The cost of liquidity?

Speaking of high frequency trading, here's Zero Hedge on the Renaissance vs. Volfbeyn and Belpolsky matter. Related posts here and here.

130. While employed by Renaissance, Dr. Volfbeyn's superiors repeatedly asked him to assist Renaissance in conducting securities transaction that Dr. Volfbeyn believed to be illegal.

The illegality of these activites touched upon three main topical areas:

ITG-POSIT (The Dark Pool angle)

131. In particular, Dr. Volfbeyn was instructed to devise a strategy to defraud investors trading through the Portfolio System for Institutional Trading ("POSIT"). POSIT is an electronic trading system operating by Investment Technology Group ("ITG" ). POSIT collects buy and sell orders from large traders and attempts to match them.

132. On information and belief, POSIT is completely confidential. It does not reveal information about orders to anyone. For its customers, this confidentiality is an essential aspect of the system.

133. Renaissance asked Dr. Volfbeyn to create a computer algorithm to reveal information that POSIT intended to keep confidential [REDACTED]

134. Renaissance intended to, and did, use this trading strategy [the POSIT strategy] to profit [REDACTED]

135. Dr. Volfbeyn believed that [REDACTED] [the POSIT strategy] violated securities laws. He expressed his opinion to his superiors at Renaissance and refused to build the computer algorithm as they requested.

Limit Order Strategy [Stealing Liquidity]

139. Renaissance asked Dr. Volfbeyn to develop a computer algorithm [REDACTED] [the "limit order strategy"]

140. A limit order is an instruction to trade at the best price available, but only if the price is no worse that a "limit price" specified by the trader. Standing limit orders are placed in a file, called a limit-order book. Limit-order books on the New York Stock Exchange and NASDAQ are available to be viewed by anyone.

141. By [REDACTED], Renaissance intended to profit illegally.

142. Dr. Volfbeyn refused to participate in such activities. He explained that his refusal was based on his belief that the proposed transactions violated securities laws [2nd time RenTec allegedly used an illegel strategy]

143. Senior Renaissance personnel, including Executive Vice President Peter Brown and Vice President Mark Silber, attempted to persuade Dr. Volfbeyn to engage in the [REDACTED] limit order strategy, despite his objections. Mark Silber is the compliance officer for Renaissance, responsible for implementing systems to ensure that Renaissance does not violate the securities laws, and for protecting employees who complain about potentially illegal conduct.

144. On information and belief, Renaissance did not implement the [REDACTED] limit order strategy prior to Dr. Volfbeyn's termination. [What about after?]

Swap Transactions [The Naked Short Scam]

145. At all times relevant to this action, Rule 3350 of the NASD, prohibited NASD members, with certain exceptions from effecting short sales in any Nasdaq security at or below the current national best (inside) bid when the current national best (inside) bid is below the preceding national best (inside) bid in the security.

146. At all times relevant to this action, Rule 10a-1 under the Securities Exchange Act of 1934 provided that, subject to certain exceptions, an exchange-listed security could only be sold short at a price above the immediately preceding reported price or at the last sale price if it is higher than the last different reported price.

147. During the period when Dr. Volfbeyn and Dr. Belopolsky were employed at Renaissance, plaintiff engaged in a massive scam [REDACTED] [the "swap transaction strategy"]

148. [REDACTED]

149. [REDACTED]

150. Renaissance conducted [REDACTED] in violation of Rule 3350 and Rule 10a-1. Renaissance also intentionally [REDACTED] in violation of SEC and NASD rules. [REDACTED] Renaissance profited from the strategy [REDACTED].

151. Researchers at Renaissance expressed their concern to Executive Vice President Peter Brown and other officials of Renaissance about the legality of these swap transactions, including concerns that the transactions violated the tax laws and securities laws. Renaissance failed to halt the transactions. On information and belief, the swap transactions are continuing and generate substantial profits for Renaissance.

Whatever happened to Whit Stillman?

Whit Stillman wrote and directed the trilogy Metropolitan, Barcelona and Last Days of Disco, three of my favorite movies. It's been 10 years since his last film and I've often wondered what became of him. He recently resurfaced on the Leonard Lopate show and gave the interview below.



Older Stillman interviews and reviews of his films here. Related video (for a while you could watch all of Last Days of Disco on hulu.com).

My favorite of the trilogy is Metropolitan, which was shot for almost nothing around NYC. In the clip below we learn about the UHB: Urban Haute Bourgeoisie. Metropolitan reminds me of early Woody Allen, but set in the world of 1980s college age upper east side WASPs.

Me and Twitter

No, I'm not on Twitter. I don't need to be immersed in distracting stimulus -- the web is bad enough. My thoughts are already shallow; don't force my brain to swim in even shallower water :-)

I met Twitter founder Evan Williams a few years ago, before Twitter was anywhere near a big thing. He told me about Blogger, which he sold to Google, and then the inevitable "So what are you working on now?" question came up.

He described Twitter to me, and two thoughts entered my mind. The first shows I am old, or out of touch, or have no feel for Web 2.0 consumer startups: "Who would use that?" I said to myself.

