Categories
Economics

Message of the market

Joe Saluzzi tried to get the word out. He really did make a good faith effort. This was one of his numerous appearances on Bloomberg, Fox Business News, CBS etc. The mainstream news media did not ignore him. He was interviewed for about 10 minutes in each station’s Manhattan studio. Each appearance was broadcast live. Receiving that much air time is unusual.

Joe Saluzzi comments on problems with the stock market
The temporal backdrop for this interview was particularly good. I enjoyed watching the market tickers running across the screen. They were triple stacked, and occupied a lot of screen real-estate! The results of a New York State election were reported around the 5 minute mark. I am no longer familiar enough with the NY-NJ-CT area to gauge the significance, but phrases like, “concedes the election” are portentous.

I’ve followed Sal Arnuk, @ThemisSal on Twitter, since 2012. He is Joe Saluzzi’s business partner at Themis Trading. That isn’t how I found this video. Rather, I was reading an Amazon book review, about one of Ernest Chen’s algorithmic trading books. That led me to R. Ryley’s Message of the Markets blog.

The following excerpt is from an anonymous comment on Ryley’s blog post, faithfully reproduced here under Creative Commons License by-NC-ND and replete with all-cap’s

YES. THIS IS THE MOST IMPORTANT NEWS CLIP IN THE PAST SIX MONTHS. THE THEFT OF GOLDMAN SACHS’ MICROSECOND TRADING CODE HAS FURTHER REINFORCED THIS MAN’S COMMENTS… [Such] CODE* CAN BE USED TO UNFAIRLY MANIPULATE THE MARKET IN A WAY THAT GIVES AN UNFAIR ADVANTAGE TO WHOMEVER POSSESSES IT… THEN FACTOR IN THAT 49% OF MARKET ACTIVITY IS PROGRAM [trading], WE KNOW THAT THE IMPACT…IS MATERIAL. IN OTHER WORDS, MANY MARKET PARTICIPANTS, INCLUDING RETAILERS, ARE BEING CHEATED.

In retrospect, it doesn’t seems so strange, e.g. US Taxpayers Pay For SEC to Arrange Early Release of Data to High Speed Trading Firms.

* I am not certain, but believe that Anonymous refers to the circumstances that led to former Goldman Sachs programmer Sergey Aleynikov’s conviction in 2011.

Categories
Tech

Bitcoin in the limelight: Questions for buyers and investors

DDoS attacks manipulate vulnerable markets

The vulnerable market was the Mt. Gox Bitcoin exchange. In April 2013, Mt. Gox was overwhelmed by DDoS. The point, the company speculated, was to destabilize Bitcoin and fuel panic-selling. After driving market prices down, the attackers can then rush in and buy Bitcoin at the lower price. Obviously, this isn’t fair.

Life isn’t fair but Bitcoin must be

Life may not be fair in general, but securities and currency markets require fairness and avoidance of market manipulation in order to function. Without it, they will die. Trust is essential. Apparently, Mt. Gox was robust enough to withstand this volatility. The attackers were fortunate. In their pursuit of unfair profits, they are taking a selfishly short-term view. DDoS attacks could destabilize Mt. Gox, or any other entity that serves a similar purpose. If that happens often enough, or in sufficient size, it will undermine credibility in Bitcoin.

Mt. Gox wasn’t uniquely vulnerable. In the past few months, there were other DDoS related Bitcoin extortion incidents. BTC-China was brought down in September 2013, and BIPS, a European payment provider, experienced a DDoS attack two days ago, on 26 November 2013.

Regulation and volatility

Using DDoS for extortion is possible due to Bitcoin’s lack of fraud control measures, which would usually be imposed by regulatory requirements. Of course, market manipulation and extortion are possible even when there are regulations! (I suspect that if one wanted to, one could DDoS forex exchanges.) Regulation and law enforcement is partly responsible for discouraging such behavior. Market participants’ own self-restraint and willingness to obey the rules is equally important.

Bitcoin’s current price volatility is very high. That is unsurprising for a new financial product. Volatility isn’t inherently bad, but it should be caused by normal market activity, not manipulation due to DDoS-facilitated extortion. Bitcoin price volatility will need to diminish to no more than 25% in order for it to function as a viable currency.

Structural boundaries

If I were to trade or invest using Bitcoin, my first question would be, “What are the boundary values?”

  • The number of Bitcoins is fixed at 21 million.
  • Are there are price levels that have any contextual meaning, i.e. are associated with limits? For example, stock prices are always greater than or equal to zero. For fixed income markets, negative interest rates should not be possible. Is there a scenario where Bitcoin could ever have a negative value?
  • Are there are vagaries of the block chain that would cause short term price or volume discontinuity?
  • What about market dominance due to collusion? That can happen in many markets, especially commodity markets. There are scholarly articles that establish a floor beyond which Bitcoin can no longer function, specifically, if there is collusion of selfish miners such by a Bitcoin mining pool.

Ebullience

The financial press and even well-known information security personalities seem to be caught up in the thrill of Bitcoin. The odd aspect is that some don’t seem to distinguish between good news and bad, as with Mt. Gox.

