High Frequency Trading: The Rise of the Machines

As a professional trader, you are confronted daily with all kinds of dynamics and situations that require a flexible and adaptive mind. You are faced with multiple variables constantly interacting with each other and your task is to process ever-changing information quickly and profitably. Valuations arbitrage, reflexive supply-and-demand dynamics, and structural changes are recurrent landmines in the typical day of traders and money managers.

We accept this “dangerous” line of work for only two reasons: monetary compensation and pride in being part of capital markets, that transmission mechanism without which innovation and creativity would be prisoners of their own ethereal state.

As a society, we are ready to strike compromises in return for a system that will allow the ethereal state of our creativity to turn into reality. We allow market insiders like market makers, broker-dealers, and others to have small advantages over us mortal investors in order to have them create the positive externalities that help us build a more sophisticated economic system. We give market makers and specialists a privileged look at the order flow (the supply and demand of stocks) in exchange for their commitment to maintaining orderly markets whenever an imbalance occurs.

We give systemic firms like JP Morgan and Goldman Sachs privileged access to liquidity via the Federal Reserve so that the banking system and capital markets can continue to serve us in our quest to invent, produce, and distribute new products. But sometimes things turn out more like a bad inland casino rather than a better market… We may still be reeling from the systemic economic collapse of last year, but new structural changes with potential negative externalities are already at our door.

For months I have witnessed strange dynamics in the way markets behaved: liquidity issues, intra-day volatility, and a constant disconnection between technical, sentiment and fundamental inputs. Markets often go through periods of irrationality, but this time it felt different.

As a professional trader and an educator on markets, my sensitivity level is higher than normal and I immediately began conducting research to make sense of my discomfort. This process pointed consistently to one element: high frequency trading or as I like to call it “the rise of the machines.”

What is High Frequency Trading?

High frequency trading (HFT) was, until recently, a topic confined to Wall Street insiders. Only in the last few weeks has it become a mainstream subject of debate via articles on theNew York Times, the Washington Post, and interviews on CNBC (yes even CNBC’s clueless anchors can now spell HFT).

The reason for this foray into the mainstream media is the potential negative ramifications HFT can have for all of us: investors, entrepreneurs, and just plain hopeful citizens.

But first, let’s define HFT as it is a very technical classification that, nonetheless, encompasses many different things. Generally speaking, HFT is high velocity trading based on mathematical algorithms that create huge daily volume on different electronic exchanges and platforms. It is machine against machine—endless trading in order to capture fractions of pennies in profits. But, so far so good: the machines provide liquidity to all of us. The owners of the machines (financial institutions) make an all-American profit and the liquidity aggregators (electronic exchanges) provide competition to other exchanges in the most capitalistic way.

But what happens if we scratch the surface? Like Michel de Montaigne, the famed Renaissance scholar, once said: “There is no man so good, who, were he to submit all his thoughts and actions to the law would not deserve hanging ten times over.”

High frequency algorithmic trading is ridden with issues:

Volume. Machine-driven trading is over 60% of trading volume on a daily basis and in some confined cases it can be as high as 90%.

Adaptability. Machines are unthinking units that do not adapt to human reactions. HFT algorithms are based on correlations and historical relationships, which are great guidelines for trading and investing but by no means they can be used blindly (see: 1987 portfolio insurance, long-term capital management 1998, credit default swaps 2008, mortgage-backed securities 2008…the list of quant-related disasters is a sad one).

Exclusivity. HFT can only work by using incredibly fast and powerful computers that also must be placed in the exchanges as proximity helps the speed. Few people can afford the computers and/or the co-location fees charged by the electronic exchanges.

Flash quotes. Some brokers have access to quotes of orders before anyone else. By exploiting the speed of their machines, they can either arbitrage price differentials or potentially front-run clients. Another abuse of flash quotes (called flash because they last one–to-three milliseconds) is that they can be used as teaser quotes to gauge supply and demand without the risk of being hit due to their quickness.

Rebates. Many high frequency traders trade not for profit but for rebates paid by the electronic platforms to attract liquidity. This escamotage incentivizes useless and toxic volume.

While these are only the most immediate concerns about HFT, they have a potentially disproportionate influence on the cost of running our capital markets. The HFT lobby pushes the argument that they create positive externalities by exploiting improving technology—but there is a difference between volume and liquidity.

If over 60% of trading is toxic, it will go away in a nanosecond and most likely it will dissipate right when investors and money managers need it the most. This could cause a huge liquidity vacuum and a 1987-type of event. Liquidity is created by market players with a stake in the game, not by casino-like machines. Flash quotes and “predatory algorithms” also raise the cost of execution for the necessarily slower institutions like pension funds and mutual funds. Additionally, the surreal tempo of machine trading makes trading for all more expensive as we now have to prepare for the irrational moves and volatility of markets when executing our trades.

I love this business and I love technology, but checks and balances are needed to preserve our capital markets. Little adjustments can be made to reduce systemic risk, like re-instating circuit breakers that cut off program trading when price changes accelerate beyond certain parameters, like investigation or stopping flash quotes that drive front running, like making good on teaser quotes for longer than just three milliseconds, and so on. In the end, we need to understand that capital markets are here not to destabilize our economy, but to serve us as a society and help us make better lives.

