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Posts Tagged ‘finance

“The real alchemy consists in being able to turn gold back again into something else; and that’s the secret that most of your friends have lost.”*…

16th century alchemical equipment, and 21st century reconception of Luria’s 16th century Sephirotic array by Naomi Teplow.

About a decade ago, the formidable Lawrence Weschler was a visiting scholar at the Getty Research Institute in Los Angeles, where he conceived a concept for an exhibit that, sadly, never materialized. Happily, he has shared the design in his wonderful newsletter, Wondercabinet

Lead into Gold:

Proposal for a little jewel-box exhibit

surveying the Age-Old Quest

To Wrest Something from Nothing,

from the Philosopher’s Stone

through Subprime Loans

The boutique-sized (four-room) show would be called “Lead into Gold” and would track the alchemical passion—from its prehistory in the memory palaces of late antiquity through the Middle Ages

(those elaborate mnemonic techniques whereby monks and clerks stored astonishing amounts of details in their minds by placing them in ever-expanding imaginary structures, forebears, as it were, to the physical wondercabinets of the later medieval period—a sampling of manuscripts depicting the technique would grace a sort of foyer to the exhibition),

into its high classic phase (the show’s first long room) with alchemy as pre-chemistry (with maguses actually trying, that is, to turn physical lead into physical gold, all the beakers and flasks and retorts, etc.) to one side, and astrology as pre-astronomy (the whole deliriously marvelous sixteenth-into-seventeenth centuries) to the other, and Isaac Newton serving as a key leitmotif figure through the entire show (though starting out here), recast no longer in his role as the first of the moderns so much as “the Last of the Sumerians” (as an astonished John Maynard Keynes dubbed him, upon stumbling on a cache of thousands of pages of his Cambridge forebear’s detailed alchemical notes, not just from his early years before the Principia, but from throughout his entire life!).

The show would then branch off in two directions, in a sort of Y configuration. To one side:

1) The Golden Path, which is to say the growing conviction among maguses and their progeny during the later early-modern period that the point was allegorical, an inducement to soul-work, in which one was called upon to try to refine the leaden parts of oneself into ever more perfect golden forms, hence Faustus and Prospero through Jung, with those magi Leibniz and Newton riffing off Kabbalistic meditations on Infinity and stumbling instead onto the infinitesimal as they invent the Calculus, in turn eventually opening out (by way of Blake) onto all those Sixties versions, the dawning of the Age of Aquarius, etc., which set the stage for the Whole Earth Catalog and all those kid-maguses working in their garages (developing both hardware and software: fashioning the Calculus into material reality) and presently the Web itself (latter day version of those original memory palaces from back in the show’s foyer, writ large);

while, branching off to the other side, we would have:

2) The Leaden Path, in which moneychangers and presently bankers decided to cut to the chase, for, after all, who needed lead and who needed gold and for god’s sake who needed a more perfect soul when you could simply turn any old crap into money (!)—thus, for example, the South Sea Bubble, in which Newton lost the equivalent of a million dollars (whereupon he declared that he could understand the transit of stars but not the madness of men), tulipomania, etc., and thence onward to Freud (rather than Jung) and his conception of “filthy lucre” and George Soros (with his book, The Alchemy of Finance), with the Calculus showing up again across ever more elaborate permutations, leading on through Ponzi and Gecko (by way of Ayn Rand and Alan “The Wizard” Greenspan) to the whole derivatives bubble/tumor, as adumbrated in part by my own main man, the money artist JSG Boggs, and then on past that to the purest mechanism ever conceived for generating fast money out of crap: meth labs (which deploy exactly but exactly the same equipment as the original alchemists, beakers and flasks and retorts, to accomplish the literal-leaden version of what they were after, the turning of filth into lucre).

And I appended a xerox of that napkin sketch:

Eminently worth reading– and enjoying–in full. “The age-old human quest to turn nothing into something.”

