Quants: "What does it take to get hired by Goldman’s hot ‘strats’ group?"

From eFinancial Careers:

If you’re someone with a mathematical bent, for whom ‘challenging’ maths questions are elementary and differential equations are fun, there is – allegedly – one place where you’ll feel especially fulfilled in banking: Goldman Sachs’ ‘strats’ Group. All banks have mathematical wizards, but the warlocks in Goldman’s strats team are reportedly higher paid, happier, and more empowered than those elsewhere.

“The strats team here is broader in scope than quant teams at other banks,” one strats vice president at Goldman in London tells us, speaking off the record as he is not authorised to talk to the press. “As well as quants, we have quant developers, technologists, structurers and salespeople.” Goldman’s strats team is at the forefront of the firm’s algorithmic and electronic trading business, he adds – making it key to the future of the firm.

Goldman itself describes its strats team as a, ‘a world leader in developing quantitative and technological techniques to solve complex business problems.’ Members of the team are divided into three groups: ‘desk strats’ who sit with traders and develop derivative pricing models and trading algorithms, ‘sales strats’ who support the sales team with quantitative research for client questions, and ‘core strats’ who work on the firm’s technology architecture using Goldman’s own proprietary coding language, ‘Slang.’ As we reported last week, Goldman’s already powerful strats group is said to be gaining influence internally now that the new CIO, Marty Chavez (a former strat himself) manages both strats and technology for the firm. The former CIO, Steve Scopellite, merely had technology in his purview.

One London-based recruiter who hires for Goldman’s strats group says members of the strats team get paid far more than technologists and quants at other firms. “I’ve seen top programmers with excellent understanding of specific derivatives receiving offers of £350k,” he claims.”Goldman strats get ridiculous amounts of money compared to most tech people.”

Goldman was unable to comment within the time frame of this article, but doesn’t typically discuss pay anyway. What does seem certain, however, is that positions in Goldman’s strats team – however sought after – aren’t always easy to fill. Strats jobs are often advertised for months on the firm’s own website. For example, Goldman has been advertising for an associate-level member of its IBD strats team since January 2014 and for a member of its fixed income and commodities strats team since March.

“Goldman is extremely fussy about it hires into the strats group,” says the head of the technology practice at one search firm, speaking anonymously as Goldman is a client. This fussiness is combined with a need to keep feeding the beast.”Goldman has a rolling requirement for recruiting a lot of people into strats,” says another quantitative finance recruiter, speaking equally anonymously. “It’s a huge area of their business – about eight times the size of other banks’ quant groups,” he adds.

Needless to say, members of Goldman’s strats team need to be talented mathematicians. According to Goldman’s own recruiters, they also need to be have, ‘an ability to code and to pick up a new coding language.’ “90% of the desk strats in London have a PhD in maths from places like Imperial, the London School of Economics and Cambridge,” claims one recruiter. Among Goldman’s core strats, a first class degree in computer science from a top university is said to be more common – along with expertise in everything from C++ to C#, Cocoa (Touch), Objective C and Java.

Interviews, interviews and interviews
As with all roles at Goldman Sachs, getting a job in the strats team involves multiple interviews. Anecdotally, however, strats roles involve even more interviews than most....MORE 

HT: QuantNet Forum

Be Cautious Using Volatility as an Indicator of a Market Top

More accurate headline: Be cautious using volatility as an indicator of anything.
From Price Action Lab:
An Increase in Volatility May Not Signal a Stock Market Top

As stock market volatility is decreasing towards historic lows, some may think that a sudden increase will signal a top. But history shows that although some volatility indicators lead price before major tops, they cannot establish timing, and reversals may occur several years later and while volatility keeps increasing.

In another blog about two weeks ago, I showed how the S&P 500 rose during the 1990s with VIX increasing and staying above its longer- term mean value of about 20. Here I show that even simple indicators, such as the ATR(14), suffice to measure volatility and can be leading indicators of major price reversals but, like VIX, cannot be used to establish even approximately timing:

The first indicator pane on the above daily chart of SPY since inception shows the ATR(14) indicator.  It  may be seen that although the value of this indicator started rising in around 1995, the top of the uptrend came after about four and a half years. The simultaneous rise in VIX along with the ATR(14) provides a confirmation that the 1990s trend occurred at higher volatility. On the contrary, this is not what happened before the 2007 top: although both the ATR(14) and VIX rose before the major top, it took less than a year from it to form.

The last observation is that the annualized standard deviation is a lagging indicator of price near major tops, as it may be seen from the third indicator pane, and when their timing is close to the start of the volatility rise. This is to be expected, since this is a smoothing indicator. This is also one reason that portfolio allocation based on such descriptive statistics has often failed to protected investors from sharp market declines. This is not the fault of statistics but a fault of models based on lagged parameters. Successful allocation needs active management to reduce risk before it manifests itself....MORE

"Generating Alpha Through Intermarket Analysis"

If you are going to do global macro, intermarket analysis is pretty much a given.
At the same time you have to be on guard against apophenia, seeing connections where none exist. Unless such things make you smile. First up, Psychology Today:

Being Amused by Apophenia

You experience the following on a Monday: The alarm clock does not wake you up and you are now late for work. The cat has peed on the couch. The coffeemaker is making strange noises and doesn't seem to be working. The kids are fighting with each other. It's raining. And on top of everything else, the car won't start. What do you conclude? One or two of these minor irritants would seem insignificant and unmemorable. Once the list grows, however, it begins to take the shape of a plot—a plot of unseen forces perhaps conspiring in a meaningful way against you.

Our brains are pattern-detection machines that connect the dots, making it possible to uncover meaningful relationships among the barrage of sensory input we face. Without such meaning-making, we would be unable to make predictions about survival and reproduction. The natural and interpersonal world around us would be too chaotic. In the above example, if I draw conspiratorial conclusions (i.e., seeing a pattern where none really exists), I am making what statisticians would call, a Type I error, also called a false positive.