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Source:

http://gbr.pepperdine.edu/blog/index.php/2009/08/10/1341/

The Future of Search: Social Relevancy Rank

FriendFeed has recently launched a search feature, and so Facebook search must be coming soon.

Real-time Web search (of streams of activities) is a hot topic right now. Everyone, including Google and Microsoft, recognizes the value of using trusted contacts as filters. What was once called social search is now called real-time search, but this time it will really happen. First, it will be applied to streams and then to the Web in general.

What we are about to get is a Social Relevancy Rank. Whenever you search streams of activity, the results will be ordered not chronologically but by how relevant each is to you based on your social graph. That is, people who matter more to you will bubble up. How does this work? Well, there will be a formula, just as there is a formula for Page Rank.

Solution 101: Rank by Friends and People You Follow

Here is an idea so obvious that it is surprising Twitter has not implemented it already: front-load search results with people you follow. When you search for, say, "Wilco" on Twitter today, the results are in the chronological order. That is not really relevant because you do not know who most of these people are. But if instead you could see people you follow, the search results would be much more useful.

This is not possible on Twitter today, but it already works great on FriendFeed. There, results are filtered or ranked based your social graph. This is not difficult for FriendFeed to do because, on the one hand, it knows who you care about and, on the other, it applies its advanced feed search technology to your social graph:

This sounds awesome, but there is a problem. "Wilco" works well as a query because the band has just released a new album, but many other queries would return no results. Simply put, your friends on Facebook and people you follow on Twitter can't possibly have an opinion on every topic you may be interested in. This is a problem of sparse data: trusted opinions are scarce.

Small Worlds and Taste Neighbors

To solve the problem of sparse data, we need more data... obviously. One possible solution is to incorporate other sources that you trust (i.e. broaden your social graph). As a next step, search results could rank people you may not be directly following but who are being followed by people you follow. Or in Facebook-speak, friends of friends. You could argue that you are not familiar with their opinions and so cannot yet trust them, but given the small world phenomenon, their contributions are often just as valuable.

Another step could be to include people with similar tastes, so-called taste neighbors. This approach is common among vertical social networks such as Last.fm, Flixster, and Goodreads. These networks have ideas about which people, other than your friends, are like you. However, this is a costly calculation and takes time. In order for Twitter to do something like this, it would have to compare people based on links or perform semantic analyses of tweets over time. Yet even though this is a difficult problem, it will be solved in time.

The Influencers and the Crowd

Aside from using the "second degree" of your social graph or taste neighbors, a Social Relevancy Rank could front-load influencers. In the absence of any other metric, someone who is followed by hundreds of thousands of users is likely more relevant to you than someone you don't know at all. Using number of followers as a weight might be a good way to order the rest of the activity stream.

In general, combing through countless tweets from strangers is not terribly useful anyway. Just as people have stopped looking at anything beyond the first page of results on Google, sifting through pages of tweets in chronological order gets tedious quickly. What needs to be incorporated into the Social Relevancy Rank is the aggregate sentiment of the crowd: a score that tells you yay or nay and gives you an opportunity to drill into more results if you choose.

The Quest for the Perfect Filter

There is no such thing as a perfect formula. Even Page Rank isn't perfect. Yet we all use it and find it useful. Much as Page Rank has been adapted and tuned to search the web, Social Relevancy Rank will evolve over time to help us make sense of endless streams of activity. This ranking will have a profound impact on how we tap into our friends' opinions.

It will change the face of general Web searches in time, too. Today, results are automatically ranked by relevancy and freshness. Once Social Relevancy Rank is factored in, search results will be re-ordered based on social relevancy.

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Source:

http://www.readwriteweb.com/archives/future_of_search_social_relevancy_rank.php

Tags:

FriendFeed search feature, Facebook search, real-time Web search, Google, Twitter, Twitter search, PageRank, Microsoft, trusted contacts as filters, social search, Global IT News, Social Relevancy Rank, metrics,

Posted via email from Global Business News

Russian, Ukrainian Tug of War Over History

Russian historians widely recognize June 27, 1709 as the date their country became a great power. Russia that day defeated an invading Swedish army at Poltava in Ukraine, where Ukrainian forces allied with Sweden were also vanquished. The Battle of Poltava is not just history, but another source of ongoing friction between Moscow and Kyiv.

Poltava is recognized as the pivotal battle in the Great Northern War, a 21-year struggle, in which Russia replaced Sweden as the great power of Northern Europe in the early 18th century. Poltava also ended Ukrainian aspirations for independence from Russia.

"Traitor Mazepa"

The leader of the Ukrainian forces, Ivan Mazepa, remains a source of controversy between Moscow and Kyiv. Mazepa was Ukraine's so-called Hetman, or leader of its Cossack military forces.

In Russia he is considered a traitor who betrayed an oath of allegiance to Czar Peter the Great, the victorious commander at Poltava. The term "traitor Mazepa" remains a common Russian term. He was cast as a villain in works by Russian poet Alexander Pushkin and composer Peter Tchaikovsky, and also excommunicated by the Russian Orthodox Church. That decision is still in effect, despite recent high level requests from Ukrainian political and church leaders to rescind the move.