The second thought, which I actually verbalized, turns out to be a good question (still unanswered) and shows I may have VC potential: "How are you going to monetize that?" :-)

Here is a great talk by Williams about his podcasting startup Odeo, which somehow spun out Twitter. Note it's from 2005, but his insights on entrepreneurship are great; he's a low-key midwestern guy like me (from Nebraska).


Nevertheless, this Twitter feed cracked me up today:
http://twitter.com/shitmydadsays

"You need to flush the toilet more than once...No, YOU, YOU specifically need to. You know what, use a different toilet. This is my toilet."
1:07 PM Aug 23rd from web

"Don't touch the bacon, it's not done yet. You let me handle the bacon, and i'll let you handle..what ever it is you do. I guess nothing."
11:15 AM Aug 22nd from web

"Your mother made a batch of meatballs last night. Some are for you, some are for me, but more are for me. Remember that. More. Me."
8:57 AM Aug 21st from web

"Your brother brought his baby over this morning. He told me it could stand. It couldn't stand for shit. Just sat there. Big let down."
9:35 AM Aug 20th from web

"Love this Mrs. Dash. The bitch can make spices... Jesus, Joni (my mom) it's a joke. I was making a joke! Mrs. Dash isn't even real dammit!"
9:28 AM Aug 19th from web

"The dog is not bored, it's a fucking dog. It's not like he's waiting for me to give him a fucking rubix cube. He's a god damned dog."
10:43 AM Aug 18th from web

"I didn't live to be 73 years old so I could eat kale. Don't fix me your breakfast and pretend you're fixing mine."
11:24 AM Aug 3rd from web

High speed trading: an $8 billion per year tax?

Because there is money to be made at this game (estimated in the article to be in excess of $8 billion per year), it is attracting both financial and human capital. The human capital might be doing more productive things elsewhere. Let's suppose that the social utility provided by the market is efficient resource allocation via price signals. I see no benefit to society from making these price signals "efficient" over time scales as small as a tenth of a second (i.e., much smaller than the time scales over which physical resources can be allocated, or humans can make executive decisions). Imposing a 1-100 second random delay on any order placed at an exchange would not (as far as I can see) have any negative impact on the actual economy, but would eliminate an expensive arms race that transfers money from small or long-term investors to brainy hedge funds.

These activities are particularly appealing to banks and hedge funds in the current environment because a trader can book a real profit or loss at the end of each day (or even every few seconds!) -- very different from the illiquid positions that led to the credit crisis. In the long run, even complex derivatives like CDO and CDS contracts have the potential of providing some social good -- the ability to diversify risks, etc. I see no comparable redeeming value in high speed trading.

A couple years ago I listened to a talk by a former high energy physicist about how his firm was using FPGAs to execute their trading algorithms in hardware. Sound like a good use of brainpower and resources to you?

Regarding the Aleynikov case reported on below, 32 MB of proprietary source code is not a small amount of code. It could be the core of Goldman's algorithms. I would think a court-appointed expert could easily determine the value of the code Aleynikov downloaded. If he merely grabbed it by mistake while downloading some open source directories (his claim), it would be unlikely to contain the key algorithms.

Related posts here (Aleynikov vs. Goldman) and here (Volfbeyn and Belopolsky vs. Renaissance).

NYTimes: ... the charges, along with civil cases in Chicago and New York involving other Wall Street firms, offer a glimpse into the turbulent world of ultrafast computerized stock trading.

Little understood outside the securities industry, the business has suddenly become one of the most competitive and controversial on Wall Street. At its heart are computer programs that take years to develop and are treated as closely guarded secrets.

Mr. Aleynikov, who is free on $750,000 bond, is suspected of having taken pieces of Goldman software that enables the buying and selling of shares in milliseconds. Banks and hedge funds use such programs to profit from tiny price discrepancies among markets and in some instances leap in front of bigger orders.

Defenders of the programs say they make trading more efficient. Critics say they are little more than a tax on long-term investors and can even worsen market swings.

But no one disputes that high-frequency trading is highly profitable. The Tabb Group, a financial markets research firm, estimates that the programs will make $8 billion this year for Wall Street firms. Bernard S. Donefer, a distinguished lecturer at Baruch College and the former head of markets systems at Fidelity Investments, says profits are even higher.

“It is certainly growing,” said Larry Tabb, founder of the Tabb Group. “There’s more talent around, and the technology is getting cheaper.”

The profits have led to a gold rush, with hedge funds and investment banks dangling million-dollar salaries at software engineers. In one lawsuit, the Citadel Investment Group, a $12 billion hedge fund, revealed that it had paid tens of millions to two top programmers in the last seven years.

“A geek who writes code — those guys are now the valuable guys,” Mr. Donefer said.

The spate of lawsuits reflects the highly competitive nature of ultrafast trading, which is evolving quickly, largely because of broader changes in stock trading, securities industry experts say.

