Paul Kedrosky's Infectious Greed

• Performativity of networks (Source)
• Roman-Age Gold Mine Revived by Crisis-Era Prices  (Source)
• Heat Wave Strikes Europe (Source)
• Photo set: Icy Greenland  (Source)
• A Meta-Analysis of Global Urban Land Expansion (Source)
• Nate Silver on NYC hurricanes (Source)
• Jeff Masters on NYC hurricane (Source)
• Banks seek relief on swelling deposits (Source)
• Calculating the world’s greatest sportsperson (Source)

Still strikes me as likely an algo run amok, but worth reading:

On August 25, 2011 at 15:45:48, in a one second period of time, there were more than 10,000 quotes and exactly zero trades in DELL. Close inspection of these quotes reveals something very disturbing. This cannot be dismissed as a computer problem or glitch. This can’t be explained as stupidity or some oversight. It is not pinging for hidden liquidity. And it’s certainly not price discovery. As far as we can tell, it’s not adding liquidity or narrowing the bid/ask spread.

What caused this blast of 10,000 quotes in DELL appears deliberate. Of the 10,000 quotes, the bid and ask prices remain the same. The bid size also remains constant except for one change after the first 7,000 or so quotes. The only real variation is the ask size. Not a simple 2 step variation, but one that repeats in a mathematical pattern with a long cycle. This makes it difficult to detect, but it also confirms that it must be emanating from a single source.

There are approximately 4,000 stocks that quote during active trading. Which means 40 million quotes/second if just one of the 9 exchanges allow this nonsense to spread to all 4,000 symbols. You would need 40 gigabits per second of bandwidth to receive data at that rate. Unfortunately, we think it’s just a matter of time, because events like this one in Dell are no longer isolated or rare. And it doesn’t look like there are any grown-ups in charge.

Nanex – Dear HFT, Please Explain This.

Efficiency and Stability in Complex Financial Markets

Abstract:

The authors study a simple model of an asset market with informed and non-informed agents. In the absence of non-informed agents, the market becomes information efficient when the number of traders with different private information is large enough. Upon introducing non-informed agents, the authors find that the latter contribute significantly to the trading activity if and only if the market is (nearly) information efficient. This suggests that information efficiency might be a necessary condition for bubble phenomena – induced by the behavior of non-informed traders – or conversely that throwing some sands in the gears of financial markets may curb the occurrence of bubbles.

via Efficiency and Stability in Complex Financial Markets by Fabio Caccioli, Matteo Marsili :: SSRN.

Echoing the above clip from P.J. O’Rourke’s Eat the Rich, a new and downbeat paper on demographics and the U.S. stock market:

Despite theoretical ambiguities, U.S. equity values have been closely related to demographic trends in the past half century. There has been a tight correlation between population dependency ratios, such as the M/O ratio, and the P/E ratio of the U.S. stock market. In the context of the impending retirement of baby boomers over the next two decades, this correlation portends poorly for equity values. Moreover, the demographic changes related to the retirement of the baby boom generation are well known. This suggests that market participants may anticipate that equities will perform poorly in the future, an expectation that can potentially depress current stock prices. In that sense, these demographic shifts may present headwinds today for the stock market’s recovery from the financial crisis.

via FRBSF Economic Letter: Boomer Retirement: Headwinds for U.S. Equity Markets? (2011-26, 8/22/2011).

…. impacted wisdom teeth and malocclusions are very recent problems. They arise because we now process our food so much that we chew with little force. These interactions affect how our faces grow, which causes previously unknown dental problems. Hunter-gatherers — who live in ways similar to our ancestors — don’t have impacted wisdom teeth or cavities.

via Born, and Evolved, to Run – NYTimes.com.

• Am also increasingly sure sudden abdominal fat in middle-aged males is really just a dislocated ass. Should be treatable, like a trick knee. ->
• Increasingly convinced asslessness in males is the cause of aging, rather than other way around. Terrible affliction. ->
• Am on SkyWest flight that's code-shared as United by Continental. Bet that's what they told Flight 19 over Bermuda Triangle in 1945 too. ->
• Alone on a sun-blasted airport shuttle with Barry White blasting over top of a/c. As auguries go, it's a downer doozie. ->
• UBS' George Magnus On Marxist Existential Crises And The "Convulsions Of A Political Economy" – http://t.co/0XtRuDx /via @nouriel ->
• Partly at @wrongologist's urging, am reverting to childhood and reading "The Golden Compass". ->

Excellent George Magnus.

UBS-ByGeorge_The Convulsions of Political Economy2011!08!16

via Zero Hedge

Fascinating Nature piece on the scholarly paper archive “arXiv” at 20. A graphic from the piece showing its growth and makeup.

ArXiv at 20 : Nature : Nature Publishing Group.

• Marc Andreessen on Why Software is Eating the World http://j.mp/o6yIeE ->
• Can VCs Time the Market? No — http://t.co/hKHTQdf ->
• Latest Richard Koo slidedeck on austerity, debt and Japanification – http://t.co/ViB2TDl /via @richardjpf ->

“Danger, disquiet, anxiety attend the unknown — the first instinct is to eliminate these distressing states. First principle: any explanation is better than none.”
- Friedrich Nietzsche

via The Physics of Finance: Coping with chaos — with false certainty.