But Ukrainians say the Hetman was forced to side with Sweden, because Russian ruler Peter the Great failed to honor a 1654 treaty to protect their land against Polish attacks. But until the collapse of the Soviet Union, Russia considered the same treaty to have been an agreement by Ukraine for an everlasting union with its northern neighbor.

Ukrainians also consider Mazepa to have been a great reformer, who built schools and publishing houses, expanded higher learning, and supported the arts, including a distinctly Ukrainian style of church architecture that dominates the modern skyline of Kyiv.

Mazepa's portrait appears on Ukraine's 10-hryvna currency note, and the country will soon unveil a monument to him in Poltava. Last month, the Russian Foreign Ministry issued a statement condemning the statue as divisive. At a recent Poltava conference in Moscow, Vladimir Artamonov of the Russian Academy of Sciences told fellow historians the battle liberated Ukraine from Swedish invaders.

Artamanov says Poltava was not a tragedy for Ukraine, but rather a tragedy for Mazepa and his followers who sought to subordinate "Little Russia" to Poland. Russians often use the term "Little Russia" as a synonym for Ukraine. Many Ukrainians resent it as demeaning.

Genocide issues

Speaking at the same Moscow conference, Ukrainian historian Serhiy Poltavets said it is important to consider why Mazepa allied himself with Sweden. Poltavets says documentary evidence indicates that Mazepa's goal was to create an independent Ukraine; that his goal contradicted the political and geopolitical aims of the Russian state is something, which cannot be denied.

Moscow and Kyiv are also at odds over historic assessments of an artificial famine during the period of Soviet land collectivization in the early 1930's that claimed the lives of millions, particularly in Ukraine, Russia and Kazakhstan. Ukrainians consider it an act of genocide. The Kremlin says food was intentionally withheld from peasants as a class, but not any ethnic group, and therefore cannot be considered a violation of the United Nations Genocide Convention, which does not mention class.

Another point of contention is Ukraine's World War II guerillas, who fought Soviets and Nazis after mistakenly welcoming Germans as liberators. They are seen as freedom fighters by Ukrainian President Viktor Yushchenko and as fascist collaborators by his Russian counterpart, Dmitri Medvedev.

Last month, Mr. Medvedev announced creation of a government commission to help prevent what he said was falsification of history that harms the interests of Russia. Mr. Medvedev says Russians are increasingly being confronted with what is known as historic falsification, and perhaps many have noticed that these attempts are becoming increasingly harsh, mean, and aggressive.

In Ukraine, President Viktor Yushchenko condemned foreign and domestic attempts to brand Ivan Mazepa as a traitor. Mr. Yushchenko says enough to looking at history through foreign eyes. He calls on Ukrainians to look at Mazepa with their own eyes, with Ukrainian eyes.

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Tags:

Viktor Yushchenko, Dmitri Medvedev, Russian history, Ukrainian history, Ivan Mazepa, Serhiy poltavets, Soviet Union, Nazi Germany, Genocide, World War II, United Nations Genocide Convention, Kyiv, Moscow, Kremlin, Global Development News,

Posted via email from Global Business News

Tuition Soars in India

Once a fortnight, Bharati Prayag, a driver in New Delhi, used to treat himself to a chicken curry and a quarter bottle of rum. Earning a salary of 7,000 rupees ($144) a month and living in a hovel far from his wife and three children back in Shivan, a village in the state of Bihar, the curry and rum served to lift his spirits momentarily. But a year ago, his wife complained that the village school teacher was frequently absent leaving the pupils with no proper instruction.

Knowing his children would have no future without an education, 45-year-old Prayag, now sends home 800 rupees ($16) every month to pay for private tuition in maths and English for two of his children. "I don't mind forgoing my little treat. Their future is more important," he said. Like millions of poor Indians, Prayag has to send his children to a state school because it is free. But he knows the education they are getting there is mediocre and must be supplemented by a private tutor. Some Indians, both in villages and in urban slums, are so dismayed at teacher absenteeism in state schools that they make huge sacrifices to enrol their children in private schools.

A study conducted by Pratham, a non-governmental organisation providing education to under-privileged children, found that 65 per cent of slum schoolchildren in Hyderabad, south India, were registered at private schools. Mohammed Ansari, a farmer in Haryana, near New Delhi, says the teacher at his son's school is sometimes absent for weeks on end. "My son started school at [the age of] six. After three years, he still couldn't write a sentence or do simple addition," said Ansari.

Education system criticised

The malaise runs deep and wide; while the poor are unhappy with state schools and hire tutors for a basic education, the middle class is unsatisfied with the education provided at the top private schools. The middle class hires private tutors to compensate for declining teaching standards in private schools so that their children perform well in exams and secure a place at a good university.

"The mismatch between demand and supply is crazy. The shortage means that students have to score 95 per cent or more in their exams to get admission in the university of their choice," said New Delhi parent Anisa Tiwari. Tiwari's son, Nishant, 20, secured a place last year at St Stephen's College - an elite institution in New Delhi - largely because he scored 97 per cent in his final maths exam. "In India, if you don't get into a top university, you're wasting your time. So you have to make that superhuman effort to score top marks," Nishant said. Despite being exceptionally bright, he had tutors throughout secondary school to help him with maths, physics and chemistry.

