Harold Garland, the most senior partner of Enlightened Capital, was in a fix. A veteran investment-theme trend chaser, he knew that the next hot trend was gold. The only trouble was, a gold expert meant a goldbug. A goldbug and the highly trained Fed-admiring professionals at Enlightened would be like brown shoes with a blue suit.
But gold was to be the latest trend, and Enlightened needed to jump on it. Garland desperately needed a workaround. And Iain Quan, a top of the line natural language recognition system programmer, was just the man for the trailblazing job...
Showing posts with label machinebeatsman. Show all posts
Showing posts with label machinebeatsman. Show all posts
Sunday, March 13, 2011
Initial Conditions
Sitting in his comfortable leather chair in front of his wide desk in his contemporary office, neatly and tastefully decorated with bright lower walls and light wood panelling, Harold Garland detected an uncharacteristic feeling in his stomach. The report he read was written by Enlightened Capital’s new associate, a graduate of Harvard who had taken a class by Kenneth Rogoff himself. Granted it had only been Economic Theory, and Prof. Rogoff had not taken her under his wing, but Darlene Padmore still had a Ph.D. in Economics from the institution. Garland believed in networking with Enlightened’s new associates once hired. Making them feel important and valued was one of those touches that made its business model work.
There was an official mission statement, but Enlightened’s unofficial mission statement was “Beat Goldman to the new opportunity and subtly point out you were there first.” Wall Street collegiality being what it was, it meant Goldman might throw them some business. Being first meant that they were not mere followers in Goldman’s wake. By necessity, that had encouraged Garland and his partners to cultivate skills more appropriate for trend-chasing industries like fashion and celebrity reporting. He himself was wryly aware of the similarity, but kept that observation to himself. It was best layered over the practice of solid professionalism.
Garland was a handsome man, with wide blue eyes and a somewhat puffed mouth underneath greying hair with distinguished styling. He was not overweight, and had not gone so when too many of his old school peers had. He had taken his MBA when Modern Portfolio Theory had been at its height; he still believed in it. Granted that business necessity had impelled him to accept the presence of anomalies before the academy had, but those anomalies fit in to his belief. MPT was an elegant creation; it truly was the smart and educated person’s answer to common sense.
Investment-theme trend-chasing cohered with his mental model perfectly. Vanguard dominating the index fund industry, there was no way to make a real splash in that field. MPT being the truth, there was no way to build a business through superior analytic capabilities. Garland had heard about value investing, but the field was full of old-fashioned carpers who knocked around MPT like they were old watchdogs growling at a new and better-trained rival. It’s true that Warren Buffett was one of them, but he was a genius. Harold Garland was no Warren Buffet. Nor was anyone else.
And besides, Harold thought to himself using the other skills he had learned in business school, old Buffett only became famous just before he became eligible for Social Security. He had spent a quarter of a century at Berkshire in near obscurity. It wasn’t exactly the career path that would be expected from the only man to get an A+ from Benjamin Graham himself. By the time Harold Garland had gotten to B-school, Benjamin Graham had passed away. There was no sense in emulating an old man when the advantages he had couldn’t be recreated.
Instead, Enlightened Capital had joined forces with progressive finance academics and became a rocket shop. Granted that there had been periodic embarrassments, starting with sovereign bonds in the mid-late ‘90s. Granted that Enlightened had been ensnared in the real estate collapse with all the other firms that counted. But that came with the territory. Everyone would like to keep their alphas high and their betas low, but sometimes beta snuck in and festered until it sprayed its pus all over the returns. Correlations in a bear market did approach 1. Since ‘08, Garland and the rest of his partners had pledged to keep an eye out for black swans. After all, it was fashionable to repent – and it did tie in with what Garland was sure to be the next fashion. The trouble was the obvious clash, which was souring his midriff.
Fighting the ill in his stomach, he put down the report and realized there were moments when even fashion turned ugly. The thought of blaming Darlene didn’t even occur to him; she had done a creditable job. Taking it out on her would have shocked him. Enlightened was a progressive, collegial shop.
“I don’t see how we can do this,” he said to Todd Myers in Myers’ office. Both offices were the same size, although Garland’s was in the corner of Enlightened’s space. Garland himself was the executive partner; Myers was the managing partner. In corporate terms, they were CEO and COO respectively. After Myers had read the executive summary, both looked like dogs that had found their bowls full of broccoli. Which was a feat for both of them, as their demeanours tended to invite the word “catlike.”