What if you experience the following upon entering your house alone at night: The front door is left open. Household objects are strewn everywhere (you left the house neat and clean just a few hours ago). Your computer is missing. There are faint but unrecognizable smells. You can hear someone talking. In all likelihood, we would not only draw conclusions about has occurred but we will have a palpable, physiological response as well. Nature ensures that we are prone to seeing patterns rather than missing them. The Type II error, seeing no pattern where a pattern exists, turns out to be more dangerous. Far better—from a Darwinian perspective—to erroneously interpret danger where none is present than miss out on important cues that put our survival on the line. There is cognitive efficiency built into this equation: quick reactions depend on a cost-benefit ratio that favors safety and survival....MORE

And today's headliner, from the CFA Institute:

It’s no secret that consistently generating alpha is extremely difficult. Today’s asset allocators and portfolio managers are constantly seeking new strategies to gain any sort of advantage. What if achieving an edge were as easy as an all-in, binary decision depending on whether one particular industry over- or underperformed the stock market? Any believer in the efficient market hypothesis would claim this approach impossible because share prices always incorporate and reflect all relevant information. Moreover, given the enormous wealth of available information, how could examining only one sector’s performance distill sufficient evidence to determine an entire asset allocation strategy?

CFA Institute recently hosted a webinar titled, “Generating Alpha: Predicting Volatility and Corrections,” which focused on a branch of technical analysis called intermarket analysis, or the study of relationships between asset classes and market sectors. The presentation by Charlie Bilello and Michael Gayed of Pension Partners was based on their award-winning papers, “An Intermarket Approach to Beta Rotation: The Strategy, Signal, and Power of Utilities” (which we previously profiled in “The Predictive Power of Utility Stocks“), and “An Intermarket Approach to Tactical Risk Rotation.”

Bilello and Gayed were inspired in part by the work of Edson Gould, who identified the Dow Jones Utilities Average (UTIL) as “one of the best early indicators of the stock market.” Building on Gould’s work, Bilello and Gayed backtested US stock market returns to 1926 and found that a simple strategy of rotating either fully into utility stocks or fully into the broad stock market based on rolling 4-week returns outperformed a buy and hold approach, on a risk-adjusted basis, by a wide margin. The so-called beta rotation strategy would more often than not be invested in the lower beta utilities sector when market conditions became more volatile and less favorable for stocks. While transaction costs would have rendered such a strategy prohibitively expensive over much of the time period tested, it can be cheaply replicated today (at least in nontaxable accounts) using ETFs. While not an appropriate strategy for everyone, Bilello and Gayed suggested that all portfolio managers might benefit from paying closer attention to what utility stocks are telling them....MORE

Economics: More Than You May Care to Know About Nobel Prizes and the Current State of Growth Theory

From Economic Principals:

The Contest between Macro and Growth

It was about a year ago that Paul Krugman asked, “[W]hatever happened to New Growth Theory?”  The headline of the item on the blog with which the Nobel laureate supplements his twice-weekly columns for The New York Times telegraphed his answer: The New Growth Fizzle.  He wrote:

For a while, in the late 1980s and early 1990s, theories of growth with endogenous technological change were widely heralded as the Next Big Thing in economics. Textbooks were restructured to put long-run growth up front, with business cycles (who cared about those anymore?) crammed into a chapter or two at the end. David Warsh wrote a book touting NGT as the most fundamental development since Adam Smith, casting Paul Romer as a heroic figure leading economics into a brave new world.

And here we are, a couple of decades on, and the whole thing seems to have fizzled out. Romer has had a very interesting and productive life, but not at all the kind of role Warsh imagined. The reasons some countries grow more successfully than others remain fairly mysterious, with most discussions ending, as Robert Solow remarked long ago, in a “blaze of amateur sociology”. And whaddya know, business cycles turn out still to be important.

Krugman’s post raised eyebrows in my circles because many insiders expected that a Nobel Prize for growth theory would be announced within a few weeks. A widely-noticed Nobel symposium had been held in Stockholm in the summer of 2012, the usual (though not inevitable) prelude to a prize.  Its proceedings had been broadcast on Swedish educational television.  Romer, of New York University, had been the leadoff speaker; Peter Howitt, of Brown University, had been his discussant; Philippe Aghion, of Harvard University and the Institute for International Studies, the moderator of the symposium.

Knowing this, I let Krugman’s gibe pass unchallenged, even though it seemed flat-out wrong. These things were best left to the Swedes in private, I reasoned; let the elaborate theater of the prize remain intact.

Then came October, and a surprise of a slightly different sort.  Rather than rousing one or more of the growth theorists, the early morning phone calls went to three economists to recognize their work on trend-spotting among asset prices and the difficulty thereof – Eugene Fama, Robert Shiller and Lars Hansen.  Fama’s work had been done fifty years before; Shiller’s, thirty-five. Two big new financial industries, index funds and hedge funds, had grown up to demonstrate that the claims of both were broadly right, in differing degrees. Hansen had illuminated their differences. So old and safe and well-prepared was the award that its merit couldn’t possibly be questioned.

What happened?  It’s well known that, in addition to preparing each year’s prize,  prize committees work ahead on a nomination or two or even three, assembling slates of nominees for future years in order to mull them over. Scraps of evidence have emerged since last fall that a campaign was mounted last summer within the Economic Sciences Section of the Royal Swedish Academy of Sciences, sufficient to stall the growth award and bring forward the asset-pricing prize – resistance to which Krugman may have been a party.

These things happen.  The fantasy aspects of the Nobel Prize – the early-morning phone call out of the blue – have been successfully enough managed over the years as to distract from the “hastily-arranged” press conferences that inevitably follow, the champagne chilled and ready-to-hand. Laureates, in general, are only too happy to play along.  Sometimes innocence may even be real. Simon Kuznets, on his way to visit Wassily Leontief in New York in 1971, told friends that he overheard heard only that “some guy with a Russian name” had won, before stepping into the high-rise elevator that would carry him to his friend’s apartment. It was, he said, the longest ride of his life....MUCH MORE

"Who Turned Out the Lights? The Coming Mega Sun Storm"

From BusinessWeek:

At Delta Air Lines’ (DAL) operations center in Atlanta, meteorologists do more than monitor the usual wind, rain, and snow. They also keep a close eye out for a less common but potentially more dangerous phenomenon known as space weather. The sun’s eruptions can send billions of tons of superheated, electrically charged gas hurtling through the solar system. When these clouds hit the earth’s magnetic field, they can result in geomagnetic storms that disrupt electric power and communications systems.

