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Friday, May 24, 2019

Giants’ Farhan Zaidi expresses thoughts on WAR, Buster Posey’s value

Ever since the Giants hired Farhan Zaidi as their president of baseball operations this past offseason, there have been battles between talking heads arguing on the basis of traditional baseball stats and advanced metrics.

Zaidi, who earned his bachelor of science degree at MIT and his PhD at Cal Berkeley, is widely seen as a baseball mind that leans on analytics. So-called baseball fans who don’t want the game to evolve argue that he’s using too many numbers to try and change the game. At the same time, Zaidi has help lead highly successful teams with the A’s and Dodgers.

So, what are his thought on WAR (Wins Above Replacement)?

“Yeah, I think it’s a good measure on how a guy has produced in the past,” Zaidi said Wednesday on KNBR. “I think it’s a nice, valuable back of the envelope calculation for how much value a specific player brought you.”

Problem is, said value for Posey more or less requires him to stay as a catcher- at this point, his value above replacement level is chiefly connected with his defensive play and position.

 

QLE Posted: May 24, 2019 at 07:29 AM | 78 comment(s) Login to Bookmark
  Tags: buster posey, farhan zaidi, giants, war

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   1. Sean Forman Posted: May 24, 2019 at 08:27 AM (#5845272)
Nice to hear a pro finally say this.
   2. Tom Nawrocki Posted: May 24, 2019 at 08:53 AM (#5845275)
I would still like to hear a front office say that they actually use WAR in their decision-making.
   3. bfan Posted: May 24, 2019 at 09:03 AM (#5845276)
Zaidi, who earned his bachelor of science degree at MIT and his PhD at Cal Berkeley,


This clearly stands as evidence of Zaidi's abundant/magnificent intellect, but does a PhD really add to the tools that a baseball GM needs, unless it is in some behavioral science field, where you could use the knowledge to motivate players and play other GMs (the way Andrew Freidman played John Coppolella)? It would be interesting to know what his dissertation title/subject was?
   4. . Posted: May 24, 2019 at 09:28 AM (#5845283)
This clearly stands as evidence of Zaidi's abundant/magnificent intellect, but does a PhD really add to the tools that a baseball GM needs,


This is going to get me in a heap of trouble with the harpies around here, but:

No, of course it isn't and Zaidi is essentially wasting his intellect such as it is. Maybe it's my life and pro experiences, not sure, but whenever I see these baseball guys with math-ish backgrounds lauded for their intellect, I typically say to myself that if they were really smart they'd be writing algos for quant funds or curing cancer, or helping solve world hunger, or something similar.(*) As a society, our interest is that people do work somewhat in line with their talents and educations and I don't really think baseball GMing fits the bill. It is of course perfectly ok for people to pursue their passions and that's something to celebrate.

As to the job: I think he's mistaken about his role. Certainly his fans are. His role isn't to pontificate on baseball analytics, his role is to get quality baseball players for the San Francisco Giants and to continue the franchise's tradition of excellence his predecessor started and which unfolded over 20-odd years. So far, as I said in the other thread about him, he's done a poor job.

At the same time, Zaidi has help lead highly successful teams with the A’s and Dodgers.


This one needs unpacking and examination. With the Dodgers, it sounds like he had more of a project manager role. He certainly wasn't responsible for putting together an entire roster. When he left, the Dodgers essentially eliminated his role. That's a red flag a-waving.

(*) Really intelligent people realize that the first-in advantage in baseball analytics is long gone. "Alpha generation" in baseball isn't to be found in building out an intern-intensive "analytics department."
   5. . Posted: May 24, 2019 at 09:37 AM (#5845285)
As to WAR itself, one of the fundamental problems with it is that the replacement player isn't readily available as is its finance analogue, the risk-free asset. You can't in fact go into the baseball marketplace and assure yourself of replacement-level production. With his various whims and lurches, Zaidi himself has demonstrated this quite explicitly. (See, e.g., his opening day rightfielder -- four games, eight ABs, negative 0.3 WAR.)
   6. Moldorf Posted: May 24, 2019 at 10:25 AM (#5845298)
According to the Proquest Dissertations and Theses Global database, his dissertation is called "Top of Mind in Task-Based Environments and Choice Under Risk."

Here's the abstract, which does suggest the type of behavioral science field bfan was mentioning:

I examine psychological biases that influence “top-of-mind” status in task-based environments and choice under risk, and the implications of those biases for predicting and explaining consumer behavior in the field. I develop (in joint work with Jeff Holman) a model of prospective memory, defined as the capacity to recall tasks to be carried out in the future. Motivated by the economics and psychology literature on overconfidence, we introduce memory overconfidence into the model, and show that it leads to 1) inefficiently low rates of task completion, and 2) the prediction that the probability of task completion may vary inversely with the length of time allocated to completing the task. We discuss two instances where consumers face tasks that broadly fit our model – submitting rebates and cancelling negative-option subscriptions. I then present empirical evidence of this latter instance through a field experiment with a membership-based website. I find that implementing “camouflage” pricing – that is, charging amounts such as $20.13 or $19.83 rather than “standard” amounts such as $20 or $19.95 – significantly lowers cancellation rates. Assuming that credit card statements can serve as a reminder to cancel unused subscriptions, and that the strength of this reminder is greater with standard amounts that tend to “stand out” on a bill and draw more attention than camouflage amounts, the lower cancellation rates in the camouflage-pricing groups are consistent with the prediction of our prospective memory model. I also consider how what is top of mind may affect consumers’ choices under risk. I exploit a “natural experiment” from the trading card industry to find evidence that existing models of choice under risk may understate the extent to which salient outcomes affect the valuation of risky prospects. I track auction sales of a particular card that experienced a sudden jump in value, as well as auction sales of the sealed, unopened card boxes into which this card was randomly inserted at known odds. I estimate the price jumps for both the single card and the unopened boxes, and back out the “decision weight” that would reconcile these price movements. The estimated decision weight is well beyond the range of previous experimental estimates. I discuss how consumers’ attention to particularly salient or vivid outcomes (i.e., the extent to which they are top of mind) may provide an explanation for the result.