A recent survey by the Associated Chambers of Commerce and Industry of India (Assocham) shows that middle class families spend one-third of their income every month on private tuition. The survey revealed that the use of private tutors has increased by between 40 and 45 per cent in the last few years.

Maths and sciences

Assocham's interviews with 5,000 students and parents across 11 cities in India indicated that maths, physics and chemistry were the main subjects for which tutors were needed. "Many schools conveniently push the ball back to parents, to tell them to engage private tutors for their kids. This is a serious failure in the education system," says D S Rawat, Assocham's secretary-general.

The result is a parallel education system in India. More than 80 per cent of tutors in the survey said that parents hired them to compensate for the deficiencies of school education. But Anuradha Awasti, a former maths teacher at Springdales School in New Delhi, says that tutoring weakens the students' independence and self-direct learning capabilities. She believes private tutorship hinders a child's reasoning and analytical abilities, and places too much emphasis on exams as opposed to genuine learning.

"With a tutor around, children are being spoon-fed instead of learning themselves and relying on their own resources and figuring things out for themselves. Tutors are a crutch," Awasti told Al Jazeera. Mohini Verma, an English teacher at Step-by-Step School just outside Delhi, says a child's extra-curricular activities should include time to play, daydream and relax."It saddens me that they have no space to breathe with all that pressure from so early on," she said.

Tuition traffic

Just as Prayag's sons trudge 3km to their tutor's house in another village, Akash Gupta, 12, is picked up each evening by the family driver and taken across New Delhi in rush hour traffic to his maths teacher's home in Saket. He changes out of his uniform in the car and has a snack on the way. "It's one of the best private schools in Delhi but the teaching is pathetic. His teachers give him homework on subjects they haven't covered properly in class so he can't do it alone," says Akash's mother Neha, a graphic designer.

"I'm a working mother with little time, so I had to get a tutor." Throughout urban India, on weekday evenings, a frenzied two-way traffic takes place. Tutors on their humble scooters rush across town to the homes of affluent children. If they cannot go to the children, the children are ferried to their homes or to coaching centres. Centres with names such as The Cambridge School in New Delhi and The Harvard Centre in Faridabad, just outside the capital, have sprung up all over India. Every evening, hundreds of children troop through the gates of these plush new buildings with air-conditioned rooms and manicured lawns.

Education has always been highly prized by Indians, not so much for its intrinsic worth but as the key to a better life. However, just 20 years ago, engaging a tutor for your child was an abnormality. Now, not having a tutor is a sign of parental dereliction. "You have the brightest students getting tutors to score good grades. It's become a ubiquitous crutch. Parents feel secure and the children also feel they have a safety net under them," child psychiatrist Megna Kapoor tells me.

Race to university

July is a stressful month for students who have applied to university. Jawaharlal Nehru University in the capital, for example, receives around 100,000 applications but accepts only 1,500. At the hugely respected Indian Institute of Management, 70,000 students fight every year for 200 places. At St Stephen's College 12,000 applicants compete for 450 places.

Despite the fact that half of India's population is below the age of 25, the Indian government has not built a new university for 50 years. India has 338 government universities. A government commission looking into the state of higher education said last month that it needed 1,500 universities. Kapil Sibal, India's education minister, has promised long overdue root-and-branch reform of the educational system, saying it had to be 'de-traumatised' for the sake of pupils and parents. He also plans to encourage foreign universities to open shop in India to alleviate the shortage of places. He also wants the Grade 10 exam for 15-year-olds to emphasise grading a pupil's work throughout the year so that the focus switches from marks-based to knowledge-based learning.

Blaming absenteeism, laziness

But critics of the private tutor culture say lazy teachers and mediocre teaching - even in some of the country's top private schools - is to blame. In state-owned rural schools, absentee teachers are virtually the norm. In Bihar, where Prayag comes from, 40 per cent of all schoolteachers are absent at any given time.

Instead of being in the classroom, they give private tuition to bump up their government salaries. Experts always point out that enrolling poor Indian children in school is easy. Their parents prize education above all else. It is keeping them in school that is difficult because of what they say is mind-numbingly boring teaching. "After a year or two, they drop out because it doesn't seem worthwhile. If they aren't going to school, then their parents send them out to earn to supplement the family income," says Mohini Kapoor, an education consultant.

When Prayag's sons talked about dropping out of school in Shivan a few years ago, he would have none of it and threatened to beat them. "This is about their future," he said. "Without maths and English they will never escape poverty."

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Source:

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Tags:

Chambers of Commerce and Industry of India Assocham, Global Best Practice, India has 338 government universities, Springdales School in New Delhi, Indian Education system, India Education, Indian Teachers, Kapil Sibal, India's education minister,

Posted via email from Global Business News

A Reclusive Billionaire Gives Away His Fortune

One by one, speakers rose to toast the elderly gent with baggy pants and a shy, gaptoothed smile.

"Of course, he didn't wear a tie tonight," teased one. Another called attention to the honoree's cheap watch and the plastic bag that serves as his briefcase. The joshing at a Manhattan gathering would have been nothing out of the ordinary except that the man pulling a worn blue blazer over his head in mock modesty was none other than the onetime billionaire, Chuck Feeney.

