Lessons from finance's experience with artificial intelligence.

"Who are the earliest adopters of new technologies? Cutting-edge stuff tends to be expensive, meaning the answer is often the extremely rich. Early adopters also tend to be incentivised by cut-throat competition to look beyond the status quo. As such, there may be no group more likely to pick up new tools than the uber-rich and hyper-competitive hedge-fund industry.

This rule appears to hold for artificial intelligence (ai) and machine learning, which were first employed by hedge funds decades ago, well before the recent hype. First came the "quants", or quantitative investors, who use data and algorithms to pick stocks and place short-term bets on which assets will rise and fall. Two Sigma, a quant fund in New York, has been experimenting with these techniques since its founding in 2001. Man Group, a British outfit with a big quant arm, launched its first machine-learning fund in 2014. aqr Capital Management, from Greenwich, Connecticut, began using ai at around the same time. Then came the rest of the industry. The hedge funds' experience demonstrates ai's ability to revolutionise business—but also shows that it takes time to do so, and that progress can be interrupted.

Ai and machine-learning funds seemed like the final step in the march of the robots. Cheap index funds, with stocks picked by algorithms, had already swelled in size, with assets under management eclipsing those of traditional active funds in 2019. Exchange-traded funds offered cheap exposure to basic strategies, such as picking growth stocks, with little need for human involvement. The flagship fund of Renaissance Technologies, the first ever quant outfit, established in 1982, earned average annual returns of 66% for decades. In the 2000s fast cables gave rise to high-frequency marketmakers, including Citadel Securities and Virtu, which were able to trade shares by the nanosecond. Newer quant outfits, like aqr and Two Sigma, beat humans' returns and gobbled up assets.

By the end of 2019, automated algorithms took both sides of trades; more often than not high-frequency traders faced off against quant investors, who had automated their investment processes; algorithms managed a majority of investors' assets in passive index funds; and all of the biggest, most successful hedge funds used quantitative methods, at least to some degree. The traditional types were throwing in the towel. Philippe Jabre, a star investor, blamed computerised models that had "imperceptibly replaced" traditional actors when he closed his fund in 2018. As a result of all this automation, the stockmarket was more efficient than ever before. Execution was lightning fast and cost next to nothing. Individuals could invest savings for a fraction of a penny on the dollar.

Machine learning held the promise of still greater fruits. The way one investor described it was that quantitative investing started with a hypothesis: that of momentum, or the idea that stocks which have risen faster than the rest of the index would continue to do so. This hypothesis allows individual stocks to be tested against historical data to assess if their value will continue to rise. By contrast, with machine learning, investors could "start with the data and look for a hypothesis". In other words, the algorithms could decide both what to pick and why to pick it.

Yet automation's great march forward has not continued unabated—humans have fought back. Towards the end of 2019 all the major retail brokers, including Charles Schwab, e*trade and td Ameritrade, slashed commissions to zero in the face of competition from a new entrant, Robinhood. A few months later, spurred by pandemic boredom and stimulus cheques, retail trading began to spike. It reached a peak in the frenzied early months of 2021 when day traders, co-ordinating on social media, piled into unloved stocks, causing their prices to spiral higher. At the same time, many quantitative strategies seemed to stall. Most quants underperformed the markets, as well as human hedge funds, in 2020 and early 2021. aqr closed a handful of funds after persistent outflows.

When markets reversed in 2022, many of these trends flipped. Retail's share of trading fell back as losses piled up. The quants came back with a vengeance. aqr's longest-running fund returned a whopping 44%, even as markets shed 20%.

This zigzag, and robots' growing role, holds lessons for other industries. The first is that humans can react in unexpected ways to new technology. The falling cost of trade execution seemed to empower investing machines—until costs went to zero, at which point it fuelled a retail renaissance. Even if retail's share of trading is not at its peak, it remains elevated compared with before 2019. Retail trades now make up a third of trading volumes in stocks (excluding marketmakers). Their dominance of stock options, a type of derivative bet on shares, is even greater .

The second is that not all technologies make markets more efficient. One of the explanations for aqr's period of underperformance, argues Cliff Asness, the firm's co-founder, is how extreme valuations became and how long a "bubble in everything" persisted. In part this might be the result of overexuberance among retail investors. "Getting information and getting it quickly does not mean processing it well," reckons Mr Asness. "I tend to think things like social media make the market less, not more, efficient...People don't hear counter-opinions, they hear their own, and in politics that can lead to some dangerous craziness and in markets that can lead to some really weird price action."