Until the late 1990s, big investors bought and sold large blocks of shares through securities firms like Morgan Stanley. But in the last decade, the profits from making big trades have vanished, so investment banks have become reluctant to take such risks.

Today, big investors divide large orders into smaller trades and parcel them to many exchanges, where traders compete to make a penny or two a share on each order. Ultrafast trading is an outgrowth of that strategy.

As Mr. Aleynikov and other programmers have discovered, investment banks do not take kindly to their leaving, especially if the banks believe that the programmers are taking code — the engine that drives trading — on their way out.

Mr. Aleynikov immigrated to the United States from Russia in 1991. In 1998, he joined IDT, a telecommunications company, where he wrote software to route calls and data more efficiently. In 2007, Goldman hired him as a vice president, paying him $400,000 a year, according to the federal complaint against him.

He lived in the central New Jersey suburbs with his wife and three young daughters. This year, the family moved to a $1.14 million mansion in North Caldwell, best known as Tony Soprano’s hometown. ...

This spring, Mr. Aleynikov quit Goldman to join Teza Technologies, a new trading firm, tripling his salary to about $1.2 million, according to the complaint. He left Goldman on June 5. In the days before he left, he transferred code to a server in Germany that offers free data hosting.

At Mr. Aleynikov’s bail hearing, Joseph Facciponti, the assistant United States attorney prosecuting the case, said that Goldman discovered the transfer in late June. On July 1, the company told the government about the suspected theft. Two days later, agents arrested Mr. Aleynikov at Newark.

After his arrest, Mr. Aleynikov was taken for interrogation to F.B.I. offices in Manhattan. Mr. Aleynikov waived his rights against self-incrimination, and agreed to allow agents to search his house.

He said that he had inadvertently downloaded a portion of Goldman’s proprietary code while trying to take files of open source software — programs that are not proprietary and can be used freely by anyone. He said he had not used the Goldman code at his new job or distributed it to anyone else, and the criminal complaint offers no evidence that he has.

Why he downloaded the open source software from Goldman, rather than getting it elsewhere, and how he could at the same time have inadvertently downloaded some of the firm’s most confidential software, is not yet clear.

At Mr. Aleynikov’s bail hearing, Mr. Facciponti said that simply by sending the code to the German server, he had badly damaged Goldman.

“The bank itself stands to lose its entire investment in creating this software to begin with, which is millions upon millions of dollars,” Mr. Facciponti said.

Sabrina Shroff, a public defender who represents Mr. Aleynikov, responded that he had transferred less than 32 megabytes of Goldman proprietary code, a small fraction of the overall program, which is at least 1,224 megabytes. Kevin N. Fox, the magistrate judge, ordered Mr. Aleynikov released on bond.

Clarification in response to comments: I guess I should make my claims more precise. It seems to me that imposing a random delay of average length T would

1) remove the possibility of gaming the system on timescales much less than T (thereby sending lots of smart people back to productive activities)

2) not affect market liquidity on timescales much larger than T. I claim that for T of order a minute (or even longer) there is no social value from liquidity on much smaller time scales.

I am not highly confident of my statements because market making is a dynamical system, with interacting agents, etc. Doyne Farmer and Sante Fe researchers did some modeling for NASDAQ in anticipation of their 2001 decimalization (see here); the details are complicated. Yes, the price of decimalization and liquidity on very short time scales is the current arms race, but I have yet to see an argument for why those things are good for society.

For a defense of high frequency trading, see discussion at Scott Locklin's blog here and here.

The Heisenberg uncertainty

Why was the German atomic bomb effort during WWII unsuccessful? Was it because Heisenberg deliberately undermined the project (perhaps because he did not want Hitler to have atomic weapons), or because of simple incompetence?

I thought the question had been answered definitively by the release of the Farm Hall transcripts (Operation Epsilon). In the spring and summer of 1945 ten of the leading German nuclear physicists, including Heisenberg, were sequestered at a house near Cambridge, England. The house was bugged, and there is no reason to doubt that the conversations recorded were genuine:

Diebner: "I wonder whether there are microphones installed here?"

Heisenberg: "Microphones installed? (laughing) Oh no, they're not as cute as all that. I don't think they know the real Gestapo methods; they're a bit old fashioned in that respect."

I read the transcripts a few years ago, and my impression was that Heisenberg had grossly overestimated the amount of U235 necessary for a bomb. Here is what appears in the Wikipedia entry on Farm Hall:

Most historians have no reason to believe that he was not being genuine, and the attitude of Heisenberg and the other scientists over all the months and especially their reaction to the shattering news of the bomb explosion was so genuine that it is almost inconceivable it was staged.

All of the scientists expressed shock when informed of the atomic bombing of Hiroshima on August 6, 1945. The transcripts seem to indicate that the physicists, in particular Heisenberg, had either overestimated the amount of enriched uranium that an atomic bomb would require or consciously overstated it, and that the German project was at best in a very early, theoretical stage of thinking about how atomic bombs would work.

