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“The essence of investment management is the management of risks, not the management of returns”*…

Paris Bourse

In 1754, the infamous scam artist, diarist, and womanizer Giacomo Girolamo Casanova reported that a certain type of high-stakes wager had come into vogue at the Ridotto. The bet was known as a martingale, which we would immediately recognize as a rather basic coin toss. In a matter of seconds, the martingale could deliver dizzying jackpots or, equally as often, ruination. In terms of duration, it was the equivalent of today’s high-speed trade. The only extraordinary fact about the otherwise simple martingale was that everybody knew the infallible strategy for winning: if a player were to put money on the same outcome every time, again and again ad infinitum, the laws of probability dictated that not only would he win back all he may have previously lost, he would double his money. The only catch was that he would have to double down each time, a strategy that could be sustained only as long as the gambler remained solvent. On numerous occasions, martingales left Casanova bankrupt.

In modern finance, the coin toss has come to represent a great deal more than heads or tails. The concept of the martingale is a bulwark of what economists call the efficient-market hypothesis, the meaning of which can be grasped by an oft-repeated saying on Wall Street: for every person who believes a stock will rise—the buyer—there will be some other equal and opposite person who believes the stock will fall—the seller. Even as markets go haywire, brokers and traders repeat the mantra: for every buyer, there is a seller. But the avowed aim of the hedge fund, like the fantasy of a coin-tosser on the brink of bankruptcy, was to evade the rigid fifty-fifty chances of the martingale. The dream was heads I win, tails you lose.

One premonition as to how such hedged bets could be constructed appeared in print around the time when gambling reached an apex at the Ridotto casino, when an eighteenth-century financial writer named Nicolas Magens published “An Essay on Insurances.” Magens was the first to specify the word “option” as a contractual term: “The Sum given is called Premium, and the Liberty that the Giver of the Premium has to have the Contract fulfilled or not, is called Option . . .” The option is presented as a defense against financial loss, a structure that would eventually make it an indispensable tool for hedge funds.

By the middle of the next century, large-scale betting on stocks and bonds was under way on the Paris Bourse. The exchange, located behind a panoply of Corinthian columns, along with its unofficial partner market, called the Coulisse, was clearing more than a hundred billion francs that could change volume, speed, and direction. One of the most widely traded financial instruments on the Bourse was a debt vehicle known as a rente, which usually guaranteed a three-per-cent return in annual interest. As the offering dates and interest rates of these rentes shifted, their prices fluctuated in relationship to one another.

Somewhere among the traders lurked a young man named Louis Bachelier. Although he was born into a well-to-do family—his father was a wine merchant and his maternal grandfather a banker—his parents died when he was a teen-ager, and he had to put his academic ambitions on hold until his adulthood. Though no one knows exactly where he worked, everyone agrees that Bachelier was well acquainted with the workings of the Bourse. His subsequent research suggests that he had noted the propensity of the best traders to take an array of diverse and even contradictory positions. Though one might expect that placing so many bets in so many different directions on so many due dates would guarantee chaos, these expert traders did it in such a way as to decrease their risk. At twenty-two, after his obligatory military service, Bachelier was able to enroll at the Sorbonne. In 1900, he submitted his doctoral dissertation on a subject that few had ever researched before: a mathematical analysis of option trading on rentes.

Bachelier’s dissertation, “The Theory of Speculation,” is recognized as the first to use calculus to analyze trading on the floor of an exchange, and it contained a startling claim: “I have in fact known for several years that it would be possible . . . to imagine transactions where one of the parties makes a profit at all prices.” The best traders on the Bourse knew how to establish an intricate set of positions designed to protect themselves no matter which way or at what speed the market might move. Bachelier’s process was to separate out each element that had gone into the complex of bets at different prices, and write equations for them. His committee, supervised by the renowned mathematician and theoretical physicist Henri Poincaré, was impressed, but it was an unusual thesis. “The subject chosen by M. Bachelier is rather far away from those usually treated by our candidates,” the report noted. For work that would unleash billion-dollar torrents into the capital pools of future hedge funds, Bachelier received a grade of honorable instead of très honorable. It was a B.