Space weather can play havoc with air-to-ground communications. Delta and other airlines reroute dozens of flights a year to avoid affected areas. It’s “nearly always minor enough that flight time is not significantly impacted,” says Delta spokesman Morgan Durrant. Transpacific flights between Asia and the East Coast of the U.S. are the most likely to be affected. Don’t expect the pilot on such a flight to come on the intercom and announce the plane is turning to avoid a blast from outer space. Instead, he’ll say it’s because of weather, Durrant says, “which is an accurate characterization.”

Most people have no idea that combating the effects of geomagnetic storms is a part of doing business for industries worldwide. With enough warning time, operators of New York’s power grid can alter voltage and reduce transfers across the system to protect against the strong ground currents generated by the storms. Companies that rely on GPS services may delay drilling, mining, or land surveys when satellite communications are disrupted by space weather. But corporations and the federal government may not be prepared for a severe geomagnetic storm—akin to a 100-year flood—that could fry electrical equipment and wipe out power to major cities for weeks or longer.

From a small office in Boulder, Colo., William Murtagh and a small team at the National Oceanic and Atmospheric Administration’s Space Weather Prediction Center monitor the sun 24 hours a day, sending alerts to industries and foreign governments when space storms are on the way. Murtagh, the center’s program coordinator, is well-versed in the damage geomagnetic storms can cause. Perhaps the most formidable megastorm on record happened in 1859. Known as the Carrington Event, it lit up night skies from Hawaii to Australia and led to telegraph outages around the world. Of course, no one alive today was around for it. “It is in the human nature,” Murtagh says, “to assess the threat based on your own life span.”

 Dorothy Gambrell

Power companies and airlines routinely compensate for the effects of moderate sun storms. Some scientists warn that the U.S. is less prepared for an intense solar blast that could knock out electricity and some critical services for weeks.

Smaller storms in more recent years offer hints of what could happen if a Carrington-size event hit today. In March 1989, Canada’s Hydro-Québec power system collapsed during a geomagnetic disturbance, leaving 6 million people without electricity for more than nine hours. The storm may have come close to “toppling power systems from the New England and Mid-Atlantic regions of the U.S. to the Midwest,” John Kappenman, a space weather consultant, wrote in a 2010 report for the Oak Ridge National Laboratory. A Halloween storm in October 2003 disabled a GPS-based system used by the Federal Aviation Administration for 30 hours and blacked out part of Sweden. Twelve transformers in South Africa were damaged beyond repair. That event was about a quarter the size of the Carrington storm, says Jeffrey Love, an adviser for geomagnetic research at the U.S. Geological Survey. “Unfortunately, with only a few observations of the occurrence of superstorms in the past, predicting the future occurrence of a similar monster is very difficult,’’ he says....MORE

With solar cycle 24 apparently having double-topped in February we are in the sweet sport for coronal mass ejections and on the downslope in sunspot count:

Here's a picture of a CME from some happy folks at NASA:
NASA Scientist Dives into Perfect Space Storm

CEO of One of the "Supermajor" Oil Companies Sees No Need for the petroDollar

Of course being a supermajor ain't what it once was, what with the rise of the national oil companies and all.
In fact Total now ranks 12th in global production, barely ahead of Petrobras.
If you restrict yourself to publicly traded entities they rank eighth in revenue.
From ZeroHedge:

The USA is fast running out of friends to support its 'exorbitant privilege'. Having alienated the Germans over NSA-eavesdropping, 'boomerang'd the Russians into de-dollarization, tariffed and quantitatively eased China into diversification, and finally 'punished' France into discussing the dollar's demise; it appears no lessor person than the CEO of Total (the world's 13th biggest oil producer and Europe's 2nd largest), believes "There is no reason to pay for oil in dollars." Clearly, based on Christophe de Margerie's comments, that we have passed peak Petrodollar.

As Reuters reports,

Oil major Total's chief executive said on Saturday the euro should have a bigger role in international trade although it was not possible to do without the U.S. dollar.

Christophe de Margerie was responding to questions about calls by French policymakers to find ways at EU level to bolster the use of the euro in international business following a record U.S. fine for BNP. 
... 
"There is no reason to pay for oil in dollars," he said. He said the fact that oil prices are quoted in dollars per barrel did not mean that payments actually had to be made in that currency.

So even a major beneficiary of the status quo appears to see the end in sight for the Petrodollar....

...MORE

See also yesterday's "Signposts: South Korea and China Will No Longer Use the Dollar to Settle Bilateral Trade"

Bling Dadi: ISIS Leader Mocked For Wearing a Rolex

Do note, both photos: Credit:Twitter
Cha, cha, cha changes...
From the International Business Times:
Isis leader al-Baghdadi Mocked for Wearing 'Rolex' Whilst Preaching Jihad

Footage of al-Baghdadi's Friday speech, in which he appears to be wearing a Rolex.Twitter

On Friday Isis leader Abu Bakr al-Baghdadi appeared in public for the first time, commanding Muslims to "obey" him as the "Leader who presides over you."

But it was not al-Baghdadi's attempt to evoke the last Caliphs who ruled from Baghdad by donning a black robe and turban that most struck many about the appearance of the elusive militant.

Instead it was the expensive-looking silver wristwatch he is wearing during the 20 minute long sermon.
It is believed to be either a Rolex, Sekonda or £3,500 Omega Seamaster. The choice of such an expensive accessory clashed with al-Baghdadi's austere message and professions of humility....MORE

He should also be mocked for this, from al-Arabiya:

ISIS allegedly issues ‘caliphate’ passport

The "State of the Islamic Caliphate” appears to be inscribed at the top of the purported passport. At the bottom, it says: “The holder of the passport if harmed we will deploy armies for his service.” (Photo courtesy: Twitter)

...MORE

The Federal Reserve as Deus ex Machina 2.0

I am surprised that I, along with a large swath of the commentariat, have failed to use the Deus ex Machina formulation re: Silicon Valley, much less robotics and other bits of life-such as the market's eternal uptick-we assume are on autopilot.
I have dishonored my ancestors.