Recently I came across an exchange in the NY Review of Books, between physicist Jeremey Bernstein, who wrote Hitler's Uranium Club: The Secret Recordings at Farm Hall, and Thomas Powers, author of Heisenberg's War. Powers believes that Heisenberg had a much better understanding of the requirements for a bomb than are suggested by his Farm Hall comments immediately after learning of Hiroshima.

[Bernstein:] ... In June of 1942 Heisenberg was asked how much uranium a nuclear bomb would use that could destroy London. If one kilogram of uranium could be completely fissioned it would produce an explosion equal to about twenty thousand tons of TNT; about the size of the Hiroshima bomb. This would correspond to a sphere of uranium with a radius of a little over two centimeters—a ping- pong ball. But in a real bomb only about 2 percent of the uranium is fissioned so that about a hundred kilograms of uranium are needed, which corresponds to a radius of about eight and a half centimeters. At Farm Hall Heisenberg did not seem to have a clear idea of the efficiency question, so it is totally unclear to me what he had in mind when, in 1942, he apparently indicated that it was the shape of a pineapple. ...

[Letter from Charles Frank, British physicist and intelligence advisor to Operation Epsilon]: As I remember it, Heisenberg gave just the calculation you quote, except that my memory says he reached the answer 5 tons.... He gave this calculation at the beginning of an elegant colloquium, delivered the day after they heard about Hiroshima, in which he used a rather polished version of diffusion-and-multiplication theory (which he was no doubt familiar with from their pile work) to arrive at an answer for critical mass of the order of 1 or a few kilograms. He gave the crude and faulty calculation at the beginning, as the way they had worked it out before, and I think he said it was the way he had worked it out, and I think he said it was the estimate he gave at the 1940 conference about what was to be done with nuclear fission in relation to the war. I think he said he had done the revised calculation overnight, and I think that the whole style of the lecture implied that he was presenting a result and argument new to him and to his audience.

[Powers:] Bernstein interprets Heisenberg's remarks, available to us since the 1992 release of the Farm Hall tapes recorded by British intelligence during the war, to mean that Heisenberg failed to calculate the critical mass of an atomic bomb earlier in the war. Because fissionable material is extremely difficult and expensive to manufacture, the amount of it necessary for a bomb—the "critical mass"—is by far the most important technical question to be asked before embarking on a bomb program. A figure on the order of tons would have made building a bomb impossible for any nation at the time, the United States included. From his interpretation of Heisenberg's remarks on this point Bernstein concludes there was no German bomb, and no German bomb program, as the result of "simple incompetence"—the phrase he used in an article in the May 1999 issue of Commentary. In his letter he writes, "There is no evidence that he [Heisenberg] or anyone else in the German project did this calculation correctly during the war," but in fact there is such evidence—in the Farm Hall discussion recorded on the night after Hiroshima, Otto Hahn, one of the ten German scientists, protested Heisenberg's claim that huge amounts of fissionable uranium were required for a bomb. "But tell me why you used to tell me that one needed 50 kilograms of '235' in order to do anything. Now you say one needs two tons." ...

The German physicist Manfred von Ardenne confirms in his memoirs, as he did to me personally in an interview in 1989, that Hahn told him in 1940 that critical mass would be on the order of kilograms, not tons, citing Heisenberg as his source. The fact that Heisenberg had calculated a roughly correct value for critical mass is also demonstrated by his answer to a question during the June 1942 conference in Berlin with Albert Speer. In a letter to Samuel Goudsmit of October 3, 1948, Heisenberg wrote: "General Field Marshall Milch asked me approximately how large a bomb would be, of which the action was sufficient to destroy a large city. I answered at that time, that the bomb, that is the essentially active part, would have been about the size of a pineapple." (Goudsmit papers, American Institute of Physics) The "essentially active part" of a bomb is called the core. Erich Bagge, who was also present at the meeting with Speer, told interviewers, including me, that Heisenberg had shaped his hands in the air to suggest an object about the size of a "football." ...

So there seems to be some residual uncertainty over what Heisenberg knew and when. I guess I'll have to look at the transcripts again, but I distinctly recall Heisenberg being confused about the required critical mass for a bomb. He may very well have worked out the correct figure by his colloquium the following day, but of course that was with the additional knowledge that the Americans had actually produced a working bomb! As all theoreticians know, it's much easier to produce the right calculation once you know the final answer ;-)

An amusing story related by Powers:

... In a letter written to me a few years back the Italian physicist Ugo Fano described a party at the Ann Arbor, Michigan, home of Samuel Goudsmit, scientific director of the Alsos mission, in late August 1939. There two Nobel Prize–winning physicists, Werner Heisenberg, soon to return to Germany, and Enrico Fermi, a refugee from Mussolini's Italy, were both honored guests. "At that party," Fano writes, "[Edoardo] Amaldi drew me aside to point out its humor: 'See Fermi, see Heisenberg, sitting in that corner. Everyone in this room expects a big war and the two of them to lead fission work on opposite sides, but nobody says!'" (Letter of September 18, 1993) Within a month Heisenberg had in effect been drafted to do theoretical work on bomb physics and he soon wrote two papers which were the basis of further German research during the war.