Never heard of him? No surprise there.

Over the years, the frugal 76-year-old has made a fetish out of anonymity. He declined to name his foundation, Atlantic Philanthropies, after himself, registering the $8-billion behemoth in Bermuda to avoid U.S. disclosure laws. He lavishes hundreds of millions of dollars on universities and hospitals but won't allow even a small plaque identifying him as a donor.

"We just didn't want to be blowing our horn," he explains in a rare interview at his daughter's Upper East Side apartment. The party was to celebrate a biography of the elusive tycoon by Irish journalist Conor O'Clery, titled "The Billionaire Who Wasn't: How Chuck Feeney Secretly Made and Gave Away a Fortune," published last fall.

Feeney said he cooperated with the book and submitted to an interview because he is driven by a new public mission: nudging hedge fund heavies and silicon scions into "giving while living." It is the latest trend in philanthropy and one that he, more than anyone, jump-started several years before billionaires like Bill Gates and Warren E. Buffett followed suit.

Feeney, a founder of the conglomerate Duty Free Shoppers, said he wants to "set an example" to address "that layer up there of people," the ones, as he puts it, who have "a jillion dollars. . . . I mean, honestly, if you ask them, 'Tell me what you're doing with your money this week?' they couldn't spend a fraction of what they're accruing." Most foundations, set up after the donor's death, dribble out barely more than 5% of their assets each year, the legal minimum.

But Feeney, raised in a blue-collar Irish Catholic family in New Jersey, quietly transferred the bulk of his fortune to his foundation when he was 53. Then, eight years ago, he instructed his board to pay out every last dollar by 2016. So far: $4 billion down, $4 billion to go. Atlantic Philanthropies is spreading its wealth at the rate of more than $400 million a year, more than any U.S.-based family foundation apart from Bill & Melinda Gates and Ford.

As Feeney sees it, there is too much misery in the world to justify delay. "I'm not going to die until I can spend it," he vows with a merry chuckle. Feeney's biggest beneficiary has been Cornell University, which he attended on the GI Bill, earning spending money by selling sandwiches to fraternities. Over four decades, he has donated an astonishing $588 million to the Ithaca, N.Y., campus, almost all of it anonymously.

Many of Feeney's grants are still directed to traditional bricks and mortar -- $60 million for a Stanford biomedical center and $125 million for a UC San Francisco cardiovascular complex. But others are iconoclastic: Fighting homophobia among South African Muslims. Lobbying against the death penalty in New Jersey. Buying medical supplies for Cuban-trained doctors. Funding a Washington office for Sinn Fein during the Irish peace negotiations.

Feeney built his global enterprise through cutthroat competition and uncanny business intuition. He speaks fluent French and Japanese. And he still hop-scotches from Dublin to Da Nang seeding new projects.

But his demeanor is affable and unprepossessing and his conversational style is hesitant. He is allergic to introspection. Direct questions send him into vague digressions leavened with humorous asides. In the tiny world of stratospheric wealth, Feeney is a man of yin and yang: extravagant charity coupled with personal penny-pinching. "It's the intelligent thing to be frugal," says the erstwhile billionaire, who jokingly refers to himself as "the shabby philanthropist."

He once owned six luxurious homes from the French Riviera to Mayfair to Park Avenue. These days, he owns none, instead hunkering down in a cramped one-bedroom rental in San Francisco with his second wife, Helga, his former secretary. He raked in billions selling duty-free cognac, perfume and designer labels. But you won't catch Feeney in a Hermes tie or Gucci loafers. He once met the prime minister of Ireland with his drugstore glasses held together by a paper clip.

Feeney doesn't own a car and prefers buses to taxis. Until he turned 75, he flew coach. Now, making excuses for wobbly knees, he upgrades with frequent flier miles. Fine dining? "There are restaurants you can go in and pay $100 a person for a meal," he muses. "I get as much satisfaction out of paying $25. I happen to enjoy grilled cheese and tomato sandwiches."

Niall O'Dowd, a friend of Feeney and editor of Irish-America magazine, reflects: "The way he copes with his wealth is to never remove himself from his working-class persona. He keeps grounded by acting like it hasn't happened to him -- like basically he is still the same guy." At the book party, most of the guests were bused in from the Garden State: former classmates from St. Mary's of the Assumption High School and an extended clan of Feeney-Fitzpatricks, including two of his five children.

Feeney joked about his "rent-a-crowd" but, amid the toasts and roasts, seemed moved: "Who was it who said, 'My cup runneth over?' " He planted a kiss on the head of his 21-year old great-nephew, Dennis Fitzpatrick, who has cerebral palsy and uses a wheelchair. He autographed copies of the book while seated at a small table with Dennis by his side.

"He'd send my parents $50,000 for our college educations," nephew Daniel Fitzpatrick, 50, recalled. "But if you went out to have a beer with him, he'd check the bar bill. . . . If I left the light on in a bedroom, he'd say, 'By the way, you left a light on.' And I knew I'd better go up and turn it off."