* Edith Wharton

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As we appreciate the abiding attraction of alchemy, we might recall that it was on this date in 1933 that President Franklin D. Roosevelt signed the act creating the Tennessee Valley Authority. A feature of the New Deal, the TVA was created to provide navigation, flood control, electricity generation, fertilizer manufacturing, regional planning, and economic development to the Tennessee Valley, a region (all of Tennessee, portions of Alabama, Mississippi, and Kentucky, and small areas of Georgia, North Carolina, and Virginia) which was particularly hard hit by the Great Depression relative to the rest of the nation. While owned by the federal government, TVA receives no taxpayer funding and operates similar to a private for-profit company.

The TVA has been criticized for its use of eminent domain, which resulted in the displacement of over 125,000 Tennessee Valley residents for the agency’s infrastructure projects. But on balance the TVA has been documented as a success in its efforts to modernize the Tennessee Valley and helping to recruit new employment opportunities to the region.

FDR signing the TVA Act [source]

“Information was found to be everywhere”*…

A newly-proposed experiment could confirm the fifth state of matter in the universe—and change physics as we know it…

Physicist Dr. Melvin Vopson has already published research suggesting that information has mass and that all elementary particles, the smallest known building blocks of the universe, store information about themselves, similar to the way humans have DNA.

Now, he has designed an experiment—which if proved correct—means he will have discovered that information is the fifth form of matter, alongside solid, liquid, gas and plasma…

Dr. Vopson said: “This would be a eureka moment because it would change physics as we know it and expand our understanding of the universe. But it wouldn’t conflict with any of the existing laws of physics. It doesn’t contradict quantum mechanics, electrodynamics, thermodynamics or classical mechanics. All it does is complement physics with something new and incredibly exciting.”

Dr. Vopson’s previous research suggests that information is the fundamental building block of the universe and has physical mass. He even claims that information could be the elusive dark matter that makes up almost a third of the universe…

Is information is a key element of everything in the universe? “New experiment could confirm the fifth state of matter in the universe.”

* James Gleick, The Information: A History, a Theory, a Flood

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As we go deep, we might send thoroughly-modeled birthday greetings to Stanislaw Ulam; he was born on this date in 1909. A mathematician and nuclear physicist, he originated the Teller–Ulam design of thermonuclear weapons, discovered the concept of the cellular automaton, and suggested nuclear pulse propulsion.

But his most impactful contribution may have been his creation of the the Monte Carlo method of computation. While playing solitaire during his recovery from surgery, Ulam had thought about playing hundreds of games to estimate statistically the probability of a successful outcome. With ENIAC in mind, he realized that the availability of computers made such statistical methods very practical, and in 1949, he and Nicholas Metropolis published the first unclassified paper on the Monte Carlo method… which is now widely used in virtually every scientific field, in engineering and computer science, finance and business, and the law.

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“Create more value than you capture”*…

A thoughtful consideration of Web 3.0 from the always-insightful Tim O’Reilly

There’s been a lot of talk about Web3 lately, and as the person who defined “Web 2.0” 17 years ago, I’m often asked to comment. I’ve generally avoided doing so because most prognostications about the future turn out to be wrong. What we can do, though, is to ask ourselves questions that help us see more deeply into the present, the soil in which the future is rooted. As William Gibson famously said, “The future is already here. It’s just not evenly distributed yet.” We can also look at economic and social patterns and cycles, using as a lens the observation ascribed to Mark Twain that “history doesn’t repeat itself, but it rhymes.”

Using those filters, what can we say about Web3?…

There follows a fascinating– and educational– analysis of the state of play and the issues that we face.

Tim concludes…

Let’s focus on the parts of the Web3 vision that aren’t about easy riches, on solving hard problems in trust, identity, and decentralized finance. And above all, let’s focus on the interface between crypto and the real world that people live in, where, as  Matthew Yglesias put it when talking about housing inequality, “a society becomes wealthy over time by accumulating a stock of long-lasting capital goods.” If, as Sal Delle Palme argues, Web3 heralds the birth of a new economic system, let’s make it one that increases true wealth—not just paper wealth for those lucky enough to get in early but actual life-changing goods and services that make life better for everyone.

Why it’s too early to get excited about Web3,” from @timoreilly.

See also: “My first impressions of web3” from Matthew Rosenfeld (AKA Moxie Marlinspike, @moxie, founder of @signalapp).