Bolt: 19.19 200m!!!

Shocking! I never expected to see 19.19 in my lifetime, but then I expected Michael Johnson's 19.32 WR to last for decades, like Bob Beamon's long jump WR. (Bolt is such a mutant that I won't be surprised if no one else comes close to MJ's 19.32 for a long time.)

During the Beijing Olympics some readers objected to my stating flat out that Bolt is a more exceptional and impressive athlete than Michael Phelps. Does anyone (who knows something about both track and swimming) still disagree?

God save the Queen, and the economists

Richard Posner writes in the Atlantic. Read the whole thing!

I doubt academic economists are to blame for the crisis in any direct sense -- the real perps are on Wall Street and Main Street -- but they do deserve blame for the "ideological capture" of regulators and policy makers, many of whom, through years of indoctrination in undergraduate and professional school courses have come to believe in a semi-strong version of efficient markets (see below). The academics also deserve blame for intellectual dishonesty if they fail to admit that we know almost nothing about macroeconomics and that the profession itself cannot agree on what caused the crisis and how best to recover.

Will Economists Escape a Whipping?

It is remarkable how economists have been able to deflect blame for the economic crisis that erupted last September with the sudden collapse of the international banking industry and that continues to afflict the world's economies. Last November, Queen Elizabeth visited the London School of Economics and asked the faculty why "nobody [had] noticed [before September 2008] that the credit crunch was on its way?" ...

Yesterday, another letter to the Queen, this one dated August 10 and signed by ten English and Australian economists, was released ..., also responding to the Queen's question ... The August 10 letter states that "their overall analysis is inadequate because it fails to acknowledge any deficiency in the training or culture of economists themselves." The nub of their criticism is that "in recent years economics has turned virtually into a branch of applied mathematics, and has...become detached from real-world institutions and events." They criticize economics education as excessively narrow, "to the detriment of any synthetic vision," and fault Besley and Hennessy for saying nothing about "the typical omission of psychology, philosophy or economic history from the current education of economists" and for mentioning neither "the highly questionable belief in universal 'rationality' nor the 'efficient markets hypothesis.'"

A more focused criticism would, in my opinion, be more effective. The Queen was asking about the failure to foresee the financial collapse of last September, rather than about the health of modern economics in the large. That failure was I think due in significant part to a concept of rationality that exaggerates the amount of information that people have about the future, even experts, and to a disregard of economic factors that don't lend themselves to expression in mathematical models, or are intractable to formal analysis. The efficient markets theory, when understood not as teaching merely that markets are hard to beat even for experts and therefore passive management of a diversified portfolio of assets is likely to outperform a strategy of picking underpriced stocks or other securities to buy and overpriced ones to sell, but as demonstrating that asset prices are always an adequate gauge of value--that there are not asset "bubbles"--blinded most economists to the housing bubble of the early 2000s and the stock market bubble that expanded with it. In modeling the business cycle, economists not only ignored, because difficult to accommodate in their mathematical models, vital institutional detail (such as the rise of the "shadow banking industry," which is what mainly collapsed last September)--often indeed ignoring money itself, on the ground that it doesn't really affect the "real" (that is, the nonfinancial) economy. They also ignored key concepts in Keynes's analysis of the business cycle, such as hoarding and uncertainty and business confidence ("animal spirits") and worker resistance to nominal (as distinct from real) wage reductions in depressions. Lessons of economic history were ignored, too, leading to a belief that there would never be another depression, let alone a collapse of the banking industry. Even when the collapse occurred, in September, many macroeconomists denied that it would lead to anything worse than a mild recession; the measures that the government has taken to recover from what has turned into a depression owe little to post-Keynesian economic thinking; and the economists cannot agree on what further, if anything, should be done, and which of the government's recovery measures has worked or will work.

Besley and Hennessy's letter, when first published, was described in some quarters as a letter of "apology" by English economists. It was not that; nor is the August 10 letter--the latter is a denunciation of mainstream economics.

The notion of a profession's apologizing for its failure in a letter to the monarch is charming, however. It would be an apology to the nation, personified in its monarch. The English monarch does not exercise political power, but does personify the nation, and it is easier to write a letter to a person than to a nation.

The English economics profession failed the United Kingdom; the American economics profession failed the United States. Not that the profession should be equated to its macroeconomic and financial divisions. The study of business cycles is only a small part of modern economics. Other areas of economics bear significantly on the study of business cycles, such as labor economics, without being implicated in the failures of response to the current crisis. But the control of the business cycle had until the present crisis been regarded as a principal triumph of modern economics and justification for regarding economics as the queen of the social sciences. We have no monarch; the President is not a personification of the nation but rather the head of the national government; there is no one to write the letter of apology to. No matter. The urgent need is for the part of the profession that concerns itself with business cycles to acknowledge its inadequacies and reorient its training and research.

Superman Bolt: 9.58 100m!