Needless to say, Bachelier’s views of math’s application to finance [published in 1900] were ahead of his time. The implications of his work were not appreciated, much less exploited, by Wall Street until the nineteen-seventies, after his dissertation was discovered by the Nobel Prize winner Paul Samuelson, the author of one of the best-selling economics textbooks of all time, who pushed for its translation into English. Two economists, Fischer Black and Myron Scholes, read the work and, in a 1973 issue of the Journal of Political Economy, published one of the most famous articles in the history of quantitative finance.

Based on Bachelier’s dissertation, the economists developed the eponymous Black-Scholes model for option pricing. They established that an option could be priced from a set-in-stone mathematical equation, which allowed the Chicago Board Options Exchange (C.B.O.E.), a new organization, to expand their business to a new universe of financial derivatives. Within a year, more than twenty thousand option contracts were changing hands each day. Four years after that, the C.B.O.E. introduced the “put” option—thus institutionalizing the bet that the thing you were betting on would lose. “Profit at all prices” had joined the mainstream of both economic theory and practice…

From the remarkable story of the French dissertation that inspired the strategies that guide many modern investors ad al that it has wrought: “A Brief History of the Hedge Fund.”

Spoiler alert: it hasn’t always worked out so well (c.f. Long-Term Capital Management)… at least for investors. As Janet M. Tavakoli observed in Structured Finance and Collateralized Debt Obligations: New Developments in Cash and Synthetic Securitization

Hedge funds have made massive leveraged credit bets, knowing that their upside is billions in fees and their downside is millions in fees.

Benjamin Graham


As we ruminate on risk, we might recall that it was on this date in 2020 that the Federal Reserve rode in to rescue financial markets to prevent their complete freezing up– which could have entered history books as another global mega-crash. The Dow Jones stock market index had hit an all-time record of 29,551 on February 12, 2020. Then, the coronavirus emerged in earnest in the U.S., unemployment soared, and on March 9 the DJIA took a dive of over 2,000 points; it continued to fall, down to 18,321 on March 23… at which point the Fed intervened, pouring vast sums of cash into the financial system, resulting in a stock market bonanza in the midst of the worst economic collapse since the Great Depression. The Dow stands at this writing at over 35,000.


“Don’t be afraid to break things. Don’t be romantic. Don’t take the time to breathe. Don’t aim for perfect. And whatever you do, keep moving.”*…

Eric Feigl-Ding picked up his phone on the first ring. “Busy,” he said, when asked how things were going. He had just finished up an “epic, long” social media thread, he added — one of hundreds he’s posted about society’s ongoing battle with the coronavirus. “There’s so many different debates in the world of masking and herd immunity and reinfection,” he explained, among other dimensions of the pandemic. “We at FAS, we’ve been kind of monitoring all the debates and how we’re seeing signals in which the data goes one way, the debate goes the other,” he said, referring to his work with the Federation of American Scientists, a nonprofit policy think tank. He rattled off a rapid-fire sampler of hot-button Covid-19 topics: the growing anti-vaxxer movement, SARS-CoV-2 reinfection and antibodies, the body of research suggesting masks could decrease viral load, along with a quick mention of the debate among experts about what “airborne” means.

This whirlwind tour through viral Covid-19 themes felt like the conversational equivalent of Feigl-Ding’s Twitter account, which has grown by orders of magnitude since the dawn of the pandemic. The Harvard-trained scientist and 2018 Congressional aspirant posts dozens of times daily, often in the form of long, numbered threads. He’s fond of emojis, caps lock, and bombastic phrases. The first words of his very first viral tweet were “HOLY MOTHER OF GOD.”

Made in January, weeks before the massive shutdowns that brought U.S. society to a halt, that exclamation preceded his observation that the “R0” (pronounced “R-naught”) of the novel coronavirus — a mathematical measure of a disease’s reproduction rate — was 3.8. That figure had been proposed in a scientific paper, posted online ahead of peer review, that Feigl-Ding called “thermonuclear pandemic level bad.” Further in that same Twitter thread, he claimed that the novel coronavirus could spread nearly eight times faster than SARS.

The thread was widely criticized by infectious disease experts and science journalists as needlessly fear-mongering and misleading, and the researchers behind the pre-print had already tweeted that they’d lowered their estimate to an R0 of 2.5, meaning that Feigl-Ding’s SARS figure was incorrect. (Because R0 is an average measure of a virus’s transmissibility, estimates vary widely based on factors like local policy and population density; as a result, researchers have suggested that other variables may be of more use.) He soon deleted the tweet — but his influence has only grown.