From Barron's Up and Down Wall Street column:

Is the Fed trying to take human nature out of the credit cycle? Latest jobs report raises hopes, but gain in average hourly wages remains subpar.

This next column you read in this space could be written by a machine, at least if the Associated Press' plan catches on. 

What used to be called a "wire service" in bygone times when its teletypes fed news outlets with dispatches from around the globe, written by some of the top reporters in the business, now will churn out corporate-earnings stories composed by a computer. The notion is that earnings reports are formulaic drudgery that a machine can do just as well, freeing AP journalists to write enterprise pieces, and that no more news jobs will be lost. That's the official line anyway.

Robots are performing more and more tasks, working cheaper than any human and better in most cases. So it's hardly a surprise that they're moving from the factory floor to the newsroom to remove the last human in the chain of production. But what emerges from robot-written stories depends, in no small part, on what's been programmed into the robot.

That the news can be manipulated is a story as old as William Randolph Hearst. But doing the same via a computer in order to produce a certain response from the reader has reached a new level. It emerged last week that Facebook had manipulated its so-called news feeds to subscribers to test their reactions. And, it turned out, those who got more downbeat feeds had more pessimistic posts, while those receiving more positive feeds posted cheerier stuff.

This came as a shock to Facebook subscribers—not that they were so malleable but that they were treated as lab rats in a mass psychology experiment without their consent. They, however, constitute a self-selected sample: narcissists who think what they post is of interest to others, and voyeurs who are interested in what others post. As such, they are especially susceptible to what they see and hear, with little regard to its importance or validity. 

A form of the Facebook effect also is being utilized by the Federal Reserve under the guise of "forward guidance," the notion that, by transmitting its intentions for future monetary policy to the financial markets, the central bank can better achieve its desired outcome. By signaling its game plan, the Fed thinks it can reach full employment and low inflation while avoiding untoward moves in financial markets, the likes of which proved so destructive in 2008.

The results of the Fed's experiment appear promising. After more than five years of the Fed's keeping interest rates near zero and quintupling the size of the central bank's balance sheet, the U.S. stock market is setting records, with the Dow Jones Industrial Average climbing over the 17,000 mark for the first time. Bond yields remain near record lows, especially for riskier securities, even as the Fed tapers its bond-buying program. So, who could complain?

The Bank for International Settlements, for one. The so-called central bank for central banks warned in its annual report released last week that "euphoric" financial markets have come unhinged from economic reality. Under the thrall of ultrastimulative monetary policies that have pushed short-term rates to zero (and, in the case of the European Central Bank, into negative territory), asset prices risk reaching the bubble stage and risk another bust, as in 2007-08.

Better to withdraw the monetary stimulus sooner than risk a crisis later, the Basel-based BIS declared. "Particularly for countries in the late stages of financial booms, the trade-off is now between the risk of bringing forward the downward leg of the cycle and that of suffering a bigger bust later on," it said. That downbeat view was screened out by other central banks, notably the Fed and its chair, Janet Yellen. In a presentation to the International Monetary Fund on Wednesday, she pushed back against the idea of moving up the eventual rise in U.S. short-term rates to cool signs of incipient overheating in the capital markets. 

"Macroprudential" measures, to use the buzzword of the moment, are better suited to staving off destabilizing bubbles. Raising interest rates risks hurting the real economy, Yellen emphasized. She further argued that this also would have been the case in the middle of the past decade, when critics contend the Fed allowed the housing bubble to inflate by nudging up short-term rates at a glacial pace....MORE

Deus ex Machina 2.0

"Carol Loomis, Editor for Warren Buffett, Leaves Job After 60 Years"

I had no idea she was 85.
From the New York Times:

 

 Carol Loomis is retiring after a 60-year career at Fortune magazine. She also edits 

Warren Buffett’s writing, like his annual letter to Berkshire Hathaway shareholders.

In January 1954, a bright-eyed 24-year-old from Cole Camp, Mo., walked into Fortune magazine’s offices at Rockefeller Center. Armed with a college journalism degree and work experience writing for a Maytag company magazine, she took an entry-level job assisting Fortune’s male writers. 

The young woman, Carol Loomis, navigated the magazine’s “Mad Men”-like culture, on one occasion slapping a married colleague whom, she delicately recalled, “had an agenda.” She proved herself as a reporter but had to battle gender stereotypes. In 1970, she fought her way into an Economic Club of New York dinner after its director said he did not want “any frivolous little Smith girls looking for a free dinner and the chance to spend an evening with 1,200 men in black tie.” 

After 60 years at Fortune, Ms. Loomis is retiring as one of the country’s most venerated financial journalists, with a collection of work that reads like a history of modern Wall Street.

“She has an analytical mind and she keeps learning,” said Warren E. Buffett, the billionaire investor and a close friend. “We males never do that. We quit at about 15. We just think we know it all. At 85, she is interested in learning more.”

In the 1960s, she wrote one of the first articles about hedge funds. She reported two cover articles on the risk of derivatives in the mid-1990s, long before those instruments contributed to the near-collapse of the global economy. A 1999 piece, “Lies, Damn Lies and Managed Earnings,” presaged the wave of accounting scandals a few years later. On Monday, Fortune will publish her final article before she retires, a piece about one of the world’s most powerful financiers, Laurence D. Fink of BlackRock. 

Ms. Loomis is perhaps best known as Mr. Buffett’s Boswell. She has been Fortune’s resident expert on Mr. Buffett since meeting him in 1966, and each year edits the annual shareholder letter of Mr. Buffett’s company, Berkshire Hathaway, an unusual role for a financial journalist. The two speak nearly every business day and are frequent bridge partners, playing mostly over the Internet....MORE

Here's Fortune:
Fortune's Carol Loomis to retire

Piketty's "Capital" May Be the Most Unread Book That People Bought This Year

Note to self: "Romantic heat in the late going..." for all reports and blog posts.
From the Wall Street Journal:

The Summer's Most Unread Book Is…
A simple index drawn from e-books shows which best sellers are going unread (we're looking at you, Piketty).