The “broccoli” was gold. Stealthily rising since 2001, the metal as an investment had a lot to recommend it. Even someone who had bought it in a rush, consequently overpaying, was bailed out by a rising trend. Corrections and consolidations were followed by spurts up, suggesting the payoff potential of a rational timing strategy. Better yet, there was an indicator that was the product of genuine academic research. As long as real interest rates were negative or unusually low – easy to quantify – gold went up because the opportunity cost of holding it was low. When real rates returned to reality, it was time to get out of gold and into something else. With this model, they could see the black swan coming!
Trouble was, the people with the expertise were real loons. Bringing in someone with the appropriate intellectual capital would have been like inviting a dog into a house full of cats. It was de rigueur for a so-called goldbug to spend half the day cursing the Federal Reserve. Everyone at Enlightened believes that America was fortunate to have the Fed. They said so, to great profit when Alan Greenspan was heading it up. Granted that there had been recent embarrassments, but they had only shifted to sotto voce. The Fed had been truly responsible for preventing another Great Depression.
Enlightened needed that cachet; the firm would have been dead without it. It had had a horrid five months after October ‘08. A CNBC panel with Doug Kass had saved them. When he said that the market presented “the buying opportunity of a lifetime” right at the March ’09 low, everyone at Enlightened had swallowed the nervous feelings in their stomach. Tim Geithner’s admittedly maladroit press conference a month earlier had given them the frights. Stoutly, they had recommended - even pleaded - to clients to buy with both hands. Leaning on the Fed had been a vital part of that strategy. It had paid off, but not without a lot of hand-holding and sceptic-soothing at first.
Todd, a triangular-faced man who was also handsome, now looked glum. “It’s either this or alternate-market private equity. And the SEC put the lid on that option once Goldman got in.” He didn’t have to say they would be reduced to the indignity of following in Goldman, Sachs’ wake.
For the first time in his life, Garland felt defeated. The only option that made sense for the firm meant bringing in a near-lunatic who would cut into a lot of Enlightened’s other business. Being tight-knit was a competitive advantage for a small firm that couldn’t afford tolerated satrapies.
There was an official mission statement, but Enlightened’s unofficial mission statement was “Beat Goldman to the new opportunity and subtly point out you were there first.” Wall Street collegiality being what it was, it meant Goldman might throw them some business. Being first meant that they were not mere followers in Goldman’s wake. By necessity, that had encouraged Garland and his partners to cultivate skills more appropriate for trend-chasing industries like fashion and celebrity reporting. He himself was wryly aware of the similarity, but kept that observation to himself. It was best layered over the practice of solid professionalism.
Garland was a handsome man, with wide blue eyes and a somewhat puffed mouth underneath greying hair with distinguished styling. He was not overweight, and had not gone so when too many of his old school peers had. He had taken his MBA when Modern Portfolio Theory had been at its height; he still believed in it. Granted that business necessity had impelled him to accept the presence of anomalies before the academy had, but those anomalies fit in to his belief. MPT was an elegant creation; it truly was the smart and educated person’s answer to common sense.
Investment-theme trend-chasing cohered with his mental model perfectly. Vanguard dominating the index fund industry, there was no way to make a real splash in that field. MPT being the truth, there was no way to build a business through superior analytic capabilities. Garland had heard about value investing, but the field was full of old-fashioned carpers who knocked around MPT like they were old watchdogs growling at a new and better-trained rival. It’s true that Warren Buffett was one of them, but he was a genius. Harold Garland was no Warren Buffet. Nor was anyone else.
And besides, Harold thought to himself using the other skills he had learned in business school, old Buffett only became famous just before he became eligible for Social Security. He had spent a quarter of a century at Berkshire in near obscurity. It wasn’t exactly the career path that would be expected from the only man to get an A+ from Benjamin Graham himself. By the time Harold Garland had gotten to B-school, Benjamin Graham had passed away. There was no sense in emulating an old man when the advantages he had couldn’t be recreated.
Instead, Enlightened Capital had joined forces with progressive finance academics and became a rocket shop. Granted that there had been periodic embarrassments, starting with sovereign bonds in the mid-late ‘90s. Granted that Enlightened had been ensnared in the real estate collapse with all the other firms that counted. But that came with the territory. Everyone would like to keep their alphas high and their betas low, but sometimes beta snuck in and festered until it sprayed its pus all over the returns. Correlations in a bear market did approach 1. Since ‘08, Garland and the rest of his partners had pledged to keep an eye out for black swans. After all, it was fashionable to repent – and it did tie in with what Garland was sure to be the next fashion. The trouble was the obvious clash, which was souring his midriff.
Fighting the ill in his stomach, he put down the report and realized there were moments when even fashion turned ugly. The thought of blaming Darlene didn’t even occur to him; she had done a creditable job. Taking it out on her would have shocked him. Enlightened was a progressive, collegial shop.