O'Clery, former international business editor of the Irish Times, spent two years traveling with Feeney and investigating a financial empire that had been sheathed for decades in obsessive secrecy. He unfolds a story of ferocious entrepreneurship that operated, he concluded, "on the edge of legality but was never corrupt." Shortly after graduating from college, Feeney, who had served in the U.S. Air Force in Japan during the Korean War, moved to Europe. With a partner he knew from Cornell, Robert Miller, he began peddling duty-free liquor to sailors.

The two went on to sell cars to American soldiers based in Europe and Asia. Eventually, profiting from a postwar boom in tourism, they built Duty Free Shoppers into the biggest retailer of liquor and cigarettes in the world and a global purveyor of luxury goods. Their ingenious schemes stretched the limits of the duty-free concept. As O'Clery explains, Duty Free Shoppers allowed a tourist in Mexico, for instance, to peruse a catalog and choose a cashmere sweater to be shipped from Amsterdam to his home in the U.S. Leaving Mexico, he could declare the faraway sweater as "unaccompanied baggage" and avoid paying duty. Feeney and Miller operated with Swiss bank accounts and offshore headquarters in Lichtenstein, Monaco and the Netherlands Antilles. They registered assets in the names of Danielle, Feeney's French wife, and Miller's Ecuadorean wife, Chantal, as a precaution against the long arm of the U.S. Internal Revenue Service.

Today, Feeney makes no apologies. "Most large companies structure their affairs so that they minimize their tax payments," he says, rocking back on an armchair in his daughter's apartment. "As long as you do it within the law, it's OK." For Duty Free Shoppers, publicity was to be avoided at all cost, to ward off not just tax collectors but also competitors. "If you had a machine to make money, you wouldn't blow your horn and say copy me, copy me," says Feeney, whose annual share of dividends from the business reached $155 million in 1988, making him richer at the time than Rupert Murdoch, David Rockefeller or Donald Trump.

Why did he decide to give it away, leaving himself with a net worth then that dipped below $1 million? "I'm an easygoing guy," he shrugs. "I like to eat my grilled cheese and tomato sandwiches quietly. I don't like people to say, 'Look over there; he's eating a grilled cheese and tomato sandwich.' " In 1990, Feeney had separated from Danielle. And, in the divorce, she retained their mansions and luxury apartments, along with $100 million. "The wealth got to him," recalls his nephew, Fitzpatrick. "He got disgusted by it, in my opinion. He said, 'This expensive heavy-duty lifestyle doesn't fit me.' "

Feeney gave his children, friends and colleagues copies of Andrew Carnegie's 1889 essay "The Gospel of Wealth," in which the robber baron-turned-philanthropist admonishes rich men to use their fortunes to help others and "to set an example of modest unostentatious living, shunning display." In the realm of modesty, Feeney tended to extremes. For years, Atlantic Philanthropies staff couldn't tell their families where they worked. Beneficiaries, few of whom knew the origin of their grants, signed agreements acknowledging that the funding would halt if its source were revealed.

It was only in 1997 that the existence of Atlantic Philanthropies became public during the sale of Duty Free Shoppers to French luxury goods magnate Bernard Arnault. Court papers revealed that Feeney's share of the company had been transferred to a foundation. The news that a huge donor had surfaced -- bigger than renowned charitable institutions founded by the Pew, Lilly, MacArthur, Rockefeller and Mellon families -- rocked the philanthropic world, although many had long suspected something was afoot.

Today, though Atlantic Philanthropies lists its grants on its website, it still won't issue news releases touting accomplishments. Black tie thank-you dinners, along with plaques, remain verboten. Feeney's practical reason for not plastering his moniker on buildings is to attract matching donors who would want naming rights -- as was the case at Stanford with high-tech tycoon Jim Clark and at a UC San Francisco cancer facility with venture capitalist Arthur Rock.

Does Feeney have no ego, then? "It doesn't matter who put the building up," he says. "The important thing is that it happens." In Vietnam, he recounts with a chuckle, "the people at the Da Nang General Hospital felt so bad that we wouldn't put our name on the hospital that they painted it green" -- shamrock green. He pauses, adding, "Which used up a lot of paint."

Although his parents were American-born, Feeney's attachment to the land of his ancestors runs deep. The Republic of Ireland in the 1980s was plagued by high unemployment, a brain drain and the festering guerrilla war to the north. Anonymously, Feeney began pouring money into renovating Ireland's seven universities, along with two in Northern Ireland.

He offered $125 million for postgraduate research if the Irish government would match the amount, nearly 20 times what the Republic was spending a year. Soon, Ireland's best and brightest flocked to the new research institutes. In all, Atlantic Philanthropies has spent more than $1 billion in Ireland.

In 1993, O'Dowd, who had worked with Feeney to promote U.S. naturalization for Irish immigrants, asked him to join in what would become the Connolly House Group, named after the Belfast headquarters of Sinn Fein, the political arm of the Irish Republican Army. The small, secret group of Irish Americans offered the newly elected Clinton administration a back-channel to negotiate a cease fire between Britain and the Irish Republican Army.

"At the time, it was risky business to be seen 'talking to terrorists'--that was the label," said former Rep. Bruce Morrison, one of the group. Feeney was intensely involved in the negotiations that led Clinton to grant a visa to Sinn Fein leader Gerry Adams, and he funded a Washington office for Sinn Fein to the tune of $750,000.