Has anyone made it past page 26 of Piketty? iStockphoto/Getty Images

It's beach time, and you've probably already scanned a hundred lists of summer reads. Sadly overlooked is that other crucial literary category: the summer non-read, the book that you pick up, all full of ambition, at the beginning of June and put away, the bookmark now and forever halfway through chapter 1, on Labor Day. The classic of this genre is Stephen Hawking's "A Brief History of Time," widely called "the most unread book of all time."

How can we find today's greatest non-reads? Amazon's "Popular Highlights" feature provides one quick and dirty measure. Every book's Kindle page lists the five passages most highlighted by readers. If every reader is getting to the end, those highlights could be scattered throughout the length of the book. If nobody has made it past the introduction, the popular highlights will be clustered at the beginning.

Thus, the Hawking Index (HI): Take the page numbers of a book's five top highlights, average them, and divide by the number of pages in the whole book. The higher the number, the more of the book we're guessing most people are likely to have read. (Disclaimer: This is not remotely scientific and is for entertainment purposes only!) Here's how some current best sellers and classics weigh in, from highest HI to lowest:

"The Goldfinch" by Donna Tartt : 98.5%
This seems like exactly the kind of long, impressive literary novel that people would carry around ostentatiously for a while and never finish. But it's just the opposite. All five top highlights come from the final 20 pages, where the narrative falls away and Ms. Tartt spells out her themes in a cascade of ringing, straight-out assertions. 

"Catching Fire" by Suzanne Collins : 43.4%
Another novel that gets read all the way through. "Because sometimes things happen to people and they're not equipped to deal with them" is the most highlighted sentence in the seven-year history of Kindle, marked by 28,703 readers. Romantic heat in the late going also helps to produce a high score.

.......................

"Thinking Fast and Slow" by Daniel Kahneman : 6.8%
Apparently the reading was more slow than fast. To be fair, Prof. Kahneman's book, the summation of a life's work at the forefront of cognitive psychology, is more than twice as long as "Lean In," so his score probably represents just as much total reading as Ms. Sandberg's does. 

"A Brief History of Time" by Stephen Hawking: 6.6%
The original avatar backs up its reputation pretty well. But it's outpaced by one more recent entrant—which brings us to our champion, the most unread book of this year (and perhaps any other). Ladies and gentlemen, I present:

"Capital in the Twenty-First Century" by Thomas Piketty : 2.4%
Yes, it came out just three months ago. But the contest isn't even close. Mr. Piketty's book is almost 700 pages long, and the last of the top five popular highlights appears on page 26. Stephen Hawking is off the hook; from now on, this measure should be known as the Piketty Index....

...MORE 

Hmmm..., how can I use "Romantic heat in the late going..."?
Anna Karenina and solar:

“He stepped down, trying not to look long at her, as if she were the sun, yet he saw her, like the sun, even without looking.” 

Brokeback Mountain on natural gas:

“I wish I knew how to quit you.”

Lady Chatterley's Lover on time and valuation:

“All hopes of eternity and all gain from the past he would have given to have her there, to be wrapped warm with him in one blanket, and sleep, only sleep...."

Love in the Time of Cholera on core investments:

"I have waited for this opportunity for more than half a century, to repeat to you once again my vow of eternal fidelity and everlasting love."

Schmoozing the new compliance guy:

“I want everyone to meet you. You're my favorite person of all time.” 
― Rainbow Rowell, Eleanor & Park

Gone with the Wind on the senior partners:

"You should be kissed and often, and by someone who knows how.”

Venture Capital: "A Dozen Things I’ve Learned from Fred Wilson" (AVC)

Mr. Wilson is a co-founder and partner at Union Square Ventures.
From 25iq:

1. “Venture Capital is a hits business. All of the returns come from the top cohort of investments.” “The distributions of exits each year is distributed on a power law curve.” Venture capitalists working with partners select a portfolio of bets which have significant positive optionality. Over the lifetime of the fund the venture capitalists discover a very small number of blockbuster 10-2,000X hits from the portfolio. After tape measure home runs emerge, it will seem obvious to many people who are not top tier venture capitalists that the startups were destined to be a success. Survivor bias will cause most people who are not involved in the industry to forget that 50% of the bets returned no capital. Venture capitalists will have little survivor bias about this fact as they watch real companies employing real people that they like and care about fail.  An experienced venture capitalist knows that “the whole” of what emerges from the startup creation process is not predictable by looking at the sum of the parts. In fact, it is mostly the connections between the parts of the system that mostly drives change, often in nonlinear ways.

The result of this process are multiple power laws, as I have written before. Why are there power laws in venture capital? You can read the papers on this point and they inevitably indicate in very academic language (plus lots of formulas) that one or more factors are feeding back on themselves. What exactly is feeding back on itself is rarely something on which there is a consensus among the academics. Even if there is consensus, it is likely that there are factors driving change which have not revealed themselves.

In the case of venture capital, my thesis is that networks (defined in the broadest possible sense) with better quality provide access to superior feedback in the form of talent, suppliers, customers, distribution partners and capital. That superior feedback drives things like better product and service offerings, better distribution, and customer awareness. The better a venture capitalist or startup’s network gets, the even better that network gets [repeat in the form of a Matthew effect].

2. “Ideas that most people derided as ridiculous have produced the best outcomes. Don’t do the obvious thing.” As Will Rogers put even more simply: “Always drink upstream from the herd.” Trying to find positive optionality in areas where others are intensely focused is what investors call a crowded trade (i.e., too many people trying to do the same thing). You can’t do better than a mob if you are part of the mob.

People who follow the crowd and expect success remind me of this old joke. “Late one night, a police officer found a drunk man crawling around on his hands and knees under a streetlight. The drunk told the police officer that he was looking for his keys. When the police officer asked if he was sure this is where he dropped his keys, the drunk man replied that he believed he dropped them across the street. “Then why are you looking over here?” the officer asked. Because the light’s better here, explained the drunk man.” A venture capitalist who follows the crowd is like the drunk looking for his keys under the streetlight,when his keys are across the street.