“I don’t see how we can do this,” he said to Todd Myers in Myers’ office. Both offices were the same size, although Garland’s was in the corner of Enlightened’s space. Garland himself was the executive partner; Myers was the managing partner. In corporate terms, they were CEO and COO respectively. After Myers had read the executive summary, both looked like dogs that had found their bowls full of broccoli. Which was a feat for both of them, as their demeanours tended to invite the word “catlike.”
The “broccoli” was gold. Stealthily rising since 2001, the metal as an investment had a lot to recommend it. Even someone who had bought it in a rush, consequently overpaying, was bailed out by a rising trend. Corrections and consolidations were followed by spurts up, suggesting the payoff potential of a rational timing strategy. Better yet, there was an indicator that was the product of genuine academic research. As long as real interest rates were negative or unusually low – easy to quantify – gold went up because the opportunity cost of holding it was low. When real rates returned to reality, it was time to get out of gold and into something else. With this model, they could see the black swan coming!
Trouble was, the people with the expertise were real loons. Bringing in someone with the appropriate intellectual capital would have been like inviting a dog into a house full of cats. It was de rigueur for a so-called goldbug to spend half the day cursing the Federal Reserve. Everyone at Enlightened believes that America was fortunate to have the Fed. They said so, to great profit when Alan Greenspan was heading it up. Granted that there had been recent embarrassments, but they had only shifted to sotto voce. The Fed had been truly responsible for preventing another Great Depression.
Enlightened needed that cachet; the firm would have been dead without it. It had had a horrid five months after October ‘08. A CNBC panel with Doug Kass had saved them. When he said that the market presented “the buying opportunity of a lifetime” right at the March ’09 low, everyone at Enlightened had swallowed the nervous feelings in their stomach. Tim Geithner’s admittedly maladroit press conference a month earlier had given them the frights. Stoutly, they had recommended - even pleaded - to clients to buy with both hands. Leaning on the Fed had been a vital part of that strategy. It had paid off, but not without a lot of hand-holding and sceptic-soothing at first.
Todd, a triangular-faced man who was also handsome, now looked glum. “It’s either this or alternate-market private equity. And the SEC put the lid on that option once Goldman got in.” He didn’t have to say they would be reduced to the indignity of following in Goldman, Sachs’ wake.
For the first time in his life, Garland felt defeated. The only option that made sense for the firm meant bringing in a near-lunatic who would cut into a lot of Enlightened’s other business. Being tight-knit was a competitive advantage for a small firm that couldn’t afford tolerated satrapies.
First Iteration
It got worse when Garland got home to his well-appointed condo. Compromising with the neighbours, he had gone with a more traditional interior design; he would have preferred a postmodern look like his office had. His wife Eleanor had greeted him in the stately two-story entryway with the news that their kids had discovered something called “prepping.” They were out buying foodstuffs that were way beneath the Garland family palate. In bulk and on sale, no less. For the first time in more than two months, Harold Garland needed a drink after work. Out came a bottle of Margaux 2005 from Bordeaux Millesimes.
Eleanor, wasp-waisted and poised and five inches shorter than her husband, had taken the news with equanimity. It was only a trend, and her two kids would move on to something else. Besides, it would acclimatize them to the need for economy when in the college of their choice. Once they got tired of it, she would have Randolph deliver the staples to the local food bank. They had little need of the playroom now.
Needless to say, Randolph was becoming used to bringing them in.
For Harold, his kids’ new hobby only brought up the gold dilemma. Those goldbugs were in the prepper world, he had read.
His wife was surprised to see him gulp instead of sip. He was glad of the mildly dizzy feeling that kicked in, for it had not been the best of days.
Waiting, she was rewarded to hear him complain about the dilemma. Nodding him along, Eleanor understood his plight. She knew how dependent their income and status were on catching the trends. She also knew that he solved these problems himself; he merely needed her sympathetic presence. His monologue was interrupted by Judy coming in with her latest find.
When asked by her old dad, she replied in a clear self-confident voice; “because it’s hot, Dad. It’s hot like Watson.”
Not knowing what Watson was, he asked and saw his daughter looking at him like a senior associate looked at a rich client from flyover country. He didn’t mind it, as it was good practice that would put her in good stead later in life. Having barely heard of Jeopardy!, he needed the full explanation. She preened as she gave it.
“Wow,” he said somewhat flatly. Looking disgusted, in a way only a daughter can, she flipped her body around and supervised Randolph bringing in bags of rice.
He had come home early; it was dinner time. He needed his family close now.
