consume about a quarter of the world’s supply. Most of China’s TiO2 plants, however, use a less efficient and more hazardous process than the one developed at DuPont. Starting in the 1990s, if not earlier, China’s government and Chinese state-run businesses began seeking ways to adopt DuPont’s methods. Only they didn’t approach the company to make a formal deal. According to U.S. law enforcement officials, they set out to rip off DuPont.

“At first, you’re like: Why are they stealing the color white?” says Dean Chappell, acting section chief of counterespionage for the FBI.

{ Bloomberg | Continue reading }

oil on wood { Ellsworth Kelly, White Plaque: Bridge Arch and Reflection, 1951-55 }

I do have a problem in reference to electronic dance music and pop culture in general. It is becoming more and more difficult for actual artists and talented people to survive. It’s turning every product that’s made in the culture into a commercial. Now, in order for anyone to make money, they have to be a part of an artisanal beer commercial. I can speak for me personally that I write pretty introspective thoughtful records; not good for selling beer. Technology has de-valued not just music, but the idea of artistry and people are no longer willing to pay.

{ Jay Denes | Continue reading }

The music business is something one suffers through in order to be able to make music full time. That being said, most of what gets made is simply a result of economic conditions in a given time period. There’s been no artist development in the record biz for over 20 years now. So, of course music has suffered greatly. People didn’t suddenly get untalented or insincere, there’s just no economic infrastructure left to support the development of excellence. So when it occurs it tends to be a bit of good luck, a hit on a first record that allows an individual or group to have a long enough career to develop their skills.

{ Jay Denes | Continue reading }

screenshot { Sean S. Baker, Tangerine, 2015 }

In an update on an old story, an investment banker asks the client to pay by placing one penny on the first square of a chessboard, two pennies on the second square, four on the third, doubling the number on each square that follows. If the banker had asked for this on only the white squares, the initial penny would double thirty-one times to $21,474,836 on the last square. Using both the black and the white squares, the sum on the last square is $92,233,720,368,547,758.

People are reasonably good at estimating how things add up, but for compounding, which involved repeated multiplication, we fail to appreciate how quickly things grow. As a result, we often lose sight of how important even small changes in the average rate of growth can be. For an investment banker, the choice between a payment that doubles with every square on the chessboard and one that doubles with every other square is more important than any other part of the contract. […]

Growth rates for nations drive home the point that modest changes in growth rates are possible and that over time, these have big effects. […]

If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking.

{ Paul Romer | Continue reading }

After medicine in the 20th century focused on healing the sick, now it is more and more focused on upgrading the healthy, which is a completely different project. And it’s a fundamentally different project in social and political terms, because whereas healing the sick is an egalitarian project […] upgrading is by definition an elitist project. […] This opens the possibility of creating huge gaps between the rich and the poor […]Many people say no, it will not happen, because we have the experience of the 20th century, that we had many medical advances, beginning with the rich or with the most advanced countries, and gradually they trickled down to everybody, and now everybody enjoys antibiotics or vaccinations or whatever. […]

There were peculiar reasons why medicine in the 20th century was egalitarian, why the discoveries trickled down to everybody. These unique conditions may not repeat themselves in the 21st century. […] When you look at the 20th century, it’s the era of the masses, mass politics, mass economics. Every human being has value, has political, economic, and military value. […] This goes back to the structures of the military and of the economy, where every human being is valuable as a soldier in the trenches and as a worker in the factory.

But in the 21st century, there is a good chance that most humans will lose, they are losing, their military and economic value. This is true for the military, it’s done, it’s over. The age of the masses is over. We are no longer in the First World War, where you take millions of soldiers, give each one a rifle and have them run forward. And the same thing perhaps is happening in the economy. Maybe the biggest question of 21st century economics is what will be the need in the economy for most people in the year 2050.

And once most people are no longer really necessary, for the military and for the economy, the idea that you will continue to have mass medicine is not so certain. Could be. It’s not a prophecy, but you should take very seriously the option that people will lose their military and economic value, and medicine will follow.

{ Edge | Continue reading }

This article examines associations between the Great Recession and 4 aspects of 9-year olds’ behavior - aggression (externalizing), anxiety/depression (internalizing), alcohol and drug use, and vandalism - using the Fragile Families and Child Wellbeing Study, a longitudinal birth cohort drawn from 20 U.S. cities (21%, White, 50% Black, 26% Hispanic, and 3% other race/ethnicity).

The study was in the field for the 9-year follow-up right before and during the Great Recession (2007-2010; N = 3,311). Interview dates (month) were linked to the national Consumer Sentiment Index (CSI), calculated from a national probability sample drawn monthly to assess consumer confidence and uncertainty about the economy, as well as to data on local unemployment rates.

[W]e find that greater uncertainty as measured by the CSI was associated with higher rates of all 4 behavior problems for boys (in both maternal and child reports). Such associations were not found for girls.

{ Developmental Psychology | Continue reading }

photo { Yosuke Yajima }

Most people own things that they don’t really need. It is worth thinking about why. […]

A policy aimed at curbing luxury shopping might involve higher marginal tax rates or, as a more targeted intervention, a consumption tax. As it becomes harder to afford a Rolex, people will devote more money to pleasures that really matter. Less waste, more happiness.

{ Boston Review | Continue reading }

photo { Teale Coco by Ben Simpson }

Chinese ice cream is different, and those differences reflect a different economic and technological context. American ice cream is mainly sold by grocery stores in large containers to be eaten at home. So the basic assumption is that people have freezers at home in which to store the ice cream. Even when ice cream is sold on-the-go, it is sold out as scoops out of those big containers. But historically in China most people did not have freezers at home, though many more of them do now. Ice cream in China is therefore usually sold by convenience stores or roadside stalls, in small packages to be eaten immediately. So rather than big vats of ice cream, it is mostly individual bars.

These constraints have pushed innovation in Chinese ice cream in different directions. You can get all kinds of amazing wacky ice cream flavors in the US, but they are all delivered in mostly the same form: a tub of ice cream eaten with a spoon. Chinese ice cream innovates on form and texture more than with ingredients, with many bars featuring not just crunchy outer layers of chocolate but interior elements made of various yummy substances.

The structural complexity of some ice-cream bars is so great that it’s common for the package to have a 3-D cutaway diagram to illustrate all the goodies on the inside.

{ Andrew Batson | Continue reading }