At the beginning of the pandemic, before he began sounding the alarm on Covid-19’s seriousness, Feigl-Ding had around 2,000 followers. That number has since swelled to over a quarter million, as Twitter users and the mainstream media turn to Feigl-Ding as an expert source, often pointing to his pedigree as a Harvard-trained epidemiologist. And he has earned the attention of some influential people. These include Ali Nouri, the president of FAS, who brought Feigl-Ding into his organization as a senior fellow; the journalist David Wallace-Wells, who meditated on Feigl-Ding’s “holy mother of God” tweet in his March essay arguing that alarmism can be a useful tool; and former acting administrator of the Centers for Medicare and Medicaid Services Andy Slavitt. (“We all learn so much from you,” he tweeted at Feigl-Ding in July.) Ronald Gunzburger, senior adviser to Maryland Gov. Larry Hogan, even wrote a letter to Feigl-Ding attesting to how his “intentionally provocative tweet” in January “elevated the SARS-CoV-2 virus to the top of our priorities list.”

But as Feigl-Ding’s influence has grown, so have the voices of his critics, many of them fellow scientists who have expressed ongoing concern over his tweets, which they say are often unnecessarily alarmist, misleading, or sometimes just plain wrong. “Science misinformation is a huge problem right now — I think we can all appreciate it — [and] he’s a constant source of it,” said Saskia Popescu, an infectious disease epidemiologist at George Mason University and the University of Arizona who serves on FAS’ Covid-19 Rapid Response Taskforce, a separate arm of the organization from Feigl-Ding’s work. Tara Smith, an infectious disease epidemiologist at Kent State University, suggested that Feigl-Ding’s reach means his tweets have the power to be hugely influential. “With as large of a following as he has, when he says something that’s really wrong or misleading, it reverberates throughout the Twittersphere,” she said…

A scientist has gained popularity as Covid’s excitable play-by-play announcer. But some experts want to pull his plug: “Covid’s Cassandra: The Swift, Complicated Rise of Eric Feigl-Ding.”

* Social media “influencer” Gary Vaynerchuk


As we interrogate influence, we might send bombastic birthday greetings to Ted Knight; he was born on this date in 1923. An actor and comedian, he was well-known as Henry Rush in Too Close for Comfort, and Judge Elihu Smails in Caddyshack; but he is surely most famous for his role as newscaster Ted Baxter on The Mary Tyler Moore Show.

THE MARY TYLER MOORE SHOW, Ted Knight, Mary Tyler Moore, 1970-1977


“Since the nation is defined by its inherent virtue rather than by its future potential, politics becomes a discussion of good and evil rather than a discussion of possible solutions to real problems”*…

Nathan Tankus (@NathanTankus) put his undergraduate studies at John Jay College of Criminal Justice on hold to become a full-time economics writer and researcher (he is Research Director at The Modern Money Network). He has been a visiting researcher at the Fields Institute and a research assistant at the University of Ottawa. He has also written for the Review of Keynesian Economics, Truthout and the financial blog Naked Capitalism. But he’s perhaps best known for (and most closely-followed on) his newsletter Notes on the Crises, from whence…

The election has come and gone, a winner has been announced and now the fallout begins. While the details are still being hashed out, and president Trump along with most of the Republican party are not accepting the results (at least not yet), my interest is not so much in the near term partisan fights but the implications of what’s happened for the future of the Coronavirus Depression. To understand this, we must look to the results in the U.S. senate. What we find there is an exceedingly mixed result. Republicans have 50 seats, Democrats have 48 seats and the final results will come from two senate runoff elections in Georgia. Even if the Democrats win those two races, that thin margin would require each and every senator to agree to pass whatever they want to pass. As I said in my pre-election piece:

This means we could possibly go until February 2021 before seeing another economic package. Worse, that package may even require a Democratic senate to become law. It’s possible that even that scenario is optimistic — it could then take a significant amount of time for Democrats to agree on a package among themselves. What happens to millions upon millions of people in that agonizing waiting period? A winter filled with a third wave of Coronavirus and no economic support to individuals is a recipe for absolute disaster — over 200,000 Americans have already died.