But, habit prevailed. Going to his home office, he relaxed in a much softer leather chair behind his oak desk. Peppered with little drawers, it was a genuine antique that weighed more than four hundred pounds but provided little chair room. Reaching into the top drawer, he pulled out his spare tablet and began surfing around for goldbug material. He had to see it himself, to see if there was any way to adapt it to a more “Enlightened” model.
What he saw made him break precedent. He went back and retrieved the bottle and glass. For the first time in his life, he worked while inebriated.
Dinner over, it had been family time. Since his kids were as busy as he normally was, it had been quality time at the dinner table. Judy was fourteen and Harold Jr. was twelve. He had a habit of referring to his big sister as “stupid” despite her straight As. Although he was exercising the privilege of twelve-year-olds, he wasn’t all that far off. Like his understated mother, Hal was a genius. Blessed by the times, he was accepted as such in his private middle school. He was an inveterate watcher of The Big Bang Theory, and chuckled at Sheldon instead of laughing out loud. What Al Bundy had been to a low-wage slacker, Sheldon was to little Hal.
His twelve-year-old charm was in full display when he rattled off what Watson could do. It turned out that Carnegie-Mellon was deep into language recognition, and IBM’s proprietary research showed the design was converging to a singularity. Hal concluded, in his twelve-year old way, that it was only a matter of time before Watson came to Wall Street. With the economic self-confidence of the child born to wealth, Harold the Younger allowed that a Watson for Wall Street would make his old man retire.
Tickled, Harold Senior chuckled himself. The kid was a genius, all right. After both had vanished to do their homework, he had put to Eleanor the proposition that it was time for Hal to be groomed to fill his father’s shoes. “He can boss ninety computers,” Harold said with the warm glow of chilled wine in him. “At least they’d be rational.” Not like those goldbugs!
As he took to bed, his mind drifted to the educational plans for his son instead of work. He wanted to keep his mind off the gold question, as it would make for a tough sleep. After all – reminding himself to get back on track when habit kicked in - computers were progressive while those goldbugs were simply backward. There was no way the two could –
Then he woke up fully. Ignoring his wife’s surprised look, he pulled out his smart phone and texted a message to his office E-mail.
Eleanor, wasp-waisted and poised and five inches shorter than her husband, had taken the news with equanimity. It was only a trend, and her two kids would move on to something else. Besides, it would acclimatize them to the need for economy when in the college of their choice. Once they got tired of it, she would have Randolph deliver the staples to the local food bank. They had little need of the playroom now.
Needless to say, Randolph was becoming used to bringing them in.
For Harold, his kids’ new hobby only brought up the gold dilemma. Those goldbugs were in the prepper world, he had read.
His wife was surprised to see him gulp instead of sip. He was glad of the mildly dizzy feeling that kicked in, for it had not been the best of days.
Waiting, she was rewarded to hear him complain about the dilemma. Nodding him along, Eleanor understood his plight. She knew how dependent their income and status were on catching the trends. She also knew that he solved these problems himself; he merely needed her sympathetic presence. His monologue was interrupted by Judy coming in with her latest find.
When asked by her old dad, she replied in a clear self-confident voice; “because it’s hot, Dad. It’s hot like Watson.”
Not knowing what Watson was, he asked and saw his daughter looking at him like a senior associate looked at a rich client from flyover country. He didn’t mind it, as it was good practice that would put her in good stead later in life. Having barely heard of Jeopardy!, he needed the full explanation. She preened as she gave it.
“Wow,” he said somewhat flatly. Looking disgusted, in a way only a daughter can, she flipped her body around and supervised Randolph bringing in bags of rice.
He had come home early; it was dinner time. He needed his family close now.
But, habit prevailed. Going to his home office, he relaxed in a much softer leather chair behind his oak desk. Peppered with little drawers, it was a genuine antique that weighed more than four hundred pounds but provided little chair room. Reaching into the top drawer, he pulled out his spare tablet and began surfing around for goldbug material. He had to see it himself, to see if there was any way to adapt it to a more “Enlightened” model.
What he saw made him break precedent. He went back and retrieved the bottle and glass. For the first time in his life, he worked while inebriated.
Dinner over, it had been family time. Since his kids were as busy as he normally was, it had been quality time at the dinner table. Judy was fourteen and Harold Jr. was twelve. He had a habit of referring to his big sister as “stupid” despite her straight As. Although he was exercising the privilege of twelve-year-olds, he wasn’t all that far off. Like his understated mother, Hal was a genius. Blessed by the times, he was accepted as such in his private middle school. He was an inveterate watcher of The Big Bang Theory, and chuckled at Sheldon instead of laughing out loud. What Al Bundy had been to a low-wage slacker, Sheldon was to little Hal.