The third is that robots take time to find their place. Machine-learning funds have been around for a while and appear to outperform human competitors, at least a little. But they have not amassed vast assets, in part because they are a hard sell. After all, few people understand the risks involved. Those who have devoted their careers to machine learning are acutely aware of this. In order to build confidence, "we have invested a lot more in explaining to clients why we think the machine-learning strategies are doing what they are doing," reports Greg Bond of Man Numeric, Man Group's quantitative arm.

There was a time when everyone thought the quants had figured it out. That is not the perception today. When it comes to the stockmarket, at least, automation has not been the winner-takes-all event that many fear elsewhere. It is more like a tug-of-war between humans and machines. And though the machines are winning, humans have not let go just yet." [2]

1. "What Is a Stock Option? A stock option (also known as an equity option), gives an investor the right, but not the obligation, to buy or sell a stock at an agreed-upon price and date. There are two types of options: puts, which is a bet that a stock will fall, or calls, which is a bet that a stock will rise."

·  · ·  2. "Lessons from finance's experience with artificial intelligence." The Economist, 9 Mar. 2023, p. NA.

 

What about the awful smelly outdoor toilets and asbestos roofs? After all, the participants of the NATO Summit will be poisoned...

 "The President's Chief Advisor Asta Skaisgirytė says that by the time of the NATO Summit, which will take place in July, the streets of Vilnius will have to be asphalted and smooth."  

O kaip su baisiai dvokiančiais lauko tualetais ir asbesto stogais? Juk apsinuodys ponai NATO Viršūnių susitikimo dalyviai...

"Prezidento vyriausioji patarėja Asta Skaisgirytė sako, kad iki NATO Viršūnių susitikimo, kuris vyks jau liepos mėnesį, Vilniaus gatvės turės būti išasfaltuotos ir lygios."

 

Gabrielius Landsbergis is not only a broiler but also a monster, his sanctions are starving most Third World children and raising food prices for all of us

    "Belarusian opposition politician Pavel Latuška claims that he knew about the proposals of some European countries to rethink the sanctions on Belarusian fertilizers a few months ago. However, he emphasizes that it is not about the complete elimination of potash fertilizer sanctions.

 

     "We became aware of the possibility of partial lifting of sanctions on potash fertilizers a few months ago, long before Mr. Igor Udovickis published his post," Mr. Latuška told the Belarusian portal "Zerkalo" recently.

 

     He commented on the information spread by I. Udovickis, the largest indirect shareholder of the company "Birių krovinių terminalas" on Facebook these days, that the European Commission is clearing the ground to lift sanctions on Belarusian potash fertilizers.

 

     The businessman shared the working document of the EC, which states that mineral fertilizers play an important role in ensuring food security, and their rising prices will affect food availability, and also emphasizes that Russia and Belarus are the largest exporters of potash fertilizers, on which the European Union is highly dependent.

 

     The document does not directly mention the lifting of sanctions, but I. Udovickis explains on Facebook that the theses of this document are mandatory, and this will become the basis for the preparation of EC regulations.

 

     "The EC is now preparing a regulation that will lift sanctions on Belarusian fertilizers, primarily potash. It is proposed to lift sanctions on "Belaruskalij", "Slavkalij", the production of these companies, their managers and shareholders", he writes.

 

     Consideration is being given to allowing transit to third countries

 

     However, Mr. Latuška pointed out that the current discussions are not about the complete abolition of sanctions, but about the possibility of allowing the transit of potash fertilizers to third countries.

 

     "According to our data, we are not talking about the complete lifting of sanctions on potash fertilizers, as I. Udovicki suggests," he said.

 

     "According to our data, some old European states, taking into account the interests of Africa and Latin America, with which they have long historical ties, are pushing the idea of restoring the transit of potash fertilizers through the territory of the European Union," he told the publication."

 

  

Gabrielius Landsbergis yra ne tik broileris, o ir pabaisa, nuo jo sankcijų badauja dauguma Trečiojo pasaulio vaikų ir kyla maisto kainos mums visiems

“Baltarusijos opozicijos politikas Pavelas Latuška teigia dar prieš kelis mėnesius žinojęs apie kai kurių Europos šalių siūlymus pergalvoti sankcijas baltarusiškoms trąšoms. Tačiau jis pabrėžia, kad kalbama ne apie visišką sankcijų kalio trąšoms naikinimą.