   7. snapper (history's 42nd greatest monster) Posted: May 24, 2019 at 10:32 AM (#5845301)
I then present empirical evidence of this latter instance through a field experiment with a membership-based website. I find that implementing “camouflage” pricing – that is, charging amounts such as $20.13 or $19.83 rather than “standard” amounts such as $20 or $19.95 – significantly lowers cancellation rates. Assuming that credit card statements can serve as a reminder to cancel unused subscriptions, and that the strength of this reminder is greater with standard amounts that tend to “stand out” on a bill and draw more attention than camouflage amounts, the lower cancellation rates in the camouflage-pricing groups are consistent with the prediction of our prospective memory model.


Using your PhD to help scam consumers into keeping a subscription they don't know they have, and don't want. Wow, that's ambulance chaser sleazy.
   8. jmurph Posted: May 24, 2019 at 10:34 AM (#5845303)
Using your PhD to help scam consumers into keeping a subscription they don't know they have, and don't want. Wow, that's ambulance chaser sleazy.

Certainly not as noble as "writing algos for quant funds" as mentioned upthread. Truly the lord's work.
   9. snapper (history's 42nd greatest monster) Posted: May 24, 2019 at 10:41 AM (#5845305)
Certainly not as noble as "writing algos for quant funds" as mentioned upthread. Truly the lord's work.

Agree, that's useless to society as well. A prohibitive tax on high frequency trading is about the biggest no-brainer policy idea there is, but will never get implemented because of the corruption in our system. Something similar to hobble private equity strip mining corporations would be nice as well.

But useless is still better than actively predatory.
   10. jmurph Posted: May 24, 2019 at 10:43 AM (#5845306)
Eh, I think they're both actively predatory. I'm not defending the other thing, either!
   11. snapper (history's 42nd greatest monster) Posted: May 24, 2019 at 10:46 AM (#5845311)
Eh, I think they're both actively predatory. I'm not defending the other thing, either!

You may be right. I'm certainly happy taxing it out of existence. Arbitrageurs have no value to society, unlike speculators. Speculators take risk, and help create a market.
   12. Misirlou gave her his Vincent to ride Posted: May 24, 2019 at 10:47 AM (#5845313)
 9. snapper (history's 42nd greatest monster) Posted: May 24, 2019 at 10:41 AM (#5845305)
Certainly not as noble as "writing algos for quant funds" as mentioned upthread. Truly the lord's work.

Agree, that's useless to society as well. A prohibitive tax on high frequency trading is about the biggest no-brainer policy idea there is, but will never get implemented because of the corruption in our system. Something similar to hobble private equity strip mining corporations would be nice as well.

But useless is still better than actively predatory.
   10. jmurph Posted: May 24, 2019 at 10:43 AM (#5845306)
Eh, I think they're both actively predatory. I'm not defending the other thing, either!


I can't recommend the Michael Lewis podcast "Against the Rules" highly enough. His latest one dealt with this very issue

The Magic Shoebox

Where is a millisecond worth a million dollars? The New York Stock Exchange.
   13. puck Posted: May 24, 2019 at 10:50 AM (#5845316)
I would still like to hear a front office say that they actually use WAR in their decision-making.


Seems like it would not be a great idea except maybe as a first filter leading to further investigation. But you'd also have to use something else so you don't miss the guys WAR mislabels because they get stuck with an unfair -20 defensive rating or something. Or maybe they use it but supply their own component numbers.

I wonder if teams use it for studies in that "back of the envelope way," the way Bill James used approximate value...sort of the way in a sport like soccer you might use playing time as a proxy for value since there aren't a lot of other numbers for many positions. Such studies might influence decision making but not in the way you meant.
   14. snapper (history's 42nd greatest monster) Posted: May 24, 2019 at 10:50 AM (#5845317)
Where is a millisecond worth a million dollars? The New York Stock Exchange.


There is a good argument that the stock exchanges never should have adopted decimalization. When you traded in eigths (1/8) the cost of front running was quite high, which limited it. Decimalization cut that cost by over 90%.
   15. 185/456(GGC) Posted: May 24, 2019 at 10:58 AM (#5845320)
Speculators take risk, and help create a market.