His twelve-year-old charm was in full display when he rattled off what Watson could do. It turned out that Carnegie-Mellon was deep into language recognition, and IBM’s proprietary research showed the design was converging to a singularity. Hal concluded, in his twelve-year old way, that it was only a matter of time before Watson came to Wall Street. With the economic self-confidence of the child born to wealth, Harold the Younger allowed that a Watson for Wall Street would make his old man retire.
Tickled, Harold Senior chuckled himself. The kid was a genius, all right. After both had vanished to do their homework, he had put to Eleanor the proposition that it was time for Hal to be groomed to fill his father’s shoes. “He can boss ninety computers,” Harold said with the warm glow of chilled wine in him. “At least they’d be rational.” Not like those goldbugs!
As he took to bed, his mind drifted to the educational plans for his son instead of work. He wanted to keep his mind off the gold question, as it would make for a tough sleep. After all – reminding himself to get back on track when habit kicked in - computers were progressive while those goldbugs were simply backward. There was no way the two could –
Then he woke up fully. Ignoring his wife’s surprised look, he pulled out his smart phone and texted a message to his office E-mail.
Second Iteration
Darlene had been a great help. She someone who not only had been at Carnegie-Mellon’s language project, but also could conceptually reverse-engineer Watson’s algorithms.
Garland’s decision to hire crack programmer Iain Quan was almost instantaneous. A refugee from Carnegie-Mellon, Quan had already mapped out a plan built on daily gold reports on the Internet. Tracking gold with the finest-grained inter-day data Enlightened could afford, the news reports throughout the day would be integrated with the metal’s movements. Word-matching would be used to process details on the varied explanations for why gold rose and fell. It required a large news database, but that was okay. Curious, Iain had looked at the goldbug world and became more interested. Some of his school chums, nice guys, had talked like those people. After stumbling upon the “Original Gold Bug,” Iain had christened the new project DiNES: The Distinguishing Natural English System. Like any computer professional, he had thought beyond the specific purpose for which he had been contracted.
Despite copious use of opens-source modules, a community chest to which he himself had contributed, it took four months for him to get DiNES 1.0 off the ground. One more month, and he had 1.34 and something to show the top boss.
Said Harold Garland visited the temporary workspace at the foot of the conference table. The table was largely for show, and he was pleased to show a hard at work top-of-the-line programmer to visiting clients. Had Iain been on salary, he would be pulling down north of $50,000 per month. He was that good, and that needed. As it was, he was being paid by the job with advances every month.
By 1.34, it was a job well done. Testing it took yet another month, and not because Iain Quan wanted to bleed anything out. His $500,000 bill was fixed no matter how long it took. The month was needed for a thorough real-time test, including a Turing test.
Sure enough, the journalists on the gold beat treated DiNES as a soon-to-be-distinguished cubbie sans sources. Not knowing that they were corresponding with a computer program, because Iain himself handled the E-mailing on DiNES’ end, they not only were beat by “Sandy Grey” but they also started copying “him”. Iain wondered if a “Sandy Grey” module should be added to the DiNES project. He decided against it, reluctantly, because it would take too much time. Enlightened Capital wasn’t a journalism outfit; it was an investment firm. DiNES 2.0’s job would be to find algorithms that could tease out profitable trading strategies for gold. Although a fruitful path for the concept, a full Turing-test module didn’t work for the client.
Iain was surprised to see two kids with his employer. The boy was clearly Mr. Garland’s son; by inference, the older girl was his daughter. She had dark eyes while the boy’s were blue; her mouth was thinner than her younger sibling’s. As was her body.
Running through the demonstration, Iain carefully deployed the E-mail correspondence. After showing some real-time samples, he asked DiNES to print out an on-the-spot report. “Show it to a gold trader,” he offered.
The three went away, with the boy sporting an excited grin. It only took a couple of minutes for the report to be scanned, E-mailed, read, and responded to by the head of gold trading at a friendly full-service firm. He wondered to Harry what an executive partner would be doing with a journalist. “A good one – caught something I didn’t think of – but why the reporter?” Garland responded that Enlightened was getting into gold, but in a non-controversial way. Journalism seemed the best place to start.
Iain saw a pleased middle-aged man with a smiling daughter and a visibly excited son. “It works. It really does,” said Garland the genuinely satisfied client.
His son was far more voluble. Walking over beside Iain, his chatterboxing showed a solid conceptual knowledge of natural language processing. Little Hal was so assertive, his big sister took offence. “Don’t mind her, she’s stupid,” he said placidly to his new big buddy.
