Saturday Links: Sunday edition! Yeah, that's right. I didn't get around to writing this yesterday.
How the Flash Crash Trader’s $50 Million Fortune Vanished -- Bloomberg Markets -- Investigative piece on Navinder Singh Sarao's fortune, which is tied up in a complicated web of offshore investments. Sarao, dubbed the "Flash Crash Trader" and "The Hound of Hounslow", was convicted for fraudulent trading in the financial markets. Interestingly, aged almost 40, he lived in and traded from his bedroom in his parents' house. He went on to make roughly $50 million from futures trading. US regulators claim he helped cause the Flash Crash of May 2010. After having been extradited by his home country England and subsequently sent to Chicago, Sarao was ordered to pay $38.4 million to the CFTC and US Justice Department. I'm working on a post about the accusations myself; watch this space for more. I'm not going to defend Sarao's trading strategies, which may have involved an HFT practice called "spoofing", but I think it's ridiculous this matter had to be settled in the US and I must say it's nothing short of embarrassing if one individual trader can break the international financial markets from his bedroom. I mean, if that's really true, how stable and trustworthy can today's automated markets be?!
A Litany of Problems With p-values -- Statistical Thinking -- Informative post about the shortcomings of null hypothesis testing and p-values. Practitioners will find this extremely useful. From personal experience, I can say that null hypothesis testing only looks easy from the outside. It's extremely easy to calculate p-values, after all. Press a button in the statistical software of your choice. But to make educated inferences you should look beyond the numbers and ask yourself whether you would fully trust your statistical tests: If you're testing a potential trading idea, would you put your own money into it?
Germany in the Age of Trump -- Project Syndicate -- Commentary by former German foreign minister and vice chancellor Joschka Fischer on the United States' turn inward, towards nationalism and perhaps even isolationism. Focusing on Germany, Fischer outlines how the resulting change in the world order would affect other countries that have relied on America's military might for protection. Germany has been among the chief beneficiaries, enabling it to concentrate on becoming an economic powerhouse rather than a military force that can defend itself in case of a conflict.
Forget Dow 20,000 — the Boom Times Are Over. Is Democracy Next? -- Foreign Policy -- Slightly polemic argument that democracy and liberalism may be in for tough times. Raising interesting questions: Is capitalism paired with democratic values the best model to generate prosperity and security, as has been believed throughout the 20th century, or could China's model of capitalism without democracy prove more successful? Has the past century's economic growth in Western countries really been the result of a good political system or has it merely been a byproduct of population growth? Must the Western world expect declining economic growth and dwindling prosperity now that the growth of its population is slowing down?
What defines a nation’s identity -- The Economist -- From the magazine's "Daily Chart" blog comes this illustration of how much weight the citizens of different countries give to certain factors that determine whether a person is accepted as somebody sharing the same nationality. For instance, being able to speak the national language seems to be the most important aspect for all countries that were part of the poll. Germans and Swedes don't seem to care much about another person's religion. For Greeks sharing national customs and being Christian is apparently a big deal.
Is Steve Bannon the Second Most Powerful Man in the World? -- Time -- Portrait of the man who, in his new role as Chief White House Strategist, has not only helped Donald Trump get elected by shaping the president's narrative of a movement towards a new political order in America, but who might also become one of the most powerful people behind the scenes in Washington. Whether Trump likes Bannon getting this much attention remains to be seen. If Trump really is a puppet, like many of his critics and now Time magazine opine, the question to ask would be: Whose hand is up Trump's ass? Bannon's? Putin's? (Excuse the groaner. That one was irresistable.) Personally, I believe the president is perfectly capable of forming his own ideas though... for better or worse.
I didn't come across many interesting articles this week, but the following two grabbed my attention:
Ex-Otkritie Trader Gets 12 Years for ‘Arrogant’ Bonus Fraud -- Bloomberg -- Shows that banker trials are far from over. Courts and regulators are still cleaning up the mess left by too much shady business that's been conducted in the industry; and apparently heinous dealings continued even after the financial crisis has made the public wary of bankers and basically everybody working in finance. This article is about ex-trader George Urumov's fraudulent schemes, from which he personally gained $40 million.
Speed Traders’ ‘Stupid’ Plan for Fast Network Halted in U.K. -- Bloomberg -- Just for laughs, article describing a proposal by high-frequency trading outfits DRW Holdings, Jump Trading and KCG Holdings to build radio masts as high as the Eiffel Tower. Rejected by local officials because it was "too incredibly stupid for us to even contemplate".
This week I liked three articles/blog posts in particular.
How Deutsche Bank Made a $462 Million Loss Disappear -- Bloomberg Businessweek -- Excellent investigative article shedding light on a dubious 2008 deal between Deutsche Bank and Monte Dei Paschi that threw the Italian private bank into jeopardy and Deutsche into a sustained legal battle.
Taming the Chaebols -- Project Syndicate -- Insightful commentary by Korea University professor Lee Jong-Wha on the power of chaebols, South Korea's large and mostly still family-owned conglomerates. With the impeachment of South Korea's president Park Geun-hye and her government trapped in a web of corruption, this is a timely and interesting read about the connections between the chaebols, including Samsung Electronics (which makes up 20% of the country's GDP), and South Korean politics.
Fundamental Principles of Statistics -- Frank Harrell: Statistical Thinking -- Short blog post by Mr. Harrell listing principles that he follows in his practice of statistics, and which I fully share. If your work entails statistical analysis (and how to communicate the results), you'll most likely agree, too.
Earlier today I was in Charlie's Portobello Road Café in Notting Hill again. No matter what the weather is like, Portobello Road is always busy at the weekend and so was the café. Wherever I live, I'm always on the lookout for a cosy café. For example, in Hamburg I mostly went to the Savory Bistro in Harvestehude. I don't like the big coffee chains like Starbucks, McCafé and what else is out there. One of the advantages of living in a city as vibrant as London is that you have so much to explore when you move away from the touristy paths and into areas where Londoners actually live. So there are really many opportunities to find such small cafés.
Despite the fame Notting Hill gained thanks to the film of the same name, it is still mostly just that: A place to live (if you can afford it). You won't find any attractions there. Of course, Portobello Market is an exception, but Charlie's café is at the very beginning of Portobello Road, where the street is not yet crammed with people, and tucked away from the street. Check it out!
Update: Unfortunately, on my recent trip back to London I had to find out that Charlie's café has been closed and replaced by a hipster restaurant. Too bad, but what can you do when rents keep going up...