* Tim O’Reilly

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As we focus on first principles, we might recall that it was on this date in 2007 that Steve Jobs introduced the iPhone at MacWorld. The phone wasn’t available for sale until June 29th, occasioning one of the most heavily anticipated sales launches in the history of technology. Apple sold 1.4 million iPhones in 2007, steadily increasing each year; estimated sales in 2021 are 240-250 million.

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“There are two times in a man’s life when he shouldn’t speculate: when he can afford to and when he can’t.”*…

Robinhood, the trading platform supposedly meant “to democratize finance for all”: not all change is progress; not all “disruption” is for the good…

… What is Robinhood?

The company operates a mobile app that enables consumers to trade stocks, options, and crypto. These orders are the company’s inventory, which it sells to “market makers” — large financial institutions that pare (execute) the trades in the market. As with Google or Facebook, Robinhood’s users are not its customers, but its supply.

This means Robinhood is incentivized to keep its users trading … a lot. The goal: make stock trading as addictive as social media scrolling. RH has enjoyed success here. The proportion of users who check it daily rivals those of Twitter, Snapchat, and Facebook.

The transaction at the heart of the company’s model is “Payment for Order Flow” or PFOF. Because RH generates its revenue by selling orders to market makers, it doesn’t charge commissions to its consumer users. But this also creates a conflict of interest for the company, which is motivated to sell orders to the market maker that offers the highest payment for the trade rather than the best price. It’s like affiliate marketing, but for your financial future.

PFOF goes back to the 1980s, when it was pioneered by, wait for it … Bernie Madoff. Madoff relied on the practice to make his firm one of the leading market makers of its day, and when regulators raised questions about whether it presented a conflict of interest, he used his position as the chairperson of Nasdaq to prevent restrictions. (PFOF is illegal in the U.K.) There was no conflict of interest, Madoff assured his colleagues, because “there are very strict rules that I would assume most firms comply with.”

Robinhood is the latest example of an increasing trend: tech companies for whom illegality is a feature, not a bug. Uber is an $86 billion gypsy cab company. Facebook and Google have received so many fines, it’s likely the companies internally classify them as a cost of doing business. This is tantamount to replacing civics courses with prison training, because … well … that’s how we roll.

For its part, RH has racked up: a $70 million settlement with FINRA, a $65 million SEC fine (for failing to properly disclose PFOF), and a separate $1.25 million FINRA fine. And on Wednesday, on the eve of pricing its IPO, the company disclosed that its senior executives are under investigation by FINRA for failing to acquire broker-dealer licenses. In addition, another inquiry is under way into the possibility that RH employees made illegal insider trades during the GameStop frenzy early this year.

Once, that type of disclosure would have dismembered an IPO. Instead, 48 hours after it made the disclosure, Robinhood was publicly trading at $32 billion. Telling point: The company paid its chief legal officer, Daniel Gallagher, more than $30 million in 2020, even though it hired him halfway through the year. From 2011 to 2015, Gallagher was an SEC Commissioner. Our business environment has morphed from capitalism, which depends on the rules of fair play, into cronyism.

Flouting the law is now a signal to investors that a firm is “disruptive.” Established companies, which believe they have too much to lose, have spent years investing in a culture of compliance to protect themselves. Disrupters, with access to cheap capital and few legacy assets, have no such constraints. In Robinhood’s case, no less an establishment bulwark than Goldman Sachs has blessed its approach to business by taking the lead on the company’s IPO. Forget orange — criminality without consequence is the new black.

In practice, Robinhood’s activities look more like the dispersion of financial risk than the “democratization of finance” — kind of like if a for-profit prison claimed to be “democratizing housing.” As both an app and as an investment, RH makes more sense in the context of gambling than investing. Its business model depends on active traders, but research shows the more active traders are, the more money they lose. Likewise, the casino isn’t making much off the blackjack player who sits at the $5 table cadging free drinks, but it hopes the lure of easy money (and the lubrication of those free drinks) will loosen his pockets eventually.