“I’m warning you,” she snapped back while whipping out her cell phone, “you’re going to get cybersmacked!”
“Like I care.” Brandishing his own smart phone, he quickly texted a message with “mr ltr” at the end.
Iain was fitting in. He found more and more people stopping by to see if DiNES 2.0 was up and running. Not wanting to bother the programmer while programming, they stepped in and out until the testing was being done. When he was finished the to-be-refined guts of the trading algorithm, he began attracting a crowd.
DiNES 2.21 was a bit of a disappointment. Statistical analysis showed no consistently profitable trading strategies, despite the enticingly patterned chart. Backtesting, using virtual real time, showed more promise. Since the program didn’t know whether it was 2012 or 1912, there was no way it could "backcheat" unless programmed to. It ran though thirty years of real time in minutes.
What it ended up with was a model that was an elaborated hybrid of multiple-regression decision analysis and multivariable arbitrage pricing theory. Some of the elaborations were qualitative instead of quantitative, although the final values and weightings all had to be real numbers. Thankfully, one of the stable components of the model was the level of real interest rates. The delta of the inflation rate was also there, but had less significance. Money supply changes flickered in and out. DiNES had come up with a crisis model that looked for headline news with words associated with disasters, and had sifted through to find ones that would move gold. There was a grab bag of others, including (interestingly enough) shorter-term statistical tests as compared with longer-term ones. In the virtual real time test, DiNES 2.21 became pretty good at getting into gold when it was consolidating. It had beaten buy-and-hold, and had largely avoided the 1980-2001 bear market. After a basic search, Iain was amused to see DiNES treat the “Brown bottom” gold sale cynically.
At first, he had unveiled to visitors a full-tooth smile that busy people use when they want to be polite to guests. As the testing continued, he became more relaxed. The project was in the bag once the real real-time testing was through.
Garland’s decision to hire crack programmer Iain Quan was almost instantaneous. A refugee from Carnegie-Mellon, Quan had already mapped out a plan built on daily gold reports on the Internet. Tracking gold with the finest-grained inter-day data Enlightened could afford, the news reports throughout the day would be integrated with the metal’s movements. Word-matching would be used to process details on the varied explanations for why gold rose and fell. It required a large news database, but that was okay. Curious, Iain had looked at the goldbug world and became more interested. Some of his school chums, nice guys, had talked like those people. After stumbling upon the “Original Gold Bug,” Iain had christened the new project DiNES: The Distinguishing Natural English System. Like any computer professional, he had thought beyond the specific purpose for which he had been contracted.
Despite copious use of opens-source modules, a community chest to which he himself had contributed, it took four months for him to get DiNES 1.0 off the ground. One more month, and he had 1.34 and something to show the top boss.
Said Harold Garland visited the temporary workspace at the foot of the conference table. The table was largely for show, and he was pleased to show a hard at work top-of-the-line programmer to visiting clients. Had Iain been on salary, he would be pulling down north of $50,000 per month. He was that good, and that needed. As it was, he was being paid by the job with advances every month.
By 1.34, it was a job well done. Testing it took yet another month, and not because Iain Quan wanted to bleed anything out. His $500,000 bill was fixed no matter how long it took. The month was needed for a thorough real-time test, including a Turing test.
Sure enough, the journalists on the gold beat treated DiNES as a soon-to-be-distinguished cubbie sans sources. Not knowing that they were corresponding with a computer program, because Iain himself handled the E-mailing on DiNES’ end, they not only were beat by “Sandy Grey” but they also started copying “him”. Iain wondered if a “Sandy Grey” module should be added to the DiNES project. He decided against it, reluctantly, because it would take too much time. Enlightened Capital wasn’t a journalism outfit; it was an investment firm. DiNES 2.0’s job would be to find algorithms that could tease out profitable trading strategies for gold. Although a fruitful path for the concept, a full Turing-test module didn’t work for the client.
Iain was surprised to see two kids with his employer. The boy was clearly Mr. Garland’s son; by inference, the older girl was his daughter. She had dark eyes while the boy’s were blue; her mouth was thinner than her younger sibling’s. As was her body.
Running through the demonstration, Iain carefully deployed the E-mail correspondence. After showing some real-time samples, he asked DiNES to print out an on-the-spot report. “Show it to a gold trader,” he offered.
The three went away, with the boy sporting an excited grin. It only took a couple of minutes for the report to be scanned, E-mailed, read, and responded to by the head of gold trading at a friendly full-service firm. He wondered to Harry what an executive partner would be doing with a journalist. “A good one – caught something I didn’t think of – but why the reporter?” Garland responded that Enlightened was getting into gold, but in a non-controversial way. Journalism seemed the best place to start.