I heard that that price discovery is what separates speculation from pure gambling, but how noble is that? I'm starting to think that economic growth (and price discovery aids it) is not good; given all of the externalities it creates.
   16. 185/456(GGC) Posted: May 24, 2019 at 10:59 AM (#5845321)
The world would be a better place if Zaidi decoded the Voynich Manuscript.
   17. Misirlou gave her his Vincent to ride Posted: May 24, 2019 at 11:02 AM (#5845324)
There is a good argument that the stock exchanges never should have adopted decimalization. When you traded in eigths (1/8) the cost of front running was quite high, which limited it. Decimalization cut that cost by over 90%.


The way Lewis explained it, the exchanges themselves make a ton of money from the frontrunners because they sell them access. So they do everything to encourage it. Saying the markets shouldn't have made that change, which has proven to be a huge boon to them, is like saying Amazon should never have started Amazon [rime because it causes people to buy too much stuff from Amazon. Maybe Lewis is wrong abut that, I don't know. But the explanation made a ton of sense.
   18. . Posted: May 24, 2019 at 11:07 AM (#5845328)
Where is a millisecond worth a million dollars? The New York Stock Exchange.


Colocation.
   19. . Posted: May 24, 2019 at 11:09 AM (#5845329)
Certainly not as noble as "writing algos for quant funds" as mentioned upthread. Truly the lord's work.


The PhD subject actually turned out to be less noble -- yuck -- though my comment wasn't aimed at nobility. Algos for quant funds are far more intricate and complicated and intellectual than baseball analytics.
   20. Never Give an Inge (Dave) Posted: May 24, 2019 at 11:09 AM (#5845331)

No, of course it isn't and Zaidi is essentially wasting his intellect such as it is. Maybe it's my life and pro experiences, not sure, but whenever I see these baseball guys with math-ish backgrounds lauded for their intellect, I typically say to myself that if they were really smart they'd be writing algos for quant funds or curing cancer, or helping solve world hunger, or something similar.(*)

He might have made more money for himself at a quant fund*, but that's certainly not a better use of his talents for society.

* or maybe not...not every econ Ph.D is that kind of quant.
   21. winnipegwhip Posted: May 24, 2019 at 11:09 AM (#5845332)
At the same time, Zaidi has help lead highly successful teams with the A’s and Dodgers.


...so did the clubhouse guys.
   22. Baldrick Posted: May 24, 2019 at 11:10 AM (#5845333)
Using your PhD to help scam consumers into keeping a subscription they don't know they have, and don't want. Wow, that's ambulance chaser sleazy.

His dissertation studied a practice to test a theory about how the mind works. He then took a job with a baseball team.
   23. . Posted: May 24, 2019 at 11:11 AM (#5845335)
Arbitrageurs have no value to society, unlike speculators.


I'm not sure you're defining these terms properly -- maybe you are but your definition is unclear -- but at the very least both provide liquidity and price discovery. Those have value to society.
   24. Never Give an Inge (Dave) Posted: May 24, 2019 at 11:13 AM (#5845336)

You may be right. I'm certainly happy taxing it out of existence. Arbitrageurs have no value to society, unlike speculators. Speculators take risk, and help create a market.

Arbitrageurs help maintain efficient pricing across markets. I actually think that's more useful than speculation which creates market volatility and can scare capital away from the market, but YMMV.
   25. . Posted: May 24, 2019 at 11:16 AM (#5845337)
He might have made more money for himself at a quant fund*, but that's certainly not a better use of his talents for society.


I'd say it's better than baseball GMing, but certainly not better than helping cure cancer or helping end world hunger.

Baseball is frivolous entertainment. Society has virtually zero interest in the aptitude with which teams divvy up members of the baseball players guild. On a net basis, it literally doesn't matter. Society has a marginal interest in seeing any activity done well rather than poorly, but the interest is so marginal w/r/t baseball that it's the functional equivalent of zero. And even then, one team's stupid trade is its counterpart's brilliant trade. Ken Phelps for Jay Buhner is also Jay Buhner for Ken Phelps.

Baseball is no better as a fan when GMs are PhD's than when they were lughead ex-players or the cream of the scouting crop and the managers were redass chain-smokers. Aesthetically, the sport is worse under the reign of the PhDs. Significantly so. That's all that matters.

   26. Never Give an Inge (Dave) Posted: May 24, 2019 at 11:17 AM (#5845338)
Nice to hear a pro finally say this.

But was he talking about bWAR or fWAR?
   27. jmurph Posted: May 24, 2019 at 11:18 AM (#5845339)
I'd say it's better than baseball GMing, but certainly not better than helping cure cancer or helping end world hunger.

Neither of which is a particularly mathy endeavor, for the record.
   28. snapper (history's 42nd greatest monster) Posted: May 24, 2019 at 11:20 AM (#5845340)
I'm not sure you're defining these terms properly -- maybe you are but your definition is unclear -- but at the very least both provide liquidity and price discovery. Those have value to society.


Arbitrageurs help maintain efficient pricing across markets. I actually think that's more useful than speculation which creates market volatility and can scare capital away from the market, but YMMV.


Speculators seek out risk when they think they are going to get paid for it. They buy when everyone wants to sell, and sell when everyone wants to buy. That's very valuable because it helps stabilize markets and avoid panics, or illiquidity.

