50: It’s better to be smart than fast



The best thing that we can do for ourselves is to love each other as much as we can.


OK so there is this fundamental law of the universe (no, I’m not talking about risk/reward). Everything can eventually be broken down into two components—energy and information.

And the 20th century in particular has been defined by two huge paradigm shifts when it comes to energy and information thanks to the age of oil and the semiconductor, respectively.

It holds then that the two most valuable companies in the world today are Exxon and Apple.

And it further holds that major disruptions to the hegemonic status quo are also catalyzed by core shifts in where we get energy and how well we utilize information (technology).

Anyway, we’re living in a time of massive disruptions across the board but perhaps one of the biggest is what’s going on in the Middle East in terms of energy where the sands are literally shifting beneath their feet.

I am referring, of course, to Saudi Arabia’s rapidly diminishing regional and market influence.

Reports the WSJ:

Saudi Arabia’s crude exports to the U.S. for the week ended March 10 fell by 426,000 barrels a day compared with the previous week, according to the latest U.S. data. That represents the sharpest weekly drop in the time since the Organization of the Petroleum Exporting Countries decided in late November to cut production to raise oil prices.

The drop was by design, the people said, as the kingdom is looking instead to Asia for growth.

But Saudi Arabia is falling behind Russia when it comes to supplying China, China’s General Administration of Customs data shows. China is one of the world’s fastest-growing major oil consumers.

Elsewhere, the Saudi oil machine has been outmaneuvered by Iran and Iraq among big European customers in France, Spain and Italy, according to data from the International Energy Agency.

All of which would have been inconceivable not that long ago.

BTW, the kewl thing about shale oil and what makes it unique from a market perspective is that it’s the only current form of production where costs come down over time through innovation and competition.

Anyway, speaking of energy and information. Here’s Yuval Harari on society’s transition from a resource economy (energy) to a knowledge economy (information) and what it means for society in the context of violence:

We now live in the most peaceful era in history. There is definitely still violence – I live in the Middle East so I know this perfectly well. But, comparatively, there is less violence than ever before in history. Today more people die from eating too much than from human violence, which is really an amazing achievement. We can’t be certain about the future but some changes make this trend seem robust. First of all, there is the threat of nuclear war which was perhaps the chief reason for the decline of war since 1945, and this threat is still there. And secondly, you have the change in the nature of the economy – that the economy switched from being a material-based economy to the knowledge-based economy.

In the past, the main economic assets were material – things like wheat fields and gold mines and slaves. So war made good sense because you could enrich yourself by waging war against your neighbours. Now the main economic asset is knowledge, and it’s very difficult to conquer knowledge through violence. Most of the large conflicts in the world today are still in those areas like the Middle East, where the main source of wealth is material – it’s oil and gas.

Being a fast ain’t what it used to be


Revenues at HFT firms from U.S. equities trading were an estimated $1.1 billion last year, down from $7.2 billion in 2009, according to research firm Tabb Group.

That is the backdrop behind last week’s news that Virtu Financial Inc. had made a bid to buy rival KCG Holdings Inc., a proposed deal that would unite two of the biggest U.S. electronic trading firms. Virtu’s stock has shed about a fourth of its value since the company went public in 2015, while KCG’s key market-making business has lost money for the last two quarters.

Mostly because competition is fierce, costs keep going up, and the VIX continues to be super low. Of course, the pendulum will start to swing the other way at some point as the Fed raises rates.

In the meantime, the perpetual search for edge continues:

“As the latency wars die down and begin to equalise across the industry, it’s going to be more and more important to be predictive and quantitative and research-driven,” Mr Smith said. Latency refers to the relative speed of trading.

In other words, as the electronic trading marketplace matures, it’s better to be smart than fast.

A Low blow

The US wants to file criminal charges against that Malaysian dude best known for partying with Paris Hilton.

Which is interesting, sure, but this was by far the best part of this ongoing story:

Mr. Low, a 35-year-old known for hanging out with Hollywood celebrities and hosting lavish parties in Las Vegas and elsewhere, struck a confident tone in a New Year’s message to friends in January. “2016 was the Perfect Storm; but the calmness and resolve of our Captain, led his loyal Sailors whom placed their lives with utmost trust in his leadership weathered the storm,” Mr. Low wrote in a WeChat message viewed by The Wall Street Journal. “The men and women that came out of the storm were not the same men that walk in. Through struggle, they established new strengths they never knew they collectively had,” he wrote.

“The very moment they were brought to their knees, and their world was about to fall apart,” Mr. Low added, “their Captain’s exemplary leadership guided them to safety; and through this experience, they achieve a new level of humility, nobility and higher intelligence ready to set sail for greater achievements in 2017 for their people!”

Which is sort of perfect?

Personally, as a metaphor for life, I’m more of an Old-Man-and-the-Sea kind of guy. A bit less grandiose, a bit more nuanced, you know?

But that’s just me.


Dubai’s Robocop.

American farmers are hacking their John Deere trailers (with Ukrainian firmware).

Looking for: market maker who specializes in Donald Trump.

Equities now settle T+2.

“That’s a big drop.” When Brazilian meat exports plummet 99.9%.

JPMorgan is still #1.

Also, Dave Chappelle is back! (Watch him on Netflix.)

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