„Apie tai, kad yra dalinio sankcijų panaikinimo kalio trąšoms galimybė, mums tapo žinoma prieš keletą mėnesių, gerokai anksčiau, nei ponas Igoris Udovickis paskelbė savo įrašą“, – neseniai baltarusių portalui „Zerkalo“ kalbėjo P. Latuška.

Jis komentavo didžiausio netiesioginio įmonės „Birių krovinių terminalas“ akcininko I. Udovickio šiomis dienomis feisbuke platinamą informaciją, esą Europos Komisija purena dirvą panaikinti sankcijas baltarusiškoms kalio trąšoms.

Verslininkas pasidalijo darbiniu EK dokumentu, kuriame teigiama, kad mineralinės trąšos atlieka svarbų vaidmenį užtikrinant maisto saugumą, o kylančios jų kainos turės įtakos maisto prieinamumui, taip pat pabrėžiama, kad Rusija ir Baltarusija yra didžiausios kalio trąšų eksportuotojos, nuo kurių Europos Sąjunga labai priklausoma.

Tiesiogiai dokumente apie sankcijų panaikinimą nerašoma, tačiau I. Udovickis feisbuke aiškina, kad šio dokumento tezės yra privalomos, ir tai taps EK reglamentų rengimo pagrindu.

„Dabar EK rengia reglamentą, kuriuo bus panaikintos sankcijos baltarusiškoms trąšoms, visų pirma – kalio. Siūloma panaikinti sankcijas „Belaruskalij“, „Slavkalij“, šių įmonių produkcijai, jų vadovams ir akcininkams“, – rašo jis.

Svarstoma leisti tranzitą į trečiąsias šalis

Tačiau P. Latuška atkreipė dėmesį, kad šiuo metu vyksta diskusijos apie ne apie visišką sankcijų panaikinimą, o apie galimybę leisti kalio trąšų tranzitą į trečiąsias šalis.

„Apie visišką sankcijų panaikinimą kalio trąšoms, kaip leidžia suprasti I. Udovickis, mūsų duomenimis, kalba neina“, – teigė jis.

„Mūsų duomenimis, kai kurios senosios Europos valstybės, atsižvelgdamos į Afrikos ir Lotynų Amerikos, su kuriomis jas sieja seni istoriniai saitai, interesus, stumia idėją atkurti kalio trąšų tranzitą per Europos Sąjungos teritoriją“, – leidiniui teigė jis.”

 

Naujos monetos ir samdiniai galėjo atnešti demokratiją.

 "Daugelio nuomone, pinigai gadina demokratiją. Tačiau, Franciso Albarède'o nuomone, demokratiją pirmiausia sukūrė pinigai, pagaminti iš sidabro.

 

     Dr Albarède yra geochemikas École Normale Supérieure universitete Lione, Prancūzijoje. Tačiau jo „geochemijos“ apibrėžimas apima daug daugiau, nei daugelio žmonių – net politinę ir ekonominę istoriją. Visų pirma, jis ką tik baigė vykdyti Europos mokslinių tyrimų tarybos projektą SILVER (Sidabriniai izotopai ir pinigų kilimas).

 

 Tyrinėjant senovės sidabrinių monetų izotopinę sudėtį, buvo bandoma padaryti išvadas apie tai, kur buvo iškastas monetoje esantis metalas, taigi ir apie prekybos modelius.

 

     Albarède'as AAAS posėdyje paaiškino, kaip, jo nuomone, valdžios patvirtintas triukas sidabrą paversti mažais, daugiau ar mažiau pastovaus svorio ir grynumo diskeliais paskatino dešimčių Graikijos miestų valstybių oligarchijų nuvertimą, ypač Atėnuose šeštajame ir penktajame amžiuje prieš mūsų erą ir jų pakeitimas idėjos versijomis, kad visi laisvi žmonės turėtų dalyvauti, valdant valstybę, kurioje gyvena.

