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Chinese Stock Risks

Posted by Peter on December 11, 2008
Posted in: China, Investing.

There are lots of small Chinese companies trading on U.S. stock exchanges that look at first glance to be ridiculously underpriced. One reason for the low prices are that it’s harder than you might expect to enforce U.S. law on Chinese companies that have few or no assets in the U.S.

The most blatant example I’ve seen is Eternal Technologies Group Inc, which has ignored a judgment in a lawsuit that seems minor compared to the cash the company reports having, with the result that a receiver has been appointed who is likely to collect some money in ways that badly hurt stockholders who bought before the lawsuit.
Another hint at how little the company cares about stockholders (at least those in the U.S.) is the careless way their press releases are written: “5. Radification of the elecrion of the auditors” (they managed to spell election correctly on the prior line, so it’s not simple ignorance).

I’ve noticed problems with other U.S. traded Chinese companies that leave me uncertain which of them can be trusted. I’ve been trading stocks listed on the Hong Kong Stock Exchange a fair amount, and haven’t noticed any similar problems there. I presume the stronger cultural and/or legal ties are more effective than anything that can be accomplished by U.S. law.

The Indian Clerk

Posted by Peter on December 4, 2008
Posted in: Book Reviews.

Book review: The Indian Clerk: A Novel by David Leavitt.
This book portrays the characters of mathematicians and related society in England circa WWI, although it doesn’t provide much help at understanding the math.
It does a good job of capturing the eccentricities of people who are obsessed with math. One quote that seemed particularly apt: “It’s as if each of the integers is one of his personal friends”, which reminds me of the analysis in Keith Devlin’s book The Math Gene. But this realism means that the characters aren’t sufficiently likable or exciting for me to want such a lengthy story about them.
One aspect of the book which puzzles me is when he suggests Ramanujan died of lead poisoning. He cites A. B. Young as a source of information on Ramanujan’s illness, in a way that suggests that Young supports that diagnosis. So I was surprised when I checked and saw that Young concludes he died of a liver parasite.

Convergence08

Posted by Peter on November 29, 2008
Posted in: Science and Technology. Tagged: , , , .

Convergence08 had an amazing number of interesting people in attendance. No one person stood out as unusually impressive – it was more that the average was unusually high for a 300 person gathering. I’ll list many small ideas, which partly reflects the fact that I was trying to sample a wide enough variety of sessions that I didn’t manage to absorb any one presentation in depth.
Genescient is a new company whose founders include SF author Greg Benford. It has a strain of fruit flies bred for lifespans more than 4 times normal, and has used their DNA to identify substances that might improve human lifespan. It sounds like they will soon offer dietary supplements which have little risk and a hope of slowing down aging by some hard to predict (probably small) amount.

Advice from Eliezer Yudkowsky (responding to a concern that transhumanists have few children): don’t reproduce until you can code your child from scratch.

Several ideas from a session run by Anders Sandberg:

  • AntiGroupware is designed to remove many social pressures from group decision-making
  • Once it’s easy to make copies of people, political campaigns will be run by a large number of copies. [This assumes that democracy can attempt to survive – are copies going to be denied votes?]
  • Politicians should be selected from losers of the game Diplomacy [It might be hard to keep them from deliberately losing, but with big incentives winning plus a low probability of any one loser becoming a politician, it might work.]

Ideas from a session run by Milton Huang:

  • Keeping Skype video connections open for hours at a time changes remote interactions between two people in ways that make them seem very different from telephone conversations, and more like being physically together
  • We should try to implement a way to transmit hugs remotely
  • We might be able to make people (especially those with autistic tendencies) experience more empathy via an “empathy machine” that measures and reports on what others are feeling

Global Catastrophic Risks conference

Posted by Peter on November 20, 2008
Posted in: Molecular Assemblers (Advanced Nanotech), Science and Technology. Tagged: , , , .

The Global Catastrophic Risks conference last Friday was a mix of good and bad talks.
By far the most provocative was Josh‘s talk about “the Weather Machine”. This would consist of small (under 1 cm) balloons made of material a few atoms thick (i.e. needed nanotechnology that won’t be available for a couple of decades) filled with hydrogen and having a mirror in the equatorial plane. They would have enough communications and orientation control to be individually pointed wherever the entity in charge of them wants. They would float 20 miles above the earth’s surface and form a nearly continuous layer surrounding the planet.
This machine would have a few orders of magnitude more power over atmospheric temperatures to compensate for the warming caused by greenhouse gasses this century, although it would only be a partial solution to the waste heat farther in the future that Freitas worries about in his discussion of the global hypsithermal limit.
The military implications make me wish it won’t be possible to make it as powerful as Josh claims. If 10 percent of the mirrors target one location, it would be difficult for anyone in the target area to survive. I suspect defensive mirrors would be of some use, but there would still be serious heating of the atmosphere near the mirrors. Josh claims that it could be designed with a deadman switch that would cause a snowball earth effect if the entity in charge were destroyed, but it’s not obvious why the balloons couldn’t be destroyed in that scenario. Later in the weekend Chris Hibbert raised concerns about how secure it would be against unauthorized people hacking into it, and I wasn’t reassured by Josh’s answer.