Arbitrageurs are trying to buy the stock for $50.00 and sell it for $50.02 dollars seconds later with zero risk. That has no value. It's just skimming profits from actual investors. Without the arbitrageur in the middle the stock would have just traded a few seconds later, and the seller would have made an extra $0.02.

In the old days, only market makers were allowed to front run (a form of arbitrage) because that was their reward for the requirement that they make a market in the stocks they covered. Now companies can pay the exchanges for the right to front run, which is absurd.

If you were talking physical arbitrage (moving commodities to places where they are more needed and higher priced) that would have actual value. But pure financial arbitrage, because you can trade a millisecond faster, creates no value to society at large.
   29. snapper (history's 42nd greatest monster) Posted: May 24, 2019 at 11:21 AM (#5845342)
The way Lewis explained it, the exchanges themselves make a ton of money from the frontrunners because they sell them access. So they do everything to encourage it. Saying the markets shouldn't have made that change, which has proven to be a huge boon to them, is like saying Amazon should never have started Amazon [rime because it causes people to buy too much stuff from Amazon. Maybe Lewis is wrong abut that, I don't know. But the explanation made a ton of sense.

OK, but that's why we're supposed to have regulators. The old system was very likely more advantageous for actual investors.
   30. . Posted: May 24, 2019 at 11:25 AM (#5845344)
Arbitrageurs are trying to buy the stock for $50.00 and sell it for $50.02 dollars seconds later with zero risk. That has no value.


That's not really "arbitrage," but what you describe does have value -- at least price discovery and liquidity.

But pure financial arbitrage, because you can trade a millisecond faster, creates no value to society at large.


The pros' quest for quicker, better execution with narrow spreads has trickled down to Joe Retail. Joe Retail is better off now than he was in the days of $50 commissions and wide spreads, by orders of magnitude.
   31. . Posted: May 24, 2019 at 11:25 AM (#5845345)
The old system was very likely more advantageous for actual investors.


You can't be serious. Data impossible to find, gargantuan commissions, huge spreads? Come on now.
   32. Misirlou gave her his Vincent to ride Posted: May 24, 2019 at 11:25 AM (#5845346)
OK, but that's why we're supposed to have regulators. The old system was very likely more advantageous for actual investors.


And that's precisely the basis of his entire podcast series. What happens when society's referees lose their authority or disappear completely?
   33. snapper (history's 42nd greatest monster) Posted: May 24, 2019 at 11:36 AM (#5845349)
You can't be serious. Data impossible to find, gargantuan commissions, huge spreads? Come on now.

I'm not talking about 1960's, but mid-90's. Once you had an efficient mutual fund marketplace, information and commissions became irrelevant to 98% of investors. And discount brokers were already well established for the other 2%.

Every penny high frequency traders make comes directly out of other investors pockets. There's no value in a price adjusting a few seconds earlier. Sometimes an investor will be on the winning side of that delay, sometimes they'll be on the losing side. It's not a net cost to the market.
   34. snapper (history's 42nd greatest monster) Posted: May 24, 2019 at 11:39 AM (#5845350)
And that's precisely the basis of his entire podcast series. What happens when society's referees lose their authority or disappear completely?

It's a huge problem. You have crazy over-regulation in some places (usually against powerless people), and complete abdication in others.

In the 2007 financial crisis, you literally had investors and banks designing securities to default, so the investors could profit from shorting that security. You had underwriting banks, and rating agencies, and lenders actively conspiring to issue securities with falsified reps and warranties. Yet, no one went to jail.
   35. . Posted: May 24, 2019 at 11:40 AM (#5845351)
I'm not talking about 1960's, but mid-90's.


Data was still expensive even in the mid-90s. International investing was expensive. Etc.

Once you had an efficient mutual fund marketplace, information and commissions became irrelevant to 98% of investors.


What if you don't want to invest in mutual funds and pay for management?
   36. . Posted: May 24, 2019 at 11:41 AM (#5845352)
In the 2007 financial crisis, you literally had investors and banks designing securities to default, so the investors could profit from shorting that security. You had underwriting banks, and rating agencies, and lenders actively conspiring to issue securities with falsified reps and warranties. Yet, no one went to jail.


True, but that's an entirely different issue than HFT, colocation, bid/ask spreads, etc. One is market structure, the other is financial engineering run amok.
   37. snapper (history's 42nd greatest monster) Posted: May 24, 2019 at 11:45 AM (#5845353)

What if you don't want to invest in mutual funds and pay for management?


The Vanguard S&P 500 Index fund has been around since 1976.
   38. snapper (history's 42nd greatest monster) Posted: May 24, 2019 at 11:46 AM (#5845354)
True, but that's an entirely different issue than HFT, colocation, bid/ask spreads, etc. One is market structure, the other is financial engineering run amok.

Colocation is traders paying the exchange to be able to front run. How is that not corrupt?
   39. bfan Posted: May 24, 2019 at 11:47 AM (#5845356)
In the 2007 financial crisis, you literally had investors and banks designing securities to default, so the investors could profit from shorting that security. You had underwriting banks, and rating agencies, and lenders actively conspiring to issue securities with falsified reps and warranties. Yet, no one went to jail.