Since I wrote this the third wave of Coronavirus has taken off and it seems more likely than ever that we will not have an economic package passed in February. In other words, I worry that fiscal cliffication is just going to intensify. Indeed, it’s hard to imagine anything being able to break it at this point. The 2022 midterms are a long time away and there is no guarantee that the outcome would break the deadlock. We’ll likely see some sort of package go through congress in 2021 but it will very likely not be timely as the most optimistic scenarios laid out above had hoped. Meanwhile, the need is no less…

There are some overly rosy possible scenarios circulating financial twitter that make reviewing the unemployment situation important. Headline unemployment is still elevated but it is no longer at the high levels of the spring. However, this hides the damage that is happening underneath. Headline unemployment has mostly been driven by the behavior of temporary layoffs… But the real damage is in the permanent job losses.

The distinction between temporary layoffs and permanent job losses is very underemphasized in economic reporting and has led to the underlying economic damage from being missed in a lot of economics coverage. My colleagues Alex Williams and Skanda Amarnath at Employ America did a great job of making this point in their piece “The Shock and The Slog” last month. While there has been a lot of recovery in temporary layoffs, there has been a steady increase in permanent layoffs and it will likely keep on increasing as more businesses shutter and the effects of expanded benefits start filtering through the economy (and our economic data). It’s also important to emphasize that labor force participation of individuals 15-64 has only partially recovered from a very steep drop, which makes headline unemployment appear rosier than it is.

Worse still, the third wave of Coronavirus is in full swing. New York City schools could be shut as early as Monday, and indoor dining should probably already be shut. This second wave of shutdowns will be more economically harmful than the first wave because any savings they had were exhausted by the first wave and it is most likely that most affected businesses have already exhausted their access to credit (and perhaps even their willingness to take on more debt). It’s likely that the second wave of shutdowns will accelerate permanent job losses while the temporary job losses generate renewed drops in demand. In other words, the economic situation has still been deteriorating and it will likely get hammered at a time where fiscal support is, at best, months away.

In this context, the only game left in town is the Federal Reserve. Taking on responsibility for state and local governmental responses is the last thing that the Federal Reserve wants to do. However, the Federal Reserve has a mandate to to pursue maximum employment and price stability and meeting its maximum employment mandate requires it to use the tools it has available to do so…

Why the Fed is the last, best hope against post-Corona economic devastation and how that might work: “What is the Future of Fiscal Policy Now That the Election is Over?

* “In the politics of eternity, the seduction by a mythicized past prevents us from thinking about possible futures. The habit of dwelling on victimhood dulls the impulse of self-correction. Since the nation is defined by its inherent virtue rather than by its future potential, politics becomes a discussion of good and evil rather than a discussion of possible solutions to real problems. Since the crisis is permanent, the sense of emergency is always present; planning for the future seems impossible or even disloyal. How can we even think of reform when the enemy is always at the gate?” – Timothy Snyder, On Tyranny: Twenty Lessons from the Twentieth Century


As we muse on Modern Monetary Theory, we might recall that it was on this date in 1994 that Noel Edmonds appeared on BBC television to announce the winning numbers in the first UK National Lottery. the draw was 30, 3, 5, 44, 14 and 22; the bonus was 10; and seven jackpot winners shared a prize of £5,874,778.


“You are only young once, but you can stay immature indefinitely”*…

… and if immaturity can be this ingenious, so be it!

Avi Schiffmann has been procrastinating on his school work, but he has a good excuse. The 17-year-old high schooler is the creator of one of the most visited coronavirus trackers in the world, which he says now takes up “100%” of his free time. 

The coronavirus pandemic doesn’t look like it will be over any time soon, and Schiffmann plans to continue actively tracking it until the end. As long as the site is up, he says he will keep working at it and adding new features. Once the pandemic is safely over, he’ll take the servers down, and maybe make a page that compares COVID-19 to SARS or the Spanish flu. He thinks it might be a historical piece of the coronavirus people can look back on.