 

     Ir sidabriniai, ir laisvėjimo, jo interpretacijoje įvykiai kilo iš šiuolaikinės Persijos imperijos įpročio samdyti graikus samdiniais. Hoplitai, sunkiai ginkluoti pėstininkai, sudarę šio laikotarpio Graikijos armijų branduolį, buvo labai paklausūs, kaip sėkmės kariai, ir daugelis susirado darbą ne Graikijos armijose, dažnai kovodami su jų kolegomis graikais.

 

     Per savo ekspansijos karus apie šeštojo amžiaus pabaigą Persija buvo ypač didelė pirkėja ir dažnai apmokėdavo jos hoplitų užverbuotus karius naujomis sidabrinėmis monetomis. Tai buvo lengvai nešiojamo ir keičiamo turto forma, išrasta Lidijos karalystėje, viename iš Persijos užkariavimų, ir perimto Kyro, Persijos imperijos įkūrėjo. Nors daugelis Graikijos miestų valstybių taip pat pradėjo naudotis Lidijos išradimu, o tai reiškia, kad monetos buvo pažįstama idėja, grįžę namo tokie pat turtingi, metaforiškai kalbant, kaip Krozas, Lydijos karalius, kurį Kyras nuvertė, jie sujaukė politinę tvarką, formuodami ambicingą viduriniąją klasę, kuri yra sine qua non visų sėkmingų revoliucijų atvejais.

 

     Kitur, nors monetų kaldinimo privalumai buvo greitai įvertinti visame Viduržemio jūros regione ir artimiausiuose rytuose, šis staigus pinigų ir vyrų antplūdis neįvyko, todėl galios, kurios buvo, galėjo prisitaikyti. Tačiau daugelyje Graikijos miestų vietiniai oligarchai negalėjo atsispirti samdinių sidabro bangai, o laisvų vyrų valdžia (akivaizdu, kad ne moterų ar vergų, nes niekas dar nebuvo toks radikalus). [1]

 

1.  "Newfangled coins and mercenaries may have brought about democracy." The Economist, 8 Mar. 2023, p. NA.

Newfangled coins and mercenaries may have brought about democracy.

"In the view of many, money corrupts democracy. In the view of Francis Albarède, however, it was money, in the form of coined silver, which created democracy in the first place.

Dr Albarède is a geochemist at the École Normale Supérieure in Lyon, France. His definition of "geochemistry" stretches, however, well beyond many people's, into political and economic history. In particular, he has just finished running the European Research Council's SILVER (Silver Isotopes and the Rise of Money) project. This, by studying the isotopic composition of ancient silver coins, has tried to draw conclusions about where the metal in a coin was mined, and thus about patterns of trade.

Dr Albarède explained to the AAAS meeting how, in his opinion, the trick of turning silver into small discs of more or less constant weight and purity, certified by authority, had catalysed the overthrow of the oligarchies of dozens of Greek city states, most notably Athens, in the sixth and fifth centuries BC, and their replacement with versions of the idea that all free men should share in governing the polity they live in.

Both the silver and the free men came, in his interpretation of events, from the contemporary Persian empire's habit of hiring Greeks as mercenary soldiers. Hoplites, the heavily armed infantrymen who formed the core of Greek armies of this period, were much in demand as soldiers of fortune, and many found employment in non-Greek armies—not infrequently fighting their fellow Greeks.

Persia was a particularly large customer during its wars of expansion around the end of the sixth century, and frequently paid its hoplite recruits in the newfangled medium of silver coins. These were a form of easily portable and exchangeable wealth invented in the kingdom of Lydia, one of Persia's conquests, and adopted by Cyrus, the Persian empire's founder. Though many Greek city states had begun to take up Lydia's invention, too, meaning coins were a familiar idea, when these men returned home, as rich, metaphorically, as Croesus, the Lydian king whom Cyrus had overthrown, they upset the political applecart by forming the ambitious middle class that is the sine qua non of all successful revolutions.

Elsewhere, though the advantages of coinage were quickly appreciated throughout the Mediterranean and near-eastern world, this sudden influx of money and men did not happen, so the powers-that-were, were able to adjust. But in many Greek cities the local oligarchs could not resist the tide of mercenary silver, and the rule of free men (though not of women or slaves, obviously—for nobody was yet that radical) took over.” [1]

·  ·  ·1.  "Newfangled coins and mercenaries may have brought about democracy." The Economist, 8 Mar. 2023, p. NA.