"It was New Jersey working class meets Belfast working class," O'Dowd recalled of a secret meeting between Feeney and Adams in a Dublin safe house. "These two guys understood each other right away." The peace process was ultimately successful, and Feeney has since funneled millions into reconciliation programs in Northern Ireland. "The only way you're going to solve things with your friends or enemies is to sit down and talk to them," he says today. "It didn't seem right to me that Irish people were killing Irish people."

On the coffee table in his daughter's living room, Feeney opens Bill Clinton's recent bestseller "Giving." He turns to the chapter "How Much Should You Give and Why?" and reads from statistics derived from U.S. income tax data showing that if the top 14,400 taxpayers gave a third of their income, the total would be about $61 billion.

Feeney shakes his head. "People who wouldn't miss it," he muses. "Sixty-one billion in one year!" And why isn't it happening? "People traditionally collect money. I guess there is an attraction to be known as a wealthy person," he says. "It's not my role in life to tell them what they should be doing. . . . I'm just convinced if people gave money to things they've identified as being in the public interest, they'd get great satisfaction out of it."

Feeney mentions one of his favorite charities, Operation Smile, which sponsors surgeons to operate on children with cleft palates in developing countries. He tells of watching a little girl in a waiting room sitting with her hands covering her mouth. "I kept an eye on her," he recalls. "After she had the operation and she was smiling [like], 'It's not the ugly me you knew before. It's the new me.' "

On another occasion, he says, a man in a restaurant called him over and said, "Do you realize you educated me in this business? I had one of your scholarships . . . and here I am now, the general manager of this chain. " O'Clery, who hung out with Feeney for several years at P.J. Clarke's, the Manhattan pub, before broaching the topic of a book, attributes Feeney's generosity to growing up with charitable parents and in a neighborhood where people helped one another.

He calls his subject an "enigma. . . . He likes to make money, but he doesn't like to have it. He travels all over the world, but in a way, he's never left Elizabeth, N.J." Feeney suggests with a cryptic smile, "There's a thin line between sanity and the other side. Some people might even say the idea of giving money away is crazy."

For those folks, Feeney has a Gaelic proverb: "There are no pockets in a shroud."

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Source:

http://articles.latimes.com/2008/mar/08/local/me-feeney8

Tags:

LA Times, Atlantic Philanthropies, Duty Free Shoppers, Chuck Feeney, Bill Gates, Warren E. Buffett, founder of the conglomerate Duty Free Shoppers, Irish Catholic, Cornell University, Bernard Arnault, IRA, Sinn Fein, Korea, Japan, Vietnam, Global Best Practice,

Posted via email from Global Business News

Five More Search Tools You Should Know

Have you ever needed to see the search results for another city — maybe because you want to see what PPC ads are shown somewhere else?

Have you ever needed to see search results from a different country, or in a different language? Maybe you’re into real time search, and you’d love a place to find the latest photos and videos being shared on Twitter. Or perhaps you’re planning a vacation abroad, but you’re not sure when is the best time to visit Europe.

It’s time again for another roundup of the latest and greatest search tools and search engines, and in this article, I’ll share five such sites that will answer the above questions (and more). This is the fourth in my occasional series profiling under-the-radar search tools. Links to the previous three are at the end of this article.

SearchMuffin

Look, I don’t name ‘em, I just use ‘em and write about ‘em if they’re cool. And this one is SearchMuffin has a simple premise: Type in a keyword and choose a city from the dropdown menu, and it’ll show you the Google search results that match. Think of it as a sort of geo-targeted competitive research/PPC research tool. It’s about the easiest way I know of to see the PPC ads that appear in other cities.

And best of all, it’s not just limited to major U.S. cities; at the moment, there are 262 choices in the dropdown menu, including such non-metropolises as Roseville, California, and Arvada, Colorado. (No disrespect intended to Rosevillites and Arvadians.)

Glearch

Let’s expand our horizons beyond 262 U.S. cities. What if you needed to quickly see some search results from other countries and/or other languages? Glearch (again, I don’t name ‘em) is an international meta search engine that lets you search by country, by language, and/or by search engine. You can take those three options and customize each to build just the query you want.

Roooby

We’ve written a fair amount about real time search in the past few months, but we haven’t focused too much on the visual element — people posting photos and videos of what they’re doing now. Roooby is one of several real time search engines that capture media, but one of the few that surface both photos and videos. (Although, to be frank, Roooby could do a better job of finding videos by scanning sites such as Qik.com, TwitVid.io, and others that host live video.)

Roooby isn’t the only player in this space. TwitCaps, TwitPicGrid, Pingwire, and Twicsy offer similar real time image search engines.

Spezify

Speaking of media and images, here’s the most visual search tool I’ve ever seen: Spezify. The best way I can describe it is a sort of visual meta search engine. It pulls in results from Yahoo, Bing, Twitter, Flickr, YouTube, and even eBay and Amazon to create a fairly stunning search results page.

This is serious eye candy. There’s a settings page where you can choose the sources and types of content (images, text, video) you want included. But to be frank, the focus on visuals means the search results have no context whatsoever. You can move vertically and horizontally through the results, but you have no idea why you’re seeing what you’re seeing. It’s innovative to be sure, but for this searcher, it’s too lacking in functionality.