I am not sure that is accurate. I think you had people selling securities that were rated as safer than the seller's thought they were (as evidenced by a e-mail between 2 traders). Trader X had a bond rated as AAA by Moody's, and given the collateral that backed the bond, the trader didn't believe the AAA rating was justified. I am not sure that isn't the rating agency's fault though.
   40. . Posted: May 24, 2019 at 11:48 AM (#5845357)
The Vanguard S&P 500 Index fund has been around since 1976.


I know, but there are thousands of other mutual funds all of which charge bigger fees. The existence of the SPX doesn't negate people wanting to invest in other things.
   41. . Posted: May 24, 2019 at 11:50 AM (#5845359)
Colocation is traders paying the exchange to be able to front run. How is that not corrupt?


Because it's just snagging part of the spread. How is making a living on the spread "corrupt"?
   42. Zonk Has Two Faces, Both Laughing Posted: May 24, 2019 at 11:50 AM (#5845360)
If you were talking physical arbitrage (moving commodities to places where they are more needed and higher priced) that would have actual value. But pure financial arbitrage, because you can trade a millisecond faster, creates no value to society at large.


Meh, 5-10 years ago... now that digital options exist - at levels without minimum initial investments and if you hunt around enough, you can even get zero cost to start/no maintenance fees options - such tactics are no longer limited to select high net worth folks.

So long as the brokerage/entity is a FINRA/SIPC member, you're at least as nominally protected from scams and collapses as you might be with a brick-and-mortar/human.

I suppose you can still quibble with the value to the 'market' - but availability to anyone with a hundred bucks or two and a straightforward method to add additional funds does give it value to 'society'...
   43. What did Billy Ripken have against ElRoy Face? Posted: May 24, 2019 at 11:50 AM (#5845361)
Snapper isn’t explicitly adding “because of all the people I vote for” to the end of each of his posts in this thread, but it’s there.
   44. . Posted: May 24, 2019 at 11:52 AM (#5845364)
I am not sure that is accurate. I think you had people selling securities that were rated as safer than the seller's thought they were (as evidenced by a e-mail between 2 traders). Trader X had a bond rated as AAA by Moody's, and given the collateral that backed the bond, the trader didn't believe the AAA rating was justified. I am not sure that isn't the rating agency's fault though.


The rating agencies didn't rate them right, but that just created an investment opportunity that the market met. The part to lose sleep over isn't the investment opportunity; it's that the rating agencies were so far off that the investment opportunity was generated. (And of course the rating agencies were so far off in part because of financial pressure, which is also worth losing sleep over.)
   45. snapper (history's 42nd greatest monster) Posted: May 24, 2019 at 11:53 AM (#5845365)
I am not sure that is accurate. I think you had people selling securities that were rated as safer than the seller's thought they were (as evidenced by a e-mail between 2 traders). Trader X had a bond rated as AAA by Moody's, and given the collateral that backed the bond, the trader didn't believe the AAA rating was justified. I am not sure that isn't the rating agency's fault though.

Look up Magnetar Capital. During the bubble they were the equity investor in a bunch of CDOs. The banks (primarily Goldman IIRC) allowed them to choose the securities going into the CDO. They then went out and shorted (through CDX) the BBB, and A tranches of the securitization, in amounts that were multiples of their investment.

i.e. they put $50M in to originate a $1B CDO, and picked crappy securities. Then they synthetically shorted the rated classes to the tune of several hundred million dollars of exposure, and didn't disclose that to other investors. So the CDO blows up, they lose their $50M, and make $250M on their shorts.
   46. snapper (history's 42nd greatest monster) Posted: May 24, 2019 at 11:55 AM (#5845368)
Snapper isn’t explicitly adding “because of all the people I vote for” to the end of each of his posts in this thread, but it’s there.

I'll add "because of all the people I voted for, and all the people I voted against".

No one is more in the bag for Wall Street than the Clintons and Chuck Shumer. Look how many millions of dollars the Clintons have made giving speeches at Goldman Sachs, and other banks.
   47. snapper (history's 42nd greatest monster) Posted: May 24, 2019 at 11:56 AM (#5845369)
Because it's just snagging part of the spread. How is making a living on the spread "corrupt"?

Because they pay the exchange to get an advantage. If I pay the casino to let me see the flop before I make my initial bet in a game of Texas hold 'em, that's corrupt.
   48. . Posted: May 24, 2019 at 11:56 AM (#5845370)
There was nothing remotely immoral about shorting garbage CDOs. Just like there's nothing remotely immoral about shorting garbage currencies.

Playing both sides is immoral -- and criminal -- but not the mere act of shorting garbage.
   49. . Posted: May 24, 2019 at 11:57 AM (#5845371)
Because they pay the exchange to get an advantage.


??

So does every market maker and exchange member.

If I pay the casino to let me see the flop before I make my initial bet in a game of Texas hold 'em, that's corrupt.


Colocation isn't an information advantage; it's a speed advantage.
   50. snapper (history's 42nd greatest monster) Posted: May 24, 2019 at 11:58 AM (#5845372)
There was nothing remotely immoral about shorting garbage CDOs. Just like there's nothing remotely immoral about shorting garbage currencies.

Playing both sides is immoral, but not the mere act of shorting garbage.