The excitement is infectious. Perhaps it is a means of escape from interminable and usually dreary economic news, as well as the powerlessness most of us feel about monetary policy and government in general.

Categories
Tech

Account hijackers

If a message originates from a familiar name or email address, its likelihood of making it through spam filters is greater.

Google described their efforts to minimize harm to users due to email account hijacking:

“Our security team…saw a trend of spammers hijacking legitimate accounts to send their messages. [We developed] a system that uses 120+ signals to…detect whether a log-in is legitimate, beyond just a password.”

Less than 1% of spam emails make it into a Gmail inbox.

The number of compromised accounts decreased by 99.7% since 2011. That’s impressive, for a sustained reduction! How does Google avoid false positives? I am so curious about the specific details of their filtering rules!

The blog post was written in March 2013. It is remarkable that the same methods continue to be effective, as Gmail spam-attackers would perceive this as a new challenge to be overcome.

120 Signals

I suspect that Google’s methods are analogous to those used by the U.S. Department of Health & Human Services’ Centers for Medicare & Medicaid Services (CMS) in detecting medically unlikely edits (MUEs). MUEs can be accidental, due to claim coding or data entry errors. MUEs can also be deliberate, when there is fraudulent intent, e.g. by filing for more services, or for more expensive services. Regardless of intent, MUE identification reduces paid claims error rates.

How will the Affordable Care Act impact existing processes for detecting MUEs, and for setting benchmarks? CMS does not disclose its MUE criteria for the same reasons that Google will not reveal details about their 120 signals.

Continuous improvement is a part of life, for email-spam account hijackers, Google and the fraud detection team at the Centers for Medicare and Medicaid Services.

I wrote a post about health care, with a much more Ellie-centric theme, a few years ago. That was when I worked as statistician for ACCCHS, Arizona’s state-administered Medicaid/Medicare program, monitoring program performance and quality of care.

Categories
physical science

U.S. Scientists top research fraud list? Concerned? Probably not.

I happened upon this story while reading Politics Daily’s[1] coverage of a Journal of Medical Ethics article about a study of retraction incidence for research papers. The article was published in November 2010. 

The study found that leading causes of invalid research were:

  • retraction due to discovery of lab error after article submission to peer-reviewed journals
  • inability to reproduce results

I see that as honest behavior. Which would be easier, trying conceal or deny a mistake, or admitting error? The latter couldn’t be easy.

Braver Path Dramatization: Researcher requests article retraction

Dear ACM or IEEE,

I am the author of that research article you featured in last month’s issue. You know, the paper that was covered by most of the scientific press and popular media because my findings had such wide-ranging implications?

Well, I just found a major error in my work as I was re-reading it today. None of the peer-reviewers caught it, nor did I, until now. Please issue a retraction in my name. I’ll return that $50,000 of prize money you awarded to me. And I’ll tell the research group at [ pick any of { IBM, Princeton Advance Studies, Google Labs, NIH, CDC, Stanford University, mongoDB, Betaworks, NVIDIA} ] who offered me that great new job based on my research, that I was wrong and understand if they rescind their offer of employment and funding….

Actually, I wish the article hadn’t used the word fraud at all, as it a study of retractions, only a small number of which were due to fraud. There were certainly some cases of outright, very predatory fraud, clearly motivated by greed. The article mentions that. But that was a small part of the total number of retracted papers. In fact, when considered in the context of relative and not absolute counts, the key finding was that the retraction rate in the U.S. was 1.64%, during a ten-year interval. This far surpasses quality standards for rate of failure in nearly every other industry.

The most troubling concerns were plagiarism and deliberate falsification. Cases of both were presented in the article. Source data was drawn from on-line medical research repository PubMed from 2000 – 2009.

The article covered some other trends. Fewer American and Japanese scientists are publishing as a percentage of the total number of publications than in the past. Other countries are now entering the ring. This doesn’t mean that the U.S.A. and Japan are in technological or academic decline! It means that researchers from other nations are gaining better access to education and research funding. That helps everyone.

Also, within the United States, research breakthroughs are becoming far less concentrated in the traditional bastions of Harvard, Stanford and University of Chicago. Duke, University of Kansas, University of Iowa, University of Southern Florida and other public and private institutions are coming their own, achieving prominence like never before.

1. Politics Daily is owned by America Online News.  AOL continues to produce quality content and services, despite the brand’s unfortunate lack of prestige and status.  AOL is much more than an outdated and unpleasant internet service provider, although that is my first thought when I see the triangular AOL logo.

Categories
Tech

Evolution Robotics

Bias is bad. My prior post could be misconstrued as pejorative commentary, unfairly targeted at Tweetup, an innocuous, and free-of-charge, client application for users of the Twitter micro-blogging service.  Twitter certainly is responsible for the silly avian-themed jargon that is steadily seeping into common vernacular, undermining my ability to sound impressive when pretentiously blathering away, as I’m doing right now. However, Idealab, the owners of the Tweetup social influence metric software did not create the Cult of the 140 Character communication standard.