Far behind in second was Tyson Gay, whose 9.71 would be the fastest ever were it not for Bolt. Teammate Asafa Powell (who has run 9.72, third fastest of all time) came in behind Gay. So in this race Bolt smashed his own record from Beijing and destroyed the #2 and #3 fastest sprinters of all time. Bolt is the greatest of all time!

Gene machines

Ever wonder how automated genetic sequencing works?

The blog post linked to below gives a detailed description of the Illumina platform, complete with illustrations.

Genetic-Inference: ... Second gen sequencing has allowed us to re-sequence many human individuals; the 1000 Genomes Project is using 454, SOLiD and Illumina machines to sequence hundreds of individuals. This sort of thing has allowed us to get an idea, not just of what a single genome looks like, but how the genome changes from person to person; we can look at how much variation there is in the genome, how different populations differ in their genome structure, and even what makes a cancer genome different from a healthy genome.

However, second gen sequencing is not without its flaws. While it has got cheap ($40-50 to sequence a human genome these days) [typo? I think he means $40-50k], it still requires a lot of reagents, a lot of work and a lot of cost (the RT-bases aren’t cheap, and neither are the enzymes used). The low read lengths are still a problem, as they make knowing precisely where you got the bit of DNA from hard to discover (especially if you want to know which of two paired chromosomes it came from), and it takes a very long time to run the machines to completion. In the third part of this series, I will take about the new technologies that are appearing on the horizon; the so-called Third Generation Sequencing machines, which promise to make sequencing an entire human genome cost a couple of hundred pounds and take a few hours.

Last summer at Scifoo I met Jonathan Rothberg, founder of 454 Life Sciences, which makes one of the 2nd generation machines. 454 machines did James Watson's genome and also the neanderthal sequencing for Svante Paabo's group at MPI. We had a pretty interesting conversation, ranging from technology and venture capital to genetics and human biodiversity :-)

Back in 2005 I posted the figure below showing the super-exponential growth rate of sequencing capability. It looks like progress has continued at a similar rate since then.

Geeky scientists and engineers fueled by government grants and venture capital have once again delivered promethean gains to society :-) So much of progress, scientific and otherwise, is driven by the nature of available tools; see related post Prometheus in the basement.

It's all in da gene: sleep

I could really use this mutation. It seems I naturally need 8+ hours of sleep -- very inconvenient!

Related posts: All in da gene , mutants

"Horses ain't like people, man, they can't make themselves better than they're born. See, with a horse, it's all in the gene. It's the fucking gene that does the running. The horse has got absolutely nothing to do with it." --- Paulie (Eric Roberts) in The Pope of Greenwich Village.

ScienceNOW:

Early Risers Are Mutants

Don't hate those people who are perky and efficient after only a few hours of sleep. They can't help it. New research suggests that a genetic mutation may explain why some people sleep less.

Researchers don't know exactly why some people do fine with as little as 4 hours of sleep a night, while others need 12. "We've believed for a long time that there's a genetic basis," says Paul Shaw, a neurobiologist at Washington University in St. Louis, Missouri. But scientists have only recently begun to ferret out which genes are responsible.

In 2001, geneticist Ying-Hui Fu and colleagues identified a mutation in a gene called Per2 that appeared to cause familial advanced sleep-phase syndrome (FASPS). People who have this condition sleep a normal 8 hours, but they go to bed earlier than most people, retiring at 6 or 7 in the evening and waking at 3 or 4 in the morning. "After that was published, a lot of these people [with unusual sleep schedules] came to us," says Fu, who is now at Stanford University in Palo Alto, California. "So we started to collect DNA samples." The team now has genetic information from more than 60 families.

Fu and her colleagues have spent the past several years mining this vast genetic storehouse for more mutations that might affect sleep patterns. In 2005, they uncovered another mutation associated with FASPS. And now they say they have found the first genetic mutation in humans that appears to affect sleep duration rather than sleep timing. The mutation lies in DEC2, a gene that codes for a protein that helps turn off expression of other genes, including some that control circadian rhythm, the internal clock that regulates a person's sleep-wake cycle. The mutation occurred in just two people, a mother and her daughter. The women sleep an average of only 6.25 hours, whereas the rest of the family members sleep a more typical 8 hours.

To confirm that this mutation shortens sleep, Fu and colleagues engineered mice to carry the mutant form of DEC2. The mutant mice slept about an hour less than normal mice, the team reports today in Science. The finding also held for fruit flies: Mutant flies slept about 2 hours less than normal flies.

DEC2 likely isn't the whole story when it comes to short sleep. "Genetic control of sleep is going to be complex and is going to include multiple types of genes," says Shaw, who was not affiliated with the study. But that doesn't diminish the importance of this paper, he notes. "It's really an amazing piece of work."

The findings, says Fu, could lead to better treatments for sleep disorders. If the mutated form of DEC2 were available in a pill, Fu says she'd take it, noting that she needs about 8 hours of shuteye a night to feel rested. "All my life I've wanted to be able to sleep less."