Joobili

Finally, here’s one for our readers in Europe, or for our readers traveling to Europe. It’s called Joobili, and it’s a travel/event search engine with a twist: Rather than telling the search engine what you want to do or where you want to go, you tell it when. There’s a cool date-based slider on the home page to get you started, and once you’re in the results, Joobili lets you see results based on categories (Arts, Sport, Nature, etc.), by country, or by keyword.

If you create an account, Joobili will let you save events to a wish list or a “went” list. You can also rank events to help other users make decisions on what to do and where to go. It’s a clever approach, but as I hinted above, it only covers Europe.

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Source:

http://searchengineland.com/five-more-search-tools-july09-22766

Tags:

TwitCaps, TwitPicGrid, Pingwire, Twicsy, real time image search engines, Spezify, SearchMuffin, Glearch, Joobili, Roooby, real-time Web search, Google, Twitter search, PageRank, Yahoo, Bing, Twitter, Flickr, YouTube, eBay, Amazon, Qik.com, TwitVid.io,

Posted via email from Global Business News

What Can Replace Efficient Markets Theory?

The most interesting thing about the efficient markets hypothesis is not whether it is valid or not – clearly it is not – but how it has managed to remain so influential for so long. At a recent conference in London on the subject, organised by the CFA Institute, Professor Andrew Lo of Massachusetts Institute of Technology offered the audience a simple explanation: “physics envy”.

This was a reference back to the early inspiration of the Nobel economics laureate Paul Samuelson, who set out to find for economics a set of fundamental laws that would do for the dismal science what Newton’s laws of thermodynamics had done for physics, and from which a rigorous general theory with practical uses could subsequently be developed.

Using such building blocks as utility theory, equilibrium and the principle of no arbitrage (“no free lunches”), this led Mr Samuelson and his many successors to develop what we have come to know as the discipline of microeconomics that is universally taught to every finance and economics student at university and business school. The efficient markets hypothesis and the notion that stock prices follow a random walk are offshoots of this approach.

The attempt to bring order and an overarching theoretical framework into analysis of the seemingly unruly behaviour of financial markets was a temptation that has for years proved too great for academics (and many market participants) to resist, but it has turned out to be a long and largely fruitless journey. The problem of course, as Prof Lo has helped to demonstrate with his empirical studies of the random walk, is that the financial markets simply don’t lend themselves to deductive theory as well as the physical world.

If a theoretical approach is not firmly grounded, it is not surprising that the predicted consequences that flow from it should fail to show up consistently in the way that investors and markets actually behave. Behavioural finance has grown to become a popular alternative approach precisely because it does appear to explain more clearly how investors, individually and collectively, appear to act. In Prof Lo’s words: “Economic systems involve human interactions, which almost by definition are more complex than interactions of inanimate objects governed by fixed and known laws of motion.”

The real beauty of the efficient markets hypothesis, and the explanation for its longevity in the face of consistent empirical evidence that it is invalid, surely lies in its beguiling simplicity. As the future is uncertain and many of the key variables that concern investors cannot be predicted with confidence, a theoretical structure that appears to offer a way to live with uncomfortable reality has obvious attractions.

Prof Lo’s own response has been to develop what he calls the adaptive market hypothesis, which seeks to draw on the insights of neuroscience and evolutionary biology. The hypothesis aims to create a framework that seeks to relate the behaviour of financial markets to a number of different factors, including the emotional condition of market participants at different points in time and the current balance of advantage between competing groups of market participants.

“Market efficiency,” he says “cannot be evaluated in a vacuum, but is highly context-dependent and dynamic, just as insect populations advance and decline as a function of the seasons, the number of predators and prey they face, and their abilities to adapt to an ever-changing environment.”

What is at work in financial markets, he believes, is a Darwinian process of “survival of the richest”. The implications of this approach are interesting. One is that the relationship between risk and return will not be stable over time, which seems right both intuitively and empirically. Another is that, rather than markets becoming steadily more efficient over time, as early proponents of the EMH proclaimed, this world is one in which new profit opportunities will continue to emerge at a constant rate.

This is the engine that provides the continuing incentive for active managers to remain in the market. But they will need to be innovative and adaptive to changing market conditions if they are to remain successful, Prof Lo argues. One-trick ponies risk going out of business before their kind of market next comes around. Most important of all, investors cannot rely on the comforting message of the efficient market hypothesis that all you need to do to obtain an expected return is to take the appropriate level of risk.

The biggest problem with this new approach, as with all alternatives to EMH, including behavioural finance, is that it doesn’t give investors a simple metric for understanding what to do. Its great merit, however, is that it appears to relate to the complex and uncertain world that we all actually inhabit, something the efficient markets hypothesis has never done.

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Source: http://www.ft.com/cms/s/0/cf6d096a-6d7a-11de-8b19-00144feabdc0.html

Tags:

CFA Institute, Professor Andrew Lo, Massachusetts Institute of Technology, MIT, “physics envy”, behavioural finance, Global Economic News, Darwinian process, “survival of the richest”, “Market efficiency”, financial markets,

Posted via email from Global Business News