I trained lab rats to trade – and win – on Wall Street

Michael Marcovici

Rattraders is an experiment in which I trained lab rats to trade in the foreign-exchange and commodity-futures markets. With the help of these rodents, I managed to outperform some of the world’s leading human fund managers. My motivation was to find out what kind of highly paid jobs will eventually be replaced by machines — or, as was the case here, by rats.

Like the work of many in this field, my research indicates that all jobs that do not require human-to-human interaction may be replaceable. I focused on brokers because of their high earnings, but the job itself seems to be based on pattern-recognition capabilities and the ability to avoid distractions. I figured that rats might be up to the task.

Pulling it off would be hard work, so I broke the experiment down into three steps:


The first part of the experiment was to create the so-called ticker tracks. I gleaned information from various futures and foreign-exchange markets to generate sounds that would correspond to real-time price data. According to research, rats respond especially well to the piano, so I chose this instrument for the audio clips…


To train the rodents, I produced ticker tracks for about 800 different market situations (I restricted these to US$/Euro€ futures, though rats may become experts in any segment of the market)…

After 12 weeks, we had four very reliable rats…


After extensive training we wanted to learn whether the talent was genetically rooted, so we bred the top traders with each other. After only 20 days, we had 28 new rats (15 males and 13 females), and we soon started to train again (even reducing the training time). The results were astounding: The second generation of top traders had a much better performance than their parents…

RTFA. This researcher is legit, so is his work. Poisonally, I think it’s hilarious. Though I still have no inclination to get into ForEx trading. 🙂

China’s economy is bigger than you think

With China set to announce its third-quarter gross domestic product report on Monday, skepticism over its economic data is arising anew.

Recall that Bill Gross has described China as “the mystery meat of emerging-market countries.” Premier Li Keqiang, before taking that post, said he didn’t rely on official statistics. He preferred things like rail freight and electricity use to gauge activity.

So is China about to puff up its economic report card once more?

Quite the contrary, according to one of the world’s foremost emerging market investors, Mark Mobius.

“I know there’s a lot of debate as to whether the numbers are true, whether it’s really 7 percent, but our numbers indicate that it is at least that,” the chairman of the emerging-markets group at Franklin Templeton Investments said in a recent interview with Bloomberg TV. “We think that a lot of the economy is not really being counted because China is being converted from a manufacturing-oriented economy to a service economy.”

That gels with the view of Rhodium Group analysts in a September report for the Center for Strategic and International Studies.

Their 200-plus page study found China’s GDP methodologies are largely in line with international practices and charges that estimates are sheer fabrications are “misinformed.”…China’s economy is bigger, not smaller than official data suggests, the analysts found, with the services sector the hardest to measure and real estate even more important than currently reflected…

As for Monday’s reading, economists forecast the government will say GDP growth slowed to 6.8 percent in the three months through September from a year earlier. That would be the slowest quarterly pace since 2009.

That isn’t deterring Mobius, who says: “The transition is definitely on its way and is going to be successful.”

I could write pages on the topic – and won’t. I honestly don’t think the average American cares enough to look beyond the party line fed officially from the White House and Congress – and willingly, by the Beltway Press like the Washington POST. And, of course, that includes the New York TIMES. Just let me back up a Wall Street minute.

I was never interested in serious investing for the future. My bad. So, I was really pissed-off when the criminal derivative called the Great Recession hit all of us. What little I had squirreled away in what I thought were safe, conservative funds was diminished by over half in a matter of weeks.

Pissed-off, I decided to manage my savings myself. Took what I had left to cash and studied business and industries I knew something about and prepared for the start of the slow turnaround I expected. After all the creeps in charge had damaged the world economy as severely as the Wall Street Crash of 1929. Some aspects of economic life might never return.

I started investing just a few months before March, 2009 – the bottom. Since then, the cash I had has multiplied over 500%. The industries I knew about were mostly geeky, tech-oriented. My business experience the last 30 years was grounded in Asian producers, American companies invested in Asia.

I spent those years witnessing all the usual crap about Asian misconceptions: country by country, Japan, Taiwan, finally China. I learned how to survive a culture of bribery that was thousands of years old – and changed dramatically in just the past few years. I chuckled over Americans discovering Chinese Marxists figuring out how to heat up the achievement of socialist ideals through a market economy – something I was berated for seriously discussing in the late 1950’s. Really.

I’ve watched and listened to the same official crap, pandered and promulgated by everyone from the Compradore pimps who fled China with Chiang Kai-shek in 1949 to the short sellers who make a quick fortune with their quarterly expose of one or another corrupt little corporate entity – blathering about crooks who couldn’t even stand in the shadows of the truly corrupt barons of Wall Street – or Wolfsburg.

But, I also paid attention to folks like Stephen Roach, Peter Nolan, Richard Evans and, yes, Mark Mobius…and former White House advisors like Ian Bremmer because after all, even if Obama’s foreign policy can’t and won’t improve upon that of John Foster Dulles – he still really needs to know what is going on.

I guess I probably should have gotten pissed off, sooner, eh? 🙂

Guilty on all counts in insider-trading case

Daylife/Reuters Pictures used by permission

Raj Rajaratnam, the hedge-fund tycoon and Galleon Group co-founder at the center of a U.S. insider-trading crackdown, was found guilty of all 14 counts against him in the largest illegal stock-tipping case in a generation.

A jury of eight women and four men in Manhattan returned its verdict today after hearing evidence that Rajaratnam, 53, engaged in a seven-year conspiracy to trade on inside information from corporate executives, bankers, consultants, traders and directors of public companies including Goldman Sachs Group. He gained $63.8 million, prosecutors said.