It's not the shorting, they were playing both sides. They created the security that they shorted. It's like the senior management of a company being short hundreds of millions of dollars of their stock, and making strategic decisions based on that.
   51. . Posted: May 24, 2019 at 12:01 PM (#5845373)
It's not the shorting, they were playing both sides. They created the security that they shorted.


I get it, but I just wanted to point out the fundamental difference between shorting, and playing both sides.(*) There's nothing immoral even about going to the marketplace and getting the marketplace to generate the security by which you go short.

(*) At least without proper information barriers.
   52. snapper (history's 42nd greatest monster) Posted: May 24, 2019 at 12:01 PM (#5845374)
Colocation isn't an information advantage; it's a speed advantage.

Same exact thing. It allows them to front run.

So does every market maker and exchange member.

Market makers have a responsibility attached to their advantage. They have to offer a bid/ask.
   53. Never Give an Inge (Dave) Posted: May 24, 2019 at 12:03 PM (#5845375)

snapper, I don't think you're using the terms "arbitrage" and "speculator" in a way that is not widely accepted, so it's hard to have this conversation with you.

HFT front-runners provide little to no value and I agree that they shouldn't be allowed to pay for faster access, submit order types that other market participants cannot, etc.

Consumers are still better off than they were in the days before decimalization but some of that benefit has been captured by HFTs. I agree that regulators shouldn't allow that.

Interestingly, some markets are actually building in a fraction-of-a-second lag in orders to level the playing field a bit. One of the futures markets I think recently received approval to implement this.

Arbitrageurs are trying to buy the stock for $50.00 and sell it for $50.02 dollars seconds later with zero risk. That has no value. It's just skimming profits from actual investors. Without the arbitrageur in the middle the stock would have just traded a few seconds later, and the seller would have made an extra $0.02.

But one of the reasons that this happens within seconds, and that the price is only .02 off (probably less these days) is that arbitrageurs exist. Before they did, these differences were greater and they took longer to correct.

Speculators seek out risk when they think they are going to get paid for it. They buy when everyone wants to sell, and sell when everyone wants to buy. That's very valuable because it helps stabilize markets and avoid panics, or illiquidity.

I think of speculators as people who are investing without actually doing any fundamental analysis. Sometimes that can be valuable -- as you said, buying when others are selling and vice versa. But often speculators are just following trends -- trying to buy gold or bitcoin or whatever on the way up, trying to short bank stocks on the way down. In those cases they exacerbate market volatility, and like I said, they can scare away real long-term capital.
   54. Zonk Has Two Faces, Both Laughing Posted: May 24, 2019 at 12:06 PM (#5845376)
No one is more in the bag for Wall Street than the Clintons and Chuck Shumer. Look how many millions of dollars the Clintons have made giving speeches at Goldman Sachs, and other banks.


That is just dumb. However you want to slice it - by specific firms payouts for speaking fees, total speaking fees by individuals against certain entities, it's just dumb. It's an equal opportunity... opportunity - and it doesn't even stop at the waters edge (you'll find Blair, Cameron, Brown, etc showing up on the lists too).

If anyone wants to actually pin blame for it on one camp or the other (and I do not because as I said, it's clearly a function of who is hot, who is not at any given timeframe) - then I'd probably just trace it back to the initial instances we saw of jaw-dropping speaking fee dollars. The clear epoch was 1989. If one wants to lay blame somewhere. Which I don't. But some people do, apparently.
   55. What did Billy Ripken have against ElRoy Face? Posted: May 24, 2019 at 12:08 PM (#5845377)
I'll add "because of all the people I voted for, and all the people I voted against".

No one is more in the bag for Wall Street than the Clintons and Chuck Shumer. Look how many millions of dollars the Clintons have made giving speeches at Goldman Sachs, and other banks.
Yeah, you’re right, they’re all the same. No Democrats have ever advocated tougher regulations on Wall Street. Silly me.

Anyway, not trying to go OTP, so I’ll leave it there. I just feel obligated to point that out every now and then.
   56. snapper (history's 42nd greatest monster) Posted: May 24, 2019 at 12:30 PM (#5845386)
Yeah, you’re right, they’re all the same. No Democrats have ever advocated tougher regulations on Wall Street. Silly me.

"Tougher regulation" is often a smokescreen, when the regulators are captured anyway.
   57. 185/456(GGC) Posted: May 24, 2019 at 12:31 PM (#5845388)
I just saw some YouTube videos of James Ellroy last night, so I see Billy Ripken's handle in a whole new light.
   58. Bring Me the Head of Alfredo Griffin (Vlad) Posted: May 24, 2019 at 12:33 PM (#5845389)
As a society, our interest is that people do work somewhat in line with their talents and educations


That raises an entirely separate question, though: should society's incentive for people to utilize their abilities to the utmost trump those people's desire to do what makes them happy? If a genius is happier growing corn or painting landscapes than he would be working as a doctor or a stockbroker or whatever, and he's OK with the financial implications of that, isn't it his choice to make? What right does society have to demand that he do something that makes him miserable and unfulfilled, just because he's good at it?
   59. Zonk Has Two Faces, Both Laughing Posted: May 24, 2019 at 12:37 PM (#5845392)
That raises an entirely separate question, though: should society's incentive for people to utilize their abilities to the utmost trump those people's desire to do what makes them happy? If a genius is happier growing corn or painting landscapes than he would be working as a doctor or a stockbroker or whatever, and he's OK with the financial implications of that, isn't it his choice to make? What right does society have to demand that he do something that makes him miserable and unfulfilled, just because he's good at it?


