- Paul Graham has a good essay on superlinear returns, and why they're counterintuitive. If you make a linear per capita graph of GDP, energy use, or lifetime words read, but truncate it around the year 1800 (while keeping the y-axis high enough to include present-day values), you’ll be looking at a long flat line. The core idea is that evolution doesn't prepare us for superlinear growth, and most of our institutions are at least descended from linear-growth ones. Even in most of the industrial revolution linear was the default expectation: stocks didn't really start compounding until the early 20th century, because before that they paid out most of their earnings as a dividend rather than retaining them for growth. One piece of evidence for this, which Graham cites, is that the more superlinear fields like tech (I'd add finance) have a different attitude towards failure: it's forgivable if the person doing the failing learns something from it.
- Ben Sixsmith has a measured response to Marc Andreessen's recent Techno-Optimist Manifesto. I'm on Andreessen's side, but the piece is worth mulling. He identifies a default attitude that might be called retro techno-optimism and future techno-skepticism: we are very, very reluctant to give up recent conveniences (imagine—a whole flight with no Wifi? Having to use a passcode to unlock your phone instead of just glancing at it!?) One risk the article talks about is when technology makes difficult things easy, it removes the inner experience of mastering something challenging. Which is a pretty good deal, but some level of struggle and suffering is probably load-bearing. There is some adaptation in that direction already; a civilization where most people do manual labor is one that doesn't have a lot of demand for gyms.
- John Psmith of Mr. and Mrs. Psmith’s Bookshelf reviews Central Banking 101, a book on how central banks operate written by someone who worked on the Open Market Trading Desk at the New York Fed. In other words, it's a book about what central banks do, written by someone who was executing the "change the prevailing interest rate" part of it. Central banks have a paradoxical task, where sometimes the impact of what they do comes from the perception that they're doing something, and sometimes perception negates the effect entirely. Announcing willingness to buy high-yield bonds made other investors willing to buy them instead in March of 2020, so the Fed didn't need to do much of this at all. But some announcements end up indicating the problems are worse than they look.
- One of the great miracles of the modern economy is that natural gas is volatile, wholesale electricity is extremely volatile (think intraday order-of-magnitude changes during extreme events, or negative prices), and yet retail consumers of electricity can blithely turn on lights, watch TV, use the microwave, etc. without ever worrying about the insane variance in the effective cost of doing so. Austin Vernon has a nice look at how this market works, how it's changing, and why it's broadly worth keeping around. Managing a grid is incredibly complicated; any market that needs to continuously clear perfectly is hard, but electricity generation and storage has a profusion of different options which all have different payoff functions. But that complexity also means that there are lots of surprising options to improve things—for example, one way to "store" power with a smart thermostat is to cool buildings slightly more than necessary when power is cheap, in order to curtail consumption when it gets more expensive. The idea of treating changes in behavior as a form of storage or load management isn't new, of course, but better data means it can be applied much more broadly.
- At Fabricated Knowledge, Doug O'Laughlin has a history of the 90s telecom bubble. The dot coms get more attention, but the telecom bubble was bigger—and, because it involved building lots of physical infrastructure which ended up being underused, the telecom bubble actually made the second round of Internet companies more viable. One way to contrast the telecom and dot com bubbles is that the telcos and equipment companies were growing more slowly, but often had real businesses with actual profits. But it turned out that a big chunk of their demand was driven by dot com hype; if you have a real business whose revenue all comes from fake businesses, you do not have a real business after all.
- In this week's Capital Gains, we talked about two ways to look at expected returns: extrapolating from the past or looking at the theoretical drivers of performance. The latter seems more rigorous, but it's hard to argue with history.
- Milkshakes & Butterflies: Foolishness & fact from the trading floor: This book is a quick memoir by someone who worked as a floor trader trading options in Amsterdam, and then switched to electronic market-making when the trading floor was shut down. This book shows that some cultural norms are universal—the traders, whose day job was to quickly calculate the value of financial instruments with nonlinear payoffs, would sometimes unwind by making bets on things like the number of corners times the number of yellow cards times the number of goals in a soccer game. This book is worth reading as a look at an industry in transition, and is fun for anyone who likes stories about clever but ethically dubious trading schemes.
- Drop in any links or comments of interest to other Diff readers.
- What are some other good niche memoirs of interesting careers? Famous people tend a biography written about them after a while, but there are plenty of people who worked in fun roles and, once they retired, had an itch to write down what they'd learned.
Companies in the Diff network are actively looking for talent. A sampling of current open roles:
- A company building ML-powered tools to accelerate developer productivity is looking for software engineers. (Washington DC area)
- A concentrated crossover fund is looking for an intellectually curious data scientist with demonstrated mastery in analytics. Experience with alt data, web scraping, and financial modeling preferred. (SF)
- A diversified prop trading firm with a uniquely collaborative team structure is looking for experienced traders and PMs. (Singapore or Austin, TX preferred)
- A new fintech startup wants to bring cross-border open banking to LATAM, and is looking for a CTO. (NYC)
- The leading provider of advanced options analytics — “the ASML of options trading” — is growing rapidly, very profitable, and looking for a generalist who can excel in chief of staff and business development functions. A trading, quant, or similarly technical background is a big plus. (Connecticut, NYC)
Even if you don't see an exact match for your skills and interests right now, we're happy to talk early so we can let you know if a good opportunity comes up.
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