3. “Getting product right means finding product market fit. It does not mean launching the product. It means getting to the point where the market accepts your product and wants more of it.”  “The first step you need to climb is building a product, getting it into the market, and finding product market fit. I think that’s what seed financing should be used for. The second step you need to climb is to hire a small team that can help you operate and grow the business you have now birthed by virtue of finding product market fit. That is what Series A money is for. The third step you need to climb is to scale that team and ramp revenues and take the market. That is what Series B money is for. The fourth step you need to climb is to get to profitability so that your cash flow after all expenses can sustain and grow the business. That is what Series C is for. The fifth step is generating liquidity for you, your team, and your investors. That is what the IPO or the Secondary is for.” There is a rhythm to raising capital which is essential to understand. No two funding processes are exactly the same, but they tend to follow a roughly similar beat. In other words, there are milestones and heuristics which investors and companies tend to use. To paraphrase Mark Twain: startup financing success never repeats itself exactly, but the Kaleidoscopic combinations that constitute the present often seem to be constructed out of the broken fragments of previous attempts. At the two bookends: getting a valuation that is too high can turn into a painful down round or worse, and selling too cheap can mean painful dilution. Like Goldilocks, the entrepreneur must find something that is “just right” when it comes to financing the business....MUCH MORE

Mr. Wilson's business blog is AVC.
He also has a personal blog Fred Wilson Dot VC.

Signposts: South Korea and China Will No Longer Use the Dollar to Settle Bilateral Trade

No word on what currency China will accept from North Korea.
From Voice of Russia:

4 July 2014, 17:26

Beijing, Seoul agree to direct trade in national currencies

China designated a clearing bank in Seoul for yuan transactions in South Korea on Friday, coinciding with a visit by President Xi Jinping, as Beijing promotes greater use of its currency overseas, AFP reports.

China's central bank has authorised the Bank of Communications, the country's fifth largest lender, to undertake yuan clearing business in the South Korean capital, the People's Bank of China (PBoC) said in a statement.

The announcement came as Chinese President Xi Jinping wrapped up a state visit to South Korea on Friday. China is seeking to make the yuan - also known as the renminbi - used more internationally in keeping with the country's status as the world's second biggest economy behind the United States.

A joint communique endorsed Thursday by Xi and his South Korean counterpart Park Geun-Hye also pledged to strengthen efforts to launch direct trading between the yuan and the won.

Previously:

In Case You Missed It: "Gazprom signs agreements to switch from dollars to euros"

Gazprom Neft is the oil-producing arm of the Russian State Gas Company.
This latest follows on news that the unit of account for the big Russia-China gas deal would not be the dollar but rubles or yuan which itself followed a TASS report that the chief economist of Russia's largest private bank was saying "China’s yuan may become 3rd world reserve currency along with US dollar and euro".

As econ commentator David Bowie put it....

The Periodic Table of Meat

From Bacon Today:

(click to enlarge)

LA Weekly Blog has shared another post with us…

Jeff Wysaski, 29-year old founder of Pleated-Jeans, debuted his Periodic Table of Meat last year. The number of meats in the world is vast. Wysaski’s table brings order to the chaos. Creating it took him “a long freaking time.”

Wysaski also happens to be married to Unicorn Magic Baking Company co-owner Kaycee Wysaski. For more on unicorn cakes, visit our Candyland column. For our interview with Jeff Wysaski, turn the page...MORE

Also at Bacon Today:
Bacon Choco-Tots

Felix Dennis, a Hedonist and Media Magnate, Died on June 22nd aged 67

I'm a bit tardy getting to this. I was going to mention the closure of Butler, Tanner and Dennis in May and put it off.
Butler and Tanner, Somerset, was Britain's oldest color book printer which Mr. Dennis had rescued in 2008 but could never really get profitable. He operated it at a breakeven/loss for six years.
Among his other philanthropies were the Heart of England Forest Project, the National Library for the Blind and The Printing Charity.

We visited Mr. Dennis a couple times in 2013:

“If it flies, floats, or fornicates, rent it. It’s cheaper.”

That's Felix Dennis quoted at the WSJ's now defunct Wealth Report in"How to be ‘Comfortably Poor’ on $3 Million".
I was thinking of Mr. Dennis because of our earlier "Branson to Accept Bitcoins for Space Travel".

And the connection gentle reader asks warily?
From "Some Advice for Our Younger Readers: How to Get Rich":

...As to Mr. Dennis, I think of him as a poor man's Richard Branson with a self-made net worth of around £500 Million. Younger readers may know him as the former owner of Maxim or MicroWarehouse.

From The Economist:

SOMEWHERE in the hearts of all self-made wealthy people, said Felix Dennis, is a “sliver of razored ice”. He liked being rich, and liked advising people about how to achieve that enviable state. But making money, and then yet more of it, was to assuage inner demons, not to achieve happiness. Indeed what made him happy (and that only occasionally, he stressed) were modest pleasures: “Walking in the woods alone, or deeply ensconced in composing a difficult piece of verse, or sitting quietly with old friends over a bottle of wine, or feeding a stray cat.”

Fun and success, however, were another matter. To say he lived high on the hog would be an understatement. By his own estimate he spent $100m on drugs, drink, women and high living in just one decade. He had 14 mistresses on his personal payroll (“If it floats, flies or fucks,” he once said, it was better to rent than to buy.)

He could afford either. His publishing empire, by his death worth hundreds of millions of pounds, started when he turned up at the office of a backstreet rag called “Oz”. He was penniless, having sold his drum kit to pay for a girlfriend’s abortion. Minds met, and he became co-editor—only to end up in jail, briefly, on an obscenity charge when the “schoolkids” issue featured Rupert Bear, a children’s comic-strip character, deflowering “Gipsy Granny”. The judge sniped that the scruffy youngster was “very much less intelligent” than his two co-defendants.

If so, it did not hold him back. His publishing genius lay in spotting gaps in the market and launching titles to fill them. When he saw youngsters queuing in the street in Soho at 9am to watch Bruce Lee films, he launched “Kung-Fu Monthly”, flying to Hong Kong to interview the maestro, who conveniently then died, mysteriously: the media blackout which followed made his material sizzlingly interesting.

When the titles flourished, he licensed them in other countries, or sold them and started new ones. His later successes included the laddish “Maxim” and “The Week”, a lively digest of other outlets’ content. Its huge success in America confounded cynics who thought that the magazine market there was moribund.