The trial came as Manhattan U.S. Attorney Preet Bharara promised to crack down on “rampant” illegal trading on Wall Street. Rajaratnam was convicted on five counts of conspiracy and nine counts of securities fraud. Prosecutors today said he faces 15 1/2 years to 19 1/2 years in prison at his July 29 sentencing.

“Rajaratnam, once a high-flying billionaire and hedge fund manager, is now a convicted felon, 14 times over,” Bharara said in a statement after the verdict. “Rajaratnam was among the best and the brightest — one of the most educated, successful and privileged professionals in the country. Yet, like so many others recently, he let greed and corruption cause his undoing…”

Continue reading

Flash crash panel offers measures for market overhaul

Regulators should stem the growing tide of anonymous stock-trading and consider imposing fees on high-frequency traders, said a panel of experts advising how to avoid another “flash crash.”

The panel’s 14 recommendations for U.S. securities and futures regulators contained far-reaching ideas to overhaul the high-speed electronic market. Yet many of the ideas issued on Friday called only for “consideration” or “further study” — potentially raising more questions as the first anniversary of the May 6 flash crash nears.

“I don’t think it’s possible to prevent another one from happening,” said Adam Sarhan, chief executive of Sarhan Capital in New York…

The unprecedented May 6, 2010, market crash sent the Dow Jones industrial average down some 700 points before rebounding, all in a matter of minutes. It rattled investors, exposed flaws in the structure of markets, and set regulators on a mission to fix the system and restore confidence.

Since then, individual stocks have experienced what some refer to as “mini” crashes, where shares unexpectedly move on a sudden burst of volume, absent of any news…

“What market regulation now has to do is limit uncertainty,” said Maureen O’Hara, professor of finance at Cornell University and member of the flash crash panel. “You limit uncertainty by limiting the amount of movement a price can have before it falls off the map…”

Some of the recommendations, such as expanding and modifying the “circuit breaker” trading pauses, had been anticipated and mostly endorsed by traders and exchanges such as NYSE Euronext and Nasdaq OMX Group…

Following the flash crash, some lawmakers called for a crackdown on traders who use algorithms to execute complex trading strategies across markets.

But the panel’s report focused on structure and liquidity issues, and did not blame high-frequency trading, said Overdahl, who is also an advisor to the Futures Industry Association’s Principal Traders Group, which includes some of the largest high-frequency traders in the market.

Even if you’re not an investor you should RTFA. The consequences of something like the uncontrolled – and barely understood – Flash Crash could conceivably shove us into another recession for no reason other than an endless loop in corrupted software.

Not to mention corrupt practices by financiers.

FBI arrests at tech firms for insider trading

U.S. Attorney Preet Bahrara

Four people who worked at technology companies were arrested by agents of the Federal Bureau of Investigation as part of a long-term insider trading probe. A fifth person has pleaded guilty.

James Fleishman, an executive for Primary Global Research, an expert-networking firm, was arrested this morning on charges of wire fraud and conspiracy for allegedly trying to give non- public information to the firm’s clients, including hedge funds, according to a statement by U.S. Attorney Preet Bharara in Manhattan.

Also arrested were Mark Anthony Longoria, who worked at Advanced Micro Devices Inc.; Walter Shimoon, who worked at Flextronics International Ltd.; and Manosha Karunatilaka, who was employed at Taiwan Semiconductor Manufacturing Co., on charges of wire fraud and conspiracy to commit securities fraud and wire fraud, the statement said. The charges were unsealed today in Manhattan federal court.

A corrupt network of insiders at some of the world’s leading technology companies served as so-called consultants who sold out their employers by stealing and then peddling their valuable inside information,” said Bharara in a statement.

A fifth man, Daniel DeVore, formerly a supply manager at Dell Inc., was arrested in the same probe and pleaded guilty Dec. 10 to wire fraud and conspiracy to commit securities and wire fraud, according to the statement.

Hey, look! The SEC is actually out on the streets doing what they get paid for.

Billionaire head of hedge fund arrested for fraud, insider trading

Daylife/Reuters Pictures used by permission

By all appearances, Raj Rajaratnam was a self-made billionaire, having built Galleon Group into a giant hedge fund with a specialty in technology companies.

But prosecutors said on Friday that he had profited not from his trading genius but from his Rolodex, and they arrested him on charges of conspiracy and securities fraud in what they called the biggest insider trading scheme ever involving a hedge fund.

In all, six people were arrested, accused by prosecutors and the Securities and Exchange Commission of earning more than $20 million from illegal trading in companies like Google, Akamai and Hilton Hotels over nearly three years.

Mr. Rajaratnam is accused of tapping a vast network of informants across a swath of corporate America: a senior official at I.B.M. considered a contender for the top job at that firm; executives of Intel and the consulting firm McKinsey & Company; two former Bear Stearns employees who had moved to a hedge fund, New Castle Partners; and an analyst at Moody’s Investors Service.

While trading secrets, though, one crucial piece of information was not shared — several of the phones were tapped.

The wiretaps were made with the help of an unnamed cooperating witness, a former Galleon employee who was said to ply Mr. Rajaratnam with information originally to land a job. The witness, who began cooperating in November 2007, has agreed to plead guilty in the hopes of receiving a lesser sentence.

This case should serve as a wake-up call for Wall Street,” Preet Bharara, the United States attorney for the Southern District of New York, said at a news conference on Friday. He added that the investigation was continuing.

Wake-up call my Sweet Aunt Josephine’s rosy cheeks! RTFA. It’s like cleaning out the White House and leaving behind a thoroughly corrupt Congress.

The SEC was pressed into dumping a few bad apples like Madoff – and now Rajaratnam – who sit in the midst of a network of corruption and deceit that remains without thoroughgoing regulation or oversight.