Avi Schiffmann’s coronavirus tracker is a one-stop shop for all the information about COVID-19 the average person might want to know. It constantly updates with statistics for countries around the world on infections, deaths, recovered, and rates of change using data scraped from the WHO, CDC, and other government websites. The site frequently offers new features, like the new survival rate calculator. It also has infections broken down on a map, and pages with some basic information about the virus, including tips for hand hygiene and a list of symptoms…

The dashboard is really popular, with about 30 million visitors a day, and 700 million total so far, so it’s unsurprising that Schiffmann has gotten offers to put ads on the website. One offer in particular would have contracted Schiffmann to keep up the site for $8 million, which he turned down, and he says he likely could have made over $30 million if he’d put up his own ads, but he says that’s not the goal of the site…

The full story at: “A 17-year-old built one of the most popular coronavirus-tracking websites in the world, with over 30 million visitors a day. He explains why he turned down $8 million to put ads on his site.

For more on Avi– and his similarly useful and popular Protest Tracker– see “A teenager’s guide to building the world’s best pandemic and protest trackers.”

* Ogden Nash


As we just do it, we might we might recall that it was on this date in 1906 that Karl Ludwig Nessler (who changed his name for commercial purposes to “Nestle”), demonstrated the first “permanent wave” for hair in his beauty salon in Oxford Street, London, to an invited audience of hair stylists. The hair was soaked with an alkaline solution and rolled on metal rods which were then heated strongly.

This initial method had the disadvantages of being expensive, very lengthy (about 5 hours) and required a cumbersome machine beneath which the client was obliged to wear a dozen brass curlers, each weighing 1-3/4 lb.

But Nessler/Nestle continuously improved his process.  With the outbreak of World War I, he moved to the United States and opened salons in New York, Chicago, Detroit, Palm Beach and Philadelphia, ultimately employing 500.


“Fools ignore complexity. Pragmatists suffer it… Geniuses remove it.”*…




World War II bomber planes returned from their missions riddled with bullet holes. The first response was, not surprisingly, to add armor to those areas most heavily damaged. However, the statistician Abraham Wald made what seemed like the counterintuitive recommendation to add armor to those parts with no damage. Wald had uniquely understood that the planes that had been shot where no bullet holes were seen were the planes that never made it back. That’s, of course, where the real problem was. Armor was added to the seemingly undamaged places, and losses decreased dramatically.

The visible bullet holes of this pandemic are the virus and its transmission. Understandably, a near-universal response to the COVID-19 pandemic has been to double down on those disciplines where we already possess deep and powerful knowledge: immunology and epidemiology. Massive resources have been directed at combating the virus by providing fast grants for disciplinary work on vaccines. Federal agencies have called for even more rapid response from the scientific community. This is a natural reaction to the immediate short-term crisis.

The damage we are not attending to is the deeper nature of the crisis—the collapse of multiple coupled complex systems.

Societies the world over are experiencing what might be called the first complexity crisis in history. We should not have been surprised that a random mutation of a virus in a far-off city in China could lead in just a few short months to the crash of financial markets worldwide, the end of football in Spain, a shortage of flour in the United Kingdom, the bankruptcy of Hertz and Niemann-Marcus in the United States, the collapse of travel, and to so much more.

As scientists who study complex systems, we conceive of a complexity crisis as a twofold event. First, it is the failure of multiple coupled systems—our physical bodies, cities, societies, economies, and ecosystems. Second, it involves solutions, such as social distancing, that involve unavoidable tradeoffs, some of which amplify the primary failures. In other words, the way we respond to failing systems can accelerate their decline.

We and our colleagues in the Santa Fe Institute Transmission Project believe there are some non-obvious insights and solutions to this crisis that can be gleaned from studying complex systems and their universal properties…

The more complicated and efficient a system gets, the more likely it is to collapse altogether.  Scientists who study complex systems offer solutions to the pandemic: “The Damage We’re Not Attending To.”

See also: “Complex Systems Theory Explains Why Covid Crushed the World.”

* Alan Perlis


As we think systemically, we might recall that it was on this date in 1835 that the New York Sun began a series of six articles detailing the discovery of civilized life on the moon.  Now known as “The Great Moon Hoax,” the articles attributed the “discovery” to Sir John Herschel, the greatest living astronmer of the day.  Herschel was initially amused, wryly noting that his own real observations could never be as exciting.  But ultimately he tired of having to answer questioners who believed the story.  The series was not discovered to be a hoax for several weeks after its publication and, even then, the newspaper did not issue a retraction.

The “ruby amphitheater” on the Moon, per the New York Sun (source)


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