He was no great editor and had mostly no interest in the subjects of his titles. Though he made a fortune from computer magazines, he abhorred gadgets. He found management boring too, revering cashflow, but boasting that he could not read a balance-sheet. Why bother, when you could hire people who could?

The secret of getting rich, he reckoned, lay in using other people’s talents—finding them, nurturing them, rewarding them, and when necessary dispensing with them. On top of that you needed persistence, practicality, stinginess, innovation, ruthlessness and fearlessness. The greatest hurdle to fortune was the desire for safety—as addictive as his beloved crack cocaine, but much worse for you, he said.

Biology caught up with him. He nearly died from Legionnaires’ disease, which, he wrote, is “especially lethal to coked-up, overweight, cigarette-smoking, malt-whisky-swilling idiots with too much money who believe they are built of titanium”. Having survived a nurse pouring icy water on his genitals to keep him from falling into a coma, he eventually resolved to ditch the drugs and took up a five-hour-a-day poetry habit instead....MORE

Dow Jones Industrial Average Closes Above 17000 for First Time, Have a Glorious Fourth!

From our June 2 post "I'm Tellin' Ya, It's a Bull Market":

I'm tellin' ya...

From the Wall Street Journal:

The Dow Jones Industrial Average topped 17000 for the first time after a rosy report on U.S. job creation helped reassure investors that economic growth can support stock benchmarks at all-time highs. 

The 30-stock Dow advanced 92.02 points, or 0.5%, to close at 17068.26. The S&P 500 added 10.82 points, or 0.5%, to 1985.44, finishing with its 25th record high of the year. The Nasdaq Composite Index climbed 28.19 points, or 0.6%, to 4485.93. 

With the move above 17000, the Dow is up more than 3% for the year and stands 14% higher than it did a year ago. The Dow's move above 17000 comes just 153 trading sessions since it first closed above 16000 on Nov. 21, 2013, making it the seventh-fastest 1,000-point gain in the blue chip barometer's history....MORE 

I'm tellin' ya:

Attention Homeless Dopers: New Berkeley Ordinance Requires Dispensaries to Hand Out Freebies

Considering the co-morbidity of schizophrenia and pot use and schizophrenia and homelessness this is probably a good idea.
For Berkeley.
From CBS Bay Area:

Berkeley Requires Marijuana Dispensaries To Provide Free Weed For Low-Income Patients

The city of Berkeley will require medical marijuana dispensaries to give away two percent of the amount of cannabis they sell each year free to low-income patients.

The City Council voted unanimously at Tuesday’s meeting to amend the city’s medical pot rules, which would also allow for a fourth dispensary in Berkeley.

“Basically, the city council wants to make sure that low-income, homeless, indigent folks have access to their medical marijuana, their medicine,” said Berkeley City Councilmember Darryl Moore....MORE

For today's active stoner here's Weedmaps for the Berkeley area showing most of the dispensaries and their available strains.
A couple involve walking up the hill from San Pablo Avenue but you can also use the Goddess Delivers-delivery only-service where the Rhino Trainwreck is especially recommended for ex-gasoil traders:

...Rhino Trainwreck is a sativa blend of White Rhino and Trainwreck that has a clean sweet scent with undertones of pine and diesel...

Mention code WEEDMAPSGODDESS in the "Enter Discount Codes" for $10 off your first order.

Benchmarks: S&P Dow Jones Rolls Out a New Commodity Index

And unlike Goldman's GSCI* it won't be weighted to reflect GS trading expertise toward oil.
From Platts' The Barrel blog:
S&P Dow Jones launches a new commodity index

Our colleagues at S&P Dow Jones Indices — like Platts, a unit of McGraw Hill Financial — have launched a new commodity index. Investing in commodities through indexes do or do not have a significant impact on price; we cite both sides of the coin to note that it is an issue of significant disagreeement among analysis.

Platts wrote about the launch in this news story on July 1, the day the index was launched. We are republishing here a blog posting from S&P’s blog Indexology, written by Jodie Gunzberg, global head of commodities for S&P Dow Jones Indices. We have featured Jodie’s views on The Barrel previously.

———————————

There could be no more symbolic time than just before the July 4th holiday for S&P Dow Jones Indices (S&P DJI) to announce the Dow Jones Commodity Index (DJCI), an alternative to the former DJ-UBS. This is the first ever commodity index under the Dow Jones brand to be fully free from conflicts of interest, plus it highlights diversification and liquidity as its intrinsic characteristics.

Please see the table below summarizing the key differences between the DJCI and former DJ-UBS:

Source: S&P Down Jones Indices

What is most important about the table above? The commodity selection.  Nothing is more important about a commodity index than what commodities get included.

The DJCI is run by S&P DJI with nearly two decades of proven commodity indexing experience built upon transparent decision making, strong governance, and critical quality controls. This experience is poured into the DJCI; including commodity selection based on the rules written in the methodology that mirror the time-tested rules of theS&P GSCI methodology.

The DJCI is governed by the Commodity Index Committee at S&P DJI made from members, each with several years of experience in financial markets, appointed from the Index Management and Production Group (IMPG) of S&P DJI. IMPG personnel are prohibited from trading any securities or constituents which are, or may be, included in any index that they have oversight or management responsibilities for. Further, all IMPG personnel do not have any commercial responsibilities that might result in the appearance of a conflict of interest.

As an independent index provider, S&P DJI ensures a strict separation between commercial operations and the index or benchmark calculation function. The potential for conflicts naturally arises when an organization is involved in index publication as well as in pricing component securities and/or issuing investment products....MORE

*The GSCI is now owned by S&P.
Goldman Sachs does God's work and should not be disparaged.
John Prestbo, executive director of Dow Jones Indexes won the Sharpe Indexing Lifetime Achievement Award at the 12th annual Superbowl of Indexing  (who knew?) 