You know, there's a fairly prominent "horseshoe" theory about traditional thinking of governance/governance-as-culture on a 2D scale.... and it's one that I very much buy into.... and its implications are never pretty.
   60. Bring Me the Head of Alfredo Griffin (Vlad) Posted: May 24, 2019 at 12:49 PM (#5845399)
Can you elaborate, Zonk?
   61. Zonk Has Two Faces, Both Laughing Posted: May 24, 2019 at 12:57 PM (#5845402)
Can you elaborate, Zonk?


Well, I guess the wikipedia page says academics largely dismiss it -- but I still tend to think it's got some significant napkin discussion applicability.

Specific to your question about the happy genius - I guess I would just say that both poles probably do end up at the same place. The left pole would say that the genius should be placed in a job that most benefits the "state". The right pole would say that the genius owes to the people and soil to be in a job that best benefits those concepts. From either direction, it ultimately comes down to little more than semantics and various filters, tugs, and pushes to get to the same place.... the genius doing what other people feel is 'optimal'.
   62. PreservedFish Posted: May 24, 2019 at 01:04 PM (#5845404)
That raises an entirely separate question, though: should society's incentive for people to utilize their abilities to the utmost trump those people's desire to do what makes them happy?


No.
   63. . Posted: May 24, 2019 at 01:05 PM (#5845407)
That raises an entirely separate question, though: should society's incentive for people to utilize their abilities to the utmost trump those people's desire to do what makes them happy?


Well, I did sort of touch on that right after the sentence you quoted but the answer is of course, no.

Society and its components can have philosophies/ideas/norms, etc, which it can intentionally propagate -- that's the essence of culture and societies -- but that's it. "Don't waste your talent" is a pretty solid one on a number of grounds, but it isn't for everyone and life would be no fun if everyone lived that way.
   64. PreservedFish Posted: May 24, 2019 at 01:09 PM (#5845408)
To zonk's point, which seems to have come out of nowhere, the only people I can imagine saying yes are arch authoritarians, whether they be statist/communist types or fascist types.

Oh, and snapper, who thinks that the concept of individual freedom is corrosive and pines for the days when feudalism made sure that everyone knew their place, or something like that.
   65. snapper (history's 42nd greatest monster) Posted: May 24, 2019 at 01:39 PM (#5845420)
Oh, and snapper, who thinks that the concept of individual freedom is corrosive and pines for the days when feudalism made sure that everyone knew their place, or something like that.

I don't believe any such thing. As long as the individual freedom is used to do something good, or neutral, have at it.

I don't believe in individual freedom to be a thief, or a con artist, or abandon your children, but in most other spheres, I'm pro-liberty. The only issue is that liberty has to be balanced against obligation.
   66. . Posted: May 24, 2019 at 01:49 PM (#5845423)
The other broader societal point raised here is the continuing marginalization of prole-types and people without fancy degrees. The takeover of baseball by the credentialed and the "smart" was really a species of gentification/colonialization we've seen in wide swaths of society. There was nothing wrong with baseball, pre-gentrification, and in many ways it was far better. Nor was/is there any real problem with people celebrating things like wins and RBIs, and it remains a subject of immense puzzlement that so many otherwise intelligent people have let themselves get so bent out of shape about such an immensely trivial thing. (*) There's really nothing to celebrate in baseball people having their game and in many cases their livelihoods taken away from them, and the relentless ridiculing of them was and is highly unbecoming.

(*) We begin to solve the puzzle when we realize that what was really going on wasn't really related to baseball, other than as vehicle.
   67. Slivers of Maranville descends into chaos (SdeB) Posted: May 24, 2019 at 01:55 PM (#5845425)
boop.
   68. Slivers of Maranville descends into chaos (SdeB) Posted: May 24, 2019 at 02:03 PM (#5845428)
Nor was/is there any real problem with people celebrating things like wins and RBIs, and it remains a subject of immense puzzlement that so many otherwise intelligent people have let themselves get so bent out of shape about such an immensely trivial thing. (*) There's really nothing to celebrate in baseball people having their game and in many cases their livelihoods taken away from them, and the relentless ridiculing of them was and is highly unbecoming.


If worrying about people having their livelihoods in the sport taken away from them is a thing worth worrying about, then shouldn't we worry about all the low-BA, low 'wins' players that got run out of the system by the traditionalists, despite the fact that some of them were doing more to win games than the players that got all the plaudits and big contracts?

Your argument seems to have devolved into a claim that playing baseball isn't about winning or losing, that it's all about aesthetics, and how dare Candy Cummings (or whoever) come along with this new-fangled 'curve ball' that results in my favorite players swinging and missing rather than belting a well-hit ball into the outfield.

   69. 185/456(GGC) Posted: May 24, 2019 at 02:05 PM (#5845429)
"...continuing marginalization of prole-types and people without fancy degrees."


I wonder if this applies to me, albeit my situation is less precarious than I sometimes feel it is.