James Hughes gave a talk advocating world government. I was disappointed with his inability to imagine that that would result in power becoming too centralized. Nick Bostrom’s discussions of this subject are much more thoughtful.

Alan Goldstein gave a talk about the A-Prize and defining a concept called the carbon barrier to distinguish biological from non-biological life. Josh pointed out that as stated all life fit Goldstein’s definition of biological (since any information can be encoded in DNA). Goldstein modified his definition to avoid that, and then other people mentioned reports such as this which imply that humans don’t fall within Goldstein’s definition of biological due to inheritance of information through means other than DNA. Goldstein seemed unable to understand that objection.

Intrade versus FiveThirtyEight

Posted by Peter on November 6, 2008
Posted in: Idea Futures, U.S. Politics. Tagged: , .

A number of people have compared the final forecasts for the election (e.g. this), but I’m more interested in longer term forecasting, so I’m comparing the state-by-state predictions of Intrade and FiveThirtyEight on the dates for which I saved FiveThirtyEight data a month or more before the election.

Here is a table of states where Intrade disagreed with FiveThirtyEight on one of the first four dates for which I saved FiveThirtyEight data or where they were both wrong on July 24. The numbers are probability of a Democrat winning the state’s electoral votes, with the Intrade forecast first and the FiveThirtyEight forecast second.

State 2008-07-24 2008-08-22 2008-09-14 2008-10-01
CO 71/68 60/53 54.5/46 67.5/84
FL 42/29 34.5/28 30/14 55.2/70
IN 38/26 34.1/15 20/11 38/51
MO 50/26 32.9/13 22.1/11 42.5/48
NC 30/22 25/21 14/7 51/50
NV 51.2/49 49/45 44.9/32 55/66
OH 65/53 50/38 40/29 53.5/68
VA 60.5/50 52.3/36 42/22 59/79

On July 24, both sites predicted Florida, Indiana, and North Carolina wrong. FiveThirtyEight got Indiana right on Oct 1 when Intrade was still wrong, but Intrade got North Carolina right on that date (just barely) while FiveThirtyEight rated it a toss-up.
Intrade got Nevada right on July 24 (just barely) while FiveThirtyEight got it wrong (just barely).
For Virginia, Intrade was right in July and August while FiveThirtyEight was undecided and then wrong.
FiveThirtyEight got Colorado wrong on September 14, but Intrade didn’t.
FiveThirtyEight got Ohio wrong on August 22, while Intrade got it right.
Intrade rated Missouri a toss-up on July 24, while FiveThirtyEight got it right.

On September 14, FiveThirtyEight was fooled by McCain’s post convention bounce by a larger margin than Intrade, but by Oct 1 FiveThirtyEight was more confident about correcting those errors.
For states that were not closely contested, there were numerous examples where Intrade prices where closer to 50 than FiveThirtyEight. It’s likely that this represents long-shot bias on Intrade.

In sum, Intrade made slightly better forecasts for the closely contested states through at least mid September, but after that FiveThirtyEight was at least as good and more decisive. Except for Intrade’s Missouri forecast on July 24, the errors seem largely due to underestimating the effects of economic problems – errors which were also widespread in most forecasts for other things affected by the recession.

In the senate races, I didn’t save FiveThirtyEight forecasts from before November 1. It looks like both Intrade and FiveThirtyEight made similar errors on the Alaska and Minnesota races.
[Update on 2009-01-13: contrary to initial reports, they apparently got the Alaska and Minnesota races right, although there’s still some doubt about Minnesota.]

On the other hand, Intrade had been fairly consistently (but not confidently) saying since early July that California’s Proposition 8 (banning same-sex marriage) would be defeated. Pollsters as a group did a somewhat better job there by issuing conflicting reports.

Automated Market Maker Changes

Posted by Peter on November 1, 2008
Posted in: Idea Futures. Tagged: , .