Hurricane Watch: Arthur Is Headed for North Carolina

To think we knew him back when he was just Disturbance 91L, and here he is all growed up.
From Wunderblog:

Hurricane Arthur Intensifying as it Approaches North Carolina

Hurricane warnings are flying for most of the North Carolina coast as Hurricane Arthur accelerates north-northeastwards. Arthur is the first Atlantic July hurricane since Hurricane Alex of 2010, and arrives over a month prior to the typical August 10 arrival of the season's first hurricane. Heavy rains from the intensifying hurricane have already begun this morning along the southern North Carolina coast at Wilmington, and will spread northeastwards along the North Carolina coast today. Long-range radar out of Wilmington shows that Arthur has developed an imposing area of heavy rains, and is expanding in size. The Hurricane Hunters were in Arthur this morning, and an Air Force aircraft measured a minimum pressure of 983 mb at 7:03 am EDT. At 7:36 am EDT, a NOAA aircraft measured 82 mph winds at the surface using a dropsonde, but stronger winds of 109 mph were recorded just 110 meters above the surface. The Air Force aircraft noted that the eyewall had a gap in the southwest quadrant, so Arthur is still having issues with dry air infiltrating its core. Satellite loops on Thursday morning showed a much more impressive storm than yesterday, with a large area of intense thunderstorms with cold cloud tops, and an intermittent eye. An excellent outflow channel has developed on the east side, but outflow is still restricted on the west side, where dry air is interfering with the storm. Wind shear continued to be a light 5 - 10 knots. Arthur is riding along the axis of the Gulf Stream, taking advantage of the narrow ribbon of very warm waters the current carries.

Figure 1. Long-range radar out of Wilmington, North Carolina at 9:20 am EDT July 3, 2014.

Forecast for Arthur
Given the Category 2 winds of 109 mph that the Hurricane Hunters found just above the surface, we can expect that these winds will begin to mix down to the surface later today as the storm continues to organize, bringing the storm to the threshold of Category 2 strength: 95 - 100 mph winds. With the eyewall still showing gaps due to dry air infiltration, rapid intensification into a Category 3 hurricane appears unlikely. The 12Z Thursday run of the SHIPS model predicted that wind shear will remain light to moderate, 5 - 15 knots, between now and Friday morning, then rise steeply. The model predicted a 21% chance of rapid intensification--a 30 mph increase in winds in 24 hours, and I put the odds Arthur becoming a Category 3 or stronger storm at 20%. The four main intensity models used by NHC--the LGEM, SHIPS, GFDL, and HWRF--continue to be in remarkable agreement, predicting that Arthur will be a borderline Category 1/Category 2 hurricane with 95 - 100 mph winds at 8am EDT on Friday. The models are also in good agreement on the track of Arthur. A trough of low pressure passing to the north accelerate the storm northeastwards Thursday night and Friday, and the Outer Banks of North Carolina are at risk of a direct hit. The 5 am EDT Thursday wind probability forecast from NHC gave Cape Hatteras a 34% chance of experiencing hurricane-force winds, and Morehead City a 26% chance. The 00Z Thursday runs of our top two track models, the GFS and European (ECMWF), showed the eye of Arthur passing over North Carolina's Outer Banks between 3 am - 7 am EDT Friday, July 4....MORE

Previously:
Hurricane Watch--Questions America Wants Answered: "Which Intensity Model Should You Trust for Tropical Storm Arthur?"
With One Full Month in the History Books, Hurricane Season Gets Off to Slowest Start Since 2004 But...

"Natural-gas prices move higher after EIA data"

From MarketWatch:

Natural-gas futures on Thursday turned higher after the U.S. Energy Information Administration reported that supplies of natural gas rose 100 billion cubic feet for the week ended June 27.

Analysts surveyed by Platts forecast an increase of between 99 billion cubic feet and 103 billion cubic feet. Total stocks now stand at 1.929 trillion cubic feet, down 666 billion cubic feet from a year ago and 790 billion cubic feet below the five-year average, the government said....MORE

Augusts: $4.400 up 0.043 after trading as low as $4.329.

Remember the 'Dash for Gas' and North Sea Oil? "UK became a net importer of petroleum products in 2013"

It's been 20 years since Enron opened the Teesside power station.
Time flies.
From the Energy Information Administration:

Source: U.S. Energy Information Administration, from UK Department of Energy and Climate Change

---

Fossil fuels (petroleum and other liquids, natural gas, and coal) account for most of the United Kingdom's (UK) energy consumption. Although renewable energy use is growing, particularly in the electric power sector, fossil fuels accounted for 86% of total primary energy consumption in 2012.

Like the United States, the UK has experienced significant changes in its net reliance on imported fossil energy sources since 1970. Beginning in the 1980s, the UK first became a significant net coal importer following the removal of domestic production subsidies and trade barriers. With the opening of North Sea production, the UK became a significant net exporter of crude oil beginning in the early 1980s, but has been a net importer since 2005.

Rising North Sea production also enabled the UK to reduce its net imports of imported gas beginning in the mid-1980s. For almost a decade, the UK actually became a net natural gas exporter, before again becoming a net importer of natural gas starting in 2004 as consumption rose and production declined.

Even as it became a net crude oil importer in 2005, the UK remained a net exporter of refined petroleum products. However, refiners in the UK and throughout Europe face increasing challenges, including higher crudes costs and decreasing competitiveness in export markets, due in part to the rapid growth of tight oil and shale gas production in the United States which is reflected in refinery shutdowns and lower utilization rates for European refiners, including those in the UK, leading the UK to become a net importer of petroleum products in 2013....MORE

"Goldman Sachs demands Google unsend one of its e-mails"

From Ars Technica:

A court order is on the table for Google to undo Goldman Sachs' mistake. 

Goldman Sachs has demanded a court order to get Google to unsend an e-mail that the bank sent in error, according to Reuters' report Wednesday. The e-mail contained "highly confidential" information addressed to the wrong account, a mistake on Goldman Sachs' part that Google hasn't yet been tempted to rectify.

Goldman Sachs did not specify to Reuters how many clients were affected in the situation, which occurred on June 23. Reportedly, the mistake happened while a Goldman Sachs contractor was testing internal changes made to Goldman Sachs' system to meet new requirements from the Financial Industry Regulatory Authority. The contractor prepared a report with sensitive client information, including details on brokerage accounts, and e-mailed it to a gmail.com address, rather than the gs.com one she intended....MORE

Hedge Funds: Dude, Where's My Alpha?

From The Big Picture:

Source: Pension Partners

Hedge-fund assets recently eclipsed $3 trillion. One of the more popular strategies for hedge funds has been the long/short equity fund....MORE