Greater gambling access is becoming a trend. The illegal sports betting market, estimated at $150 billion a year, is rapidly moving to legal online forums. You can now place a sports bet from your couch in 20 states and counting, and mobile gambling apps are reaping the rewards. Since its SPAC listing in April 2020, DraftKings’ stock is up 160%. I don’t have a problem with this, as these firms state what they’re made for: gambling.

Another market that’s benefited from our insatiable appetite for risk? Crypto. Robinhood caught that trend early and introduced crypto trading to its platform in February 2018. Since then, the global crypto market has grown from $450 billion to $1.9 trillion. In the first three months of 2021, 6% of RH’s revenue came from Dogecoin trades. If that sounds like an unstable business model, trust your instincts.

Here’s what we’re saddled with: A trend of companies that prey on our financial naiveté, with no regard for law or morality and infinite amounts of capital. What can we do?

First, it’s long past time for the rule of law to reassert itself. Five years ago, admissions to elite universities were awash in bribery and fraud. Then the feds put some wealthy lawyers, investors, and television stars in jail. Did it work? I’d venture that if any parent receives an offer of a “side door” for their kid to get into an elite university today, the parent hangs up, crisply.

Second, we need to arm ourselves, and particularly our young people, with financial literacy. Everyone should be fluent in the basics of markets and how to build financial security. My NYU colleague Aswath Damodaran believes the best regulation is life lessons. Perhaps basic lessons in finance (e.g., not to trade on an app that harvests its orders for revenue) would lessen the pain of these lessons. If we can offer computer science and Mandarin in schools, we should offer courses in financial literacy. The English-as-a-second language course in any capitalist society ought to be in money.

We’ve implemented policies in the U.S. that have resulted in a halving of the wealth of Americans under the age of 40 (as a percentage of household wealth) over the past three decades. With so much less to lose, today’s young Americans are justifiably looking for new asset classes and embracing volatility. Put another way, there is cause for a rebellion. The food industrial complex wants you to be fat, social media wants you to be divided, and RH wants you to believe you can get rich quick by day trading. Rebel.

When the democratization of finance isn’t: “$HOOD.” Scott Galloway (@profgalloway) on the dangerously disingenuous Robinhood.

* Mark Twain

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As we reconcile ourselves to the fact that if it seems to be too good to be true, it is, we might recall that it was on this date in 2018 that Apple became the first U.S.-based company with a $1 trillion market cap. Shares of Apple rose 2.9% on the day, closing at $207.39, giving the company a $1.002 trillion valuation. Shares of Apple’s stock were up about 40,000% since Apple computer’s IPO on December 12th, 1980.

Amazon broke the $1 trillion milestone a month later on September 4th, 2018. Microsoft reached the milestone nearly a year later, on April 25th, 2019.

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Written by (Roughly) Daily

August 2, 2021 at 1:00 am

“Speculative bubbles do not end like a short story, novel, or play… In the real world, we never know when the story is over”*…

Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages is a hugely-influential book by Carlota Perez that suggests a connection between technological development and financial bubbles. which can be seen in the emergence of long term technology trends. She explicates her model by tracking repeated surges of technological development over the past three centuries, from the Industrial Revolution to the Information Age.

Written almost 20 years ago, it contained an implicit projection of where we would be today…

For this first stab at determining just when and where we are, we’re looking at 2002’s Technological Revolutions and Financial Capital, by Carlota Perez. One of the great economists of our time, Perez is a leading thinker on technology and socio-economic development. Her book outlines a four-phased financial cycle depicting the archetypical sequence of capital deployment and market traction for a major technological revolution. In this post, we’ll dig into Perez’s cycle and discuss where we sit today in 2021…

Where Are We? Part 1: Bubbles, Bubbles, Toils, and Troubles“: Annika Lewis (@AnnikaSays) and David Phelps (@divine_economy) apply Perez’s principles in an attempt to figure out where we are and what our future might hold– the first in a series of attempts to break down economic theorists to try to figure out where exactly we are in a cycle.

* Robert Schiller

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As we reset our sextants, we might recall that it was on this date in 1927 that the 15 millionth– and final– Model T rolled off of the Ford assembly line… effectively marking the end of the beginning (the “transition phase”) of the cycle that Perez calls the “age of oil, automobiles, and mass production.”

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