Iain saw a pleased middle-aged man with a smiling daughter and a visibly excited son. “It works. It really does,” said Garland the genuinely satisfied client.
His son was far more voluble. Walking over beside Iain, his chatterboxing showed a solid conceptual knowledge of natural language processing. Little Hal was so assertive, his big sister took offence. “Don’t mind her, she’s stupid,” he said placidly to his new big buddy.
“I’m warning you,” she snapped back while whipping out her cell phone, “you’re going to get cybersmacked!”
“Like I care.” Brandishing his own smart phone, he quickly texted a message with “mr ltr” at the end.
Iain was fitting in. He found more and more people stopping by to see if DiNES 2.0 was up and running. Not wanting to bother the programmer while programming, they stepped in and out until the testing was being done. When he was finished the to-be-refined guts of the trading algorithm, he began attracting a crowd.
DiNES 2.21 was a bit of a disappointment. Statistical analysis showed no consistently profitable trading strategies, despite the enticingly patterned chart. Backtesting, using virtual real time, showed more promise. Since the program didn’t know whether it was 2012 or 1912, there was no way it could "backcheat" unless programmed to. It ran though thirty years of real time in minutes.
What it ended up with was a model that was an elaborated hybrid of multiple-regression decision analysis and multivariable arbitrage pricing theory. Some of the elaborations were qualitative instead of quantitative, although the final values and weightings all had to be real numbers. Thankfully, one of the stable components of the model was the level of real interest rates. The delta of the inflation rate was also there, but had less significance. Money supply changes flickered in and out. DiNES had come up with a crisis model that looked for headline news with words associated with disasters, and had sifted through to find ones that would move gold. There was a grab bag of others, including (interestingly enough) shorter-term statistical tests as compared with longer-term ones. In the virtual real time test, DiNES 2.21 became pretty good at getting into gold when it was consolidating. It had beaten buy-and-hold, and had largely avoided the 1980-2001 bear market. After a basic search, Iain was amused to see DiNES treat the “Brown bottom” gold sale cynically.
At first, he had unveiled to visitors a full-tooth smile that busy people use when they want to be polite to guests. As the testing continued, he became more relaxed. The project was in the bag once the real real-time testing was through.
Third Iteration
Iain found out differently when he talked to Mr. “Call me Harold” Garland. The time criterion for a genuine test was too long, and Garland had decided that it was better to modify it for client contact. In that way, DiNES 3.0 was born.
That version was easier than it looked. All Iain needed to do was to hook it up to buys of gold futures contracts, and the SPDR Gold Shares ETF, done on clients’ initiative. Thanks to March ’09, Enlightened had more than sufficient chits with three large investment firms to give DiNES a look at their archived order books. Programming the outputted sales patter was as easy as turning a receiver into a transmitter; only minor modifications were needed.
Pleased with DiNES’ first output, Iain sent its first sales script over to an old college friend. They had sat beside each other in economics class; the friend had gone into marketing. He was the best sounding board Iain could find.
After exchanging pleasantries and catching up, Iain’s old college bud said that the patter was too dull, too unobtrusive. “It’s like the guy who got fired first on the first season of The Apprentice. Polite, but no flash.”
So, DiNES 3.1 was indicated. There being no database of English words arranged by emotional content, Iain racked his brain for a while – late at night when the office was virtually empty – until an energy-drink-inspired brain flash came to him. While taking a break and surfing the news, it occurred to him that the tabloid Websites were more vibrantly written than the more restrained virtual broadsheets. That was it!
Hacking together a comparison algorithm, he cobbled together a word database tabulated by emotional impact; it was culled from comparisons of same-event headline stories of tabloids and broadsheets. Elections, wars, disasters, shocking crimes, the whole bag. When looking at the modified DiNES 3.1, he felt confident enough to begin the final modifications.
Since everyone was curious, Garland had decided to make the unveiling of the completed DiNES an office-wide mini-celebration. The retail guys had their cells hooked up to their office lines and joined too.
Although not formally announced, DiNES was a wide-open secret. Neatly working around the personnel problem and firm-policy clash, it was truly the new vista for Enlightened Capital. There was no need to bring a gold nut into the firm that would gum up the works. The rationality of a full-fledged trader-analyst computer would be Enlightened’s ticket into the burgeoning gold world. Although its trading unit had yet to be field-tested, the virtual real time testing was good enough to match it with any of those loons – better, even. It was good enough for analyst work as it was. Garland regretted the fact that Hal's schooling had to take priority over this historic event.