Science:

The Transcriptional Repressor DEC2 Regulates Sleep Length in Mammals

Ying He,1 Christopher R. Jones,2 Nobuhiro Fujiki,3 Ying Xu,1,* Bin Guo,4 Jimmy L. Holder, Jr.,1,{dagger} Moritz J. Rossner,5 Seiji Nishino,3 Ying-Hui Fu1,{ddagger}

Sleep deprivation can impair human health and performance. Habitual total sleep time and homeostatic sleep response to sleep deprivation are quantitative traits in humans. Genetic loci for these traits have been identified in model organisms, but none of these potential animal models have a corresponding human genotype and phenotype. We have identified a mutation in a transcriptional repressor (hDEC2-P385R) that is associated with a human short sleep phenotype. Activity profiles and sleep recordings of transgenic mice carrying this mutation showed increased vigilance time and less sleep time than control mice in a zeitgeber time– and sleep deprivation–dependent manner. These mice represent a model of human sleep homeostasis that provides an opportunity to probe the effect of sleep on human physical and mental health.

On Japan

Readers of this blog have probably noticed that I regularly post about China and globalization. I've devoted much less space to Japan, even though I once lived in Tokyo as a JSPS (Japan Society for the Promotion of Science) Fellow. While in Tokyo I dated an All Nippon Airlines stewardess, trained in MMA with local fighters and spent too much time in Shibuya (pictures above and below). I scandalized my physicist hosts by (a) visiting Thailand on the way to Tokyo and (b) investigating all kinds of weird social phenomena in my spare time (see below).

Below are a few old pictures, the first four from Thailand (Ko Samui) and the rest from Kamakura, Japan.





While in Japan I wrote a travelogue which I posted on the internet. That may not sound very radical, but this was back in 1997, long before the appearance of blogs :-) The travelogue covers topics like girlie bars, muay thai and expats in Thailand, Judo vs BJJ in Tokyo, physics lectures in Kyoto and at KEK, Japanese youth culture, etc. Any Hollywood producers or directors interested in making this into a movie should contact me right away ;-)

For those who are interested in Japan but don't want to read my stuff, I recommend the following.

Lafcadio Hearn: the grandfather of foreigners writing in English about Japan. Hearn arrived in Japan in 1890 as a journalist, eventually becoming professor at Tokyo Imperial University. See here for a collection of his work.

The blog Neojaponisme, edited by Harvard grad W. David Marx (an expat writer and musician in Tokyo) offers excellent writing about Japan, often informed by the latest academic research. For example, The misanthropology of the late stage kogal is about the kogal (video) and enjo kosai phenomena, which very much puzzled me when I was in Tokyo. (Having access to this research at the time could have saved me a lot of field investigation ;-) Kyabaio Japan is about hostess clubs, a topic covered with much less insight recently in the Times.

Monsters in Modern Physics Letters

My student David Reeb and I were asked to write a short review of our recent work on monsters for the journal Modern Physics Letters. The review is now on arxiv. You can find slides from a recent talk on this subject here (given at Fermilab).

We included some new material in the second part of the paper. In the last few years there has been significant progress in the foundations of statistical mechanics, in which thermodynamic properties are seen to emerge as a consequence of entanglement and the high dimensionality of Hilbert space. Even the Second Law can be deduced in a probabilistic sense from underlying dynamics that is fundamentally time-symmetric. We discuss the possibility that a similar approach can be applied in gravity to deduce, e.g., the Generalized Second Law of Thermodynamics, which governs black hole entropy as well as that of ordinary matter.

Monsters, black holes and the statistical mechanics of gravity

Authors: Stephen D. H. Hsu, David Reeb

http://arxiv.org/abs/0908.1265

Abstract: We review the construction of monsters in classical general relativity. Monsters have finite ADM mass and surface area, but potentially unbounded entropy. From the curved space perspective they are objects with large proper volume that can be glued on to an asymptotically flat space. At no point is the curvature or energy density required to be large in Planck units, and quantum gravitational effects are, in the conventional effective field theory framework, small everywhere. Since they can have more entropy than a black hole of equal mass, monsters are problematic for certain interpretations of black hole entropy and the AdS/CFT duality.

In the second part of the paper we review recent developments in the foundations of statistical mechanics which make use of properties of high-dimensional (Hilbert) spaces. These results primarily depend on kinematics -- essentially, the geometry of Hilbert space -- and are relatively insensitive to dynamics. We discuss how this approach might be adopted as a basis for the statistical mechanics of gravity. Interestingly, monsters and other highly entropic configurations play an important role.

Excerpt from the paper:

Can the quantum mechanical derivation of statistical mechanics given above be applied to gravity? For example, can we deduce the Second Law of Thermodynamics on semiclassical spacetimes (i.e., including, for example, large black holes)?

This might seem overly ambitious since we currently lack a theory of quantum gravity. However, the results described above are primarily a consequence of the high-dimensional character of Hilbert spaces. If the state space of quantum gravity continues to be described by something like a Hilbert space, then its dimensionality will almost certainly be large, even for systems of modest size. Further, it seems a less formidable task to characterize some aspects of the state space of quantum gravity than to fully understand its dynamics. Indeed, for our purposes here we only consider semiclassical spacetimes.