I’ve made a change to the software which should fix the bug uncovered last weekend.
I’ve restored about half of the liquidity I was providing before last weekend. I believe I can continue to provide the current level of liquidity for at least a few more months unless prices change more than I currently anticipate. I may readjust the amount of liquidity provided in a month or two to increase the chances that I can continue to provide a moderate amount of liquidity until all contracts expire without adding more money to the account.
I’m not making new software public now. I anticipate doing so before the end of November.

Stock Market Crashes

Posted by Peter on November 1, 2008
Posted in: Investing. Tagged: .

Many people seem to be reacting to the recent stock market crash the way they wish they had to the 1987 crash, and a smaller number are comparing it to 1929.
The unusual resemblance to the crash of 1937 makes me expect something in between those two scenarios.

  • The 1937 crash was caused in part by a sudden increase in caution by banks after the Fed significantly increased their reserve requirement. Banks played no interesting role in the 1929 or 1987 crashes.
  • The 1929 and 1987 crashes followed stock market peaks in August, versus March and the prior October for the 1937 and 2008 crashes.
  • The 1937 and 2008 crashes both came eight years after one of history’s largest stock market bubbles.
  • The 1929 and 1987 crashes followed an increase in the discount rate to 6 percent. The 1937 and 2008 crashes followed decreases in the discount rate to 1 and 2.25 percent.

All four crashes happened mainly in October and their behavior in that month provides little reason for distinguishing them.
If the 1937 crash is a good model for what to expect in our near future, many investors who are currently following the lesson they learned from the 1987 crash will discover in early 2009 that the unexpectedly severe recession casts doubt on the belief that crashes create good buying opportunities. How many of them will stick to their buy and hold commitment then (when I expect it will be a good idea)?
When the extent of the recession becomes disturbing, remember Brad DeLong’s perspective:

Is 2008 Our 1929? No. It is not. The most important reason it is not is that Bernanke and Paulson are both focused like laser beams on not making the same mistakes as were made in 1929….
They want to make their own, original, mistakes..

(HT James Hamilton).

Automated Market Maker Problems

Posted by Peter on October 26, 2008
Posted in: Idea Futures. Tagged: .

Last night an Intrade trader found and exploited a bug in my Automated Market Maker, manipulating DEM.PRES-TROOPS.IRAQ until Intrade rejected one of the market maker’s orders for lack of credit and the software shut down.
The bug involves handling of partial executions of orders, and doesn’t appear to be easily fixable (what happened looks nearly identical to the scenarios I had analyzed and thought I had guarded against).
For the moment, I’ve reduced the market maker’s order size to one contract, which will prevent further exploitation but provide much less liquidity.
I will try to fix the bug sometime in November and increase the order size (on the contracts that don’t get expired at election time) by as much as I can without adding more money to the market maker’s account. I will also analyze the information provided by the markets shortly after the election.

None of the above for president

Posted by Peter on October 21, 2008
Posted in: U.S. Politics.

I had been half-heartedly planning the past few months to vote for Libertarian presidential candidate Bob Barr. I had previously considered voting for Obama when it looked like he would make an important difference in the Iraq war, but it now looks like the Iraqi government will persuade the U.S. to leave soon enough for that difference not to matter. If I lived in a swing state and the election was close, I might persuade myself that Obama’s personality and intelligence make him more qualified, but my track record for evaluating politicians that way is sufficiently unimpressive that I ought to be uncertain whether I’ve been fooled by his eloquence.
Voting Libertarian is normally the best way to encourage whoever wins to adopt a better policy, but this time it’s unclear whether that would send the message “I want more unprincipled opportunists”. Barr’s past support for the war on some drugs and his current mixed opinions on that subject are damaging the Libertarian party’s reputation.
The final straw that has convinced me not to vote for him is in this New Yorker piece:

For Barr, the terrorist attacks of September 11, 2001, and the subsequent expansion of executive power under President Bush, were a political turning point. “I went through Reagan National after 9/11, and saw guardsmen with automatic weapons,” he told me. “It dawned on me that we’ve entered a whole new world. It may have made other passengers feel more secure, but it made me feel dramatically less free.”

An NRA director saying the presence of armed men is a threat to freedom? There’s no shortage of dishonest pretenses of security that directly interfere with the average passenger. I haven’t heard any indication that armed guardsmen in airports do anything to innocent people. I saw more armed soldiers in the Zurich airport in the late 1980s than I saw in U.S. airports, and I’m fairly sure they didn’t erode Swiss freedom.
This is sufficiently bizarre as to suggest he can’t keep track of which ideology he believes today.
Not to mention this older report where he seems to specifically say Reagan National should have armed guardsmen.