Iain had hooked in a speech synthesizer to the completed DiNES 3.13. Audio output fit in with the speech he was sure the top boss would make.
Wanting to be brief, Garland spent most of his time complimenting the crack programmer. Iain smiled thinly, not having much use for praise. What mattered was repeat business.
“And now, I ask our Iain Quan to output the first client presentation from Enlightened’s new Distinguished Natural English System!” Iain, hearing “our” as a disguised re-up, didn’t mind the name mangle.
Waiting a second for a dramatic pause, he pressed the “OK” button on the DiNES window and sat back in his chair, smiling. It was the moment they had all been waiting for.
The synthesized voice rang clearly through the hush:
“Are you fed up with central bank incompetence? Do you think that Ben Bernanke should retire and hide from his constituents? Then you need to invest in Gold! Gold, the time-tested way to beat back government buffoonery and politicians’ knavery… “
As he heard the historic program belt out something about the bailout being the “crime of the century,” Garland began to get ill again. His subordinates, with one exception, began looking appalled. Some looked at the computer, open mouthed. A few looked at each other. Garland himself looking at Myers concealing a smile, he resigned himself to his done deal.
Thankfully, although it was historic, it was only a computer program. A few jokes with his subordinate colleagues would make things right.
That version was easier than it looked. All Iain needed to do was to hook it up to buys of gold futures contracts, and the SPDR Gold Shares ETF, done on clients’ initiative. Thanks to March ’09, Enlightened had more than sufficient chits with three large investment firms to give DiNES a look at their archived order books. Programming the outputted sales patter was as easy as turning a receiver into a transmitter; only minor modifications were needed.
Pleased with DiNES’ first output, Iain sent its first sales script over to an old college friend. They had sat beside each other in economics class; the friend had gone into marketing. He was the best sounding board Iain could find.
After exchanging pleasantries and catching up, Iain’s old college bud said that the patter was too dull, too unobtrusive. “It’s like the guy who got fired first on the first season of The Apprentice. Polite, but no flash.”
So, DiNES 3.1 was indicated. There being no database of English words arranged by emotional content, Iain racked his brain for a while – late at night when the office was virtually empty – until an energy-drink-inspired brain flash came to him. While taking a break and surfing the news, it occurred to him that the tabloid Websites were more vibrantly written than the more restrained virtual broadsheets. That was it!
Hacking together a comparison algorithm, he cobbled together a word database tabulated by emotional impact; it was culled from comparisons of same-event headline stories of tabloids and broadsheets. Elections, wars, disasters, shocking crimes, the whole bag. When looking at the modified DiNES 3.1, he felt confident enough to begin the final modifications.
Since everyone was curious, Garland had decided to make the unveiling of the completed DiNES an office-wide mini-celebration. The retail guys had their cells hooked up to their office lines and joined too.
Although not formally announced, DiNES was a wide-open secret. Neatly working around the personnel problem and firm-policy clash, it was truly the new vista for Enlightened Capital. There was no need to bring a gold nut into the firm that would gum up the works. The rationality of a full-fledged trader-analyst computer would be Enlightened’s ticket into the burgeoning gold world. Although its trading unit had yet to be field-tested, the virtual real time testing was good enough to match it with any of those loons – better, even. It was good enough for analyst work as it was. Garland regretted the fact that Hal's schooling had to take priority over this historic event.
Iain had hooked in a speech synthesizer to the completed DiNES 3.13. Audio output fit in with the speech he was sure the top boss would make.
Wanting to be brief, Garland spent most of his time complimenting the crack programmer. Iain smiled thinly, not having much use for praise. What mattered was repeat business.
“And now, I ask our Iain Quan to output the first client presentation from Enlightened’s new Distinguished Natural English System!” Iain, hearing “our” as a disguised re-up, didn’t mind the name mangle.
Waiting a second for a dramatic pause, he pressed the “OK” button on the DiNES window and sat back in his chair, smiling. It was the moment they had all been waiting for.
The synthesized voice rang clearly through the hush:
“Are you fed up with central bank incompetence? Do you think that Ben Bernanke should retire and hide from his constituents? Then you need to invest in Gold! Gold, the time-tested way to beat back government buffoonery and politicians’ knavery… “
As he heard the historic program belt out something about the bailout being the “crime of the century,” Garland began to get ill again. His subordinates, with one exception, began looking appalled. Some looked at the computer, open mouthed. A few looked at each other. Garland himself looking at Myers concealing a smile, he resigned himself to his done deal.
Thankfully, although it was historic, it was only a computer program. A few jokes with his subordinate colleagues would make things right.
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