I do back office B/D work and it's not as lucrative as people would suspect.
   70. Hysterical & Useless Posted: May 24, 2019 at 02:09 PM (#5845431)
back office B/D work


Try B&E, higher risk but the rewards can be amazing.
   71. 185/456(GGC) Posted: May 24, 2019 at 02:25 PM (#5845440)
H&U! IIRC, you did Compliance. I'm doing Trade Review; checking new business for suitability. That said, a lot of the issues I have are with FA's not documenting things correctly or clearly. Our program is pretty good. FINRA just did an audit and we had a clean bill of health.

So we're looking pretty good from a regulatory standpoint, but I don't see the forest well enough to tell how much it matters. We're at least one colleague short, so I haven't had much time to BTF or tackle other Deep Issues.
   72. Hysterical & Useless Posted: May 24, 2019 at 02:39 PM (#5845446)
You recall correctly, and I'm back at it. Ugh. Employee personal account stuff.

My feeling has long been that most of what we do is window-dressing, making it look like we're all ethical and above-board. But the personal account malfeasance isn't even a drop in the bucket compared to the institutional malpractice that is routine (eg, some of the things alluded to above: creating crap securities and selling them to clients while shorting them for the firms' own accounts; the exchanges selling preferred access to HFTs; permitting HFTs to manipulate the markets by placing orders and immediately withdrawing them as soon as they see there's interest; not to mention the mere existence of credit default swaps).

Thankfully, I should be done end of June, back to being a lazy retired guy again.
   73. 185/456(GGC) Posted: May 24, 2019 at 02:56 PM (#5845448)
This is 5 years ago, but I recall HSBC had some huge AML violations. This was when I was at some small firm and we had an FA that was assigned to me and I had to deal with him. No one else would. He'd call me and give me long-winded talks about what was wrong with Dodd-Frank and the HSBC situation might've been one of the things he went on a tangent about.
   74. Never Give an Inge (Dave) Posted: May 24, 2019 at 03:22 PM (#5845461)
Yeah, AML issues can be a huge problem for a bank. In addition to HSBC which paid a big fine for basically facilitating money laundering, Danske bank is currently in the middle of a huge AML scandal, and I can remember a few other cases where mergers have gotten delayed because of AML issues discovered at the bank during the approval process (M&T Bank was one example).
   75. Hysterical & Useless Posted: May 24, 2019 at 03:36 PM (#5845469)
I worked (as a temp) at a bank in the early 2000s where they had huge numbers of accounts in the former Soviet Union. EVERYBODY, on every street corner, was opening a bank, and they all needed to have US accounts. The KYC processes were not perhaps as thorough and sophisticated as they might have been.

   76. . . . . . . Posted: May 24, 2019 at 10:45 PM (#5845546)
I worked as a summer intern at a bank that eventually got busted running money for the Iranians. Some of the lovely compliance folks I knew and had lunch with ended up in federal prison. Sad.

snapper is basically wrong about everything he posted in this thread - and where he isn’t wrong, say in his anecdotes about some of the most egregious CMO structures, he’s taking the exception and acting like they were the rule.

That being said, i do think baseball is getting B+ talents. You don’t “do good”, the pay is dick, and there’s only so much value in being able to say at parties that you work for the Yankees.
   77. John Reynard Posted: May 25, 2019 at 01:39 PM (#5845586)
Agree, that's useless to society as well. A prohibitive tax on high frequency trading is about the biggest no-brainer policy idea there is, but will never get implemented because of the corruption in our system. Something similar to hobble private equity strip mining corporations would be nice as well.

But useless is still better than actively predatory.


I'd prefer to see a non-prohibative tax in this area but one which was designed to generate a ton of revenue. It would discourage the worst abuses of high frequency trading while making those who use it fund projects of public benefit. Well balanced it could generate a many billions of dollars a year in new revenues. Think of how toll road fees are designed not to discourage driving but instead to maximize revenues (they're not linked to fixing roads anymore). I'd be 100% good with that. A new tax on the investing class would be a good thing. And, I'm someone who helps the investing class do better with their investments. If you know how to trade around high frequency trading, you can make money fooling the algorithm. You just have to use an algorithm of your own to spot which market makers are pushing the deals for the high frequency stuff. I didn't write a dissertation on how to do this. That would be stupid. I keep that stuff proprietary. But, I'm sure others do it as well.

I'll buck the trend and say I don't think the guy's dissertation is "actively predatory" by default. He examined trends in consumer behavior in regards to noticing recurring charges on bank statements. I'm kind of surprised he could expand that to a whole dissertation. But, sure, whatever. I'll get a copy of the actual document from the dissertation firm which sells copies and see if he's actually a POS at some point. They usually cost less than $20 and not even recurring :)
   78. John Reynard Posted: May 25, 2019 at 01:42 PM (#5845588)
Arbitrageurs are trying to buy the stock for $50.00 and sell it for $50.02 dollars seconds later with zero risk. That has no value.


That's not really "arbitrage," but what you describe does have value -- at least price discovery and liquidity.


Its time arbitrage rather than traditional arbitrage. If it really is risk-free then it is arbitrage since the spread should be zero if it is truly risk free.

I'll agree the social value approaches zero. However, it has tons of value to the person engaging in the arbitrage opportunity, just like any form of arbitrage.

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