Early attempts at quantization, culminating in the Wheeler-DeWitt equation, were based on the classical Hamiltonian formulation of general relativity\cite{WDW1,WDW2}. These led to a configuration space (``superspace'') of 3-geometries, modulo diffeomorphisms, and to the wavefunction, $\Psi [ h_{ab}, \phi ]$, of the universe as a functional over 3-metrics $h_{ab}$ and matter fields $\phi$. This description of the state space seems quite plausible, at least in a coarse grained sense, even if the fundamental objects of the underlying theory are something else (strings, loops, etc.). Let us assume that some form of short-distance regulator is in place (or, alternatively, that the dynamics itself generates such a regulator in the form of a minimum spacetime interval), so that we can neglect ultraviolet divergences.

Now consider the set of asymptotically flat, non-compact 3-geometries. Impose conditions on the asymptotic behavior so that the total ADM mass of the system is $M$, and further assume that all the energy density is confined to a region of surface area $A$. This results in a restricted state space ${\cal H}_R$. If the concentration of measure results apply to ${\cal H}_R$, then the observed properties of any small subsystem $X$ are likely to be the same as if the universe were in the equiprobable, maximally mixed state $\rho_* = \mathbbm{1}_R / d_R$. In the flat space case this leads to the usual canonical (Boltzmann) distribution in $X$. ...

Life on moduli space?

New paper! Although I'm skeptical about the utility of the anthropic principle (see previous discussion on this blog), I couldn't resist pondering a basic question raised by the large number of string vacua, the vast majority of which seem to be supersymmetric.

Is there something special about exact supersymmetry that precludes complex life? It's a simple question, but difficult to answer.

Life on moduli space?

http://arxiv.org/abs/0908.0943

While the number of landscape vacua in string theory is vast, the number of supermoduli vacua which lead to distinct low energy physics is even larger, perhaps infinitely so. From the anthropic perspective it is therefore important to understand whether complex life is possible on moduli space -- i.e., in low energy effective theories with 1. exact supersymmetry and 2. some massless multiplets (moduli). Unless life is essentially impossible on moduli space as a consequence of these characteristics, anthropic reasoning in string theory suggests that the overwhelming majority of sentient beings would observe 1-2. We investigate whether 1 and 2 are by themselves automatically inimical to life and conclude, tentatively, that they are not. In particular, we describe moduli scenarios in which complex life seems possible.

From the paper:

Assuming our current understanding of string theory is correct, the number of distinct vacua with unbroken supersymmetry and exact low-energy moduli (supermoduli) is infinitely larger even than the vast number of string landscape vacua in which supersymmetry is broken and the cosmological constant nonzero \cite{BDG,DK}. For example, in Calabi-Yau compactifications, the continuous parameters determining the shape of the compact space are themselves moduli and result in an infinite set of physically distinct vacua. Indeed, the highly supersymmetric vacua may be on stronger theoretical footing than their non-supersymmetric counterparts \cite{BDG}.

If complex life is possible on even a tiny fraction of points on supermoduli space, it would be difficult to understand, within an anthropic framework, why we do not ourselves observe unbroken supersymmetry and massless moduli fields.

There is thus ample motivation to investigate whether complex life can exist on moduli space -- specifically, in low energy effective theories with 1. exact supersymmetry and 2. some massless multiplets (moduli).

... Below we list some minimal requirements for complex life. In fact, we do not know whether any of these conditions are necessary or sufficient for life, although it seems they are more likely to be necessary (especially B.) than sufficient. These requirements primarily place constraints on low energy physics. As we discuss below, they do not seem to exclude moduli vacua, at least not in any obvious way.

A. structure formation

B. deviation from thermal equilibrium (long lived sources of free energy)

C. stable matter, complex chemistry

Because inflationary dynamics are typically determined by high energy physics, it seems reasonable to assume that the specific properties of any inflationary epoch (including the spectrum of density perturbations) are independent of the low energy properties of a particular vacuum. Therefore, the requirement of an inflationary epoch neither favors nor disfavors properties 1-2. ...

Unbelievable

Anderson Silva, king of the 185 pound division, moves up to 205 to face Forrest Griffin, a former light heavyweight champ.

This clip says it all -- Silva toyed with Griffin. An amazing example of world class athletic dominance -- reminds me of Usain Bolt at the Beijing Olympics.

Silva has no respect for Griffin's striking. Hands down, head movement only; it's an homage to Roy Jones Jr., who is in the audience. A casual right dismisses Griffin.

Creators and Rulers

A friend pointed me to this post by AI researcher Eliezer Yudkowsky, in which he describes his shock at meeting a sample of the technology business elite.

EY's observations about the particular meeting he attended sound reasonable (I've been to similar meetings), but the group was highly selected and it's his only window into the business world. The people he describes are the elite in the world of innovation -- they, and their companies, Create the next generation of technology. But they are not typical of the richest and most powerful people in the world (see further below).

... I was invited once to a gathering of the mid-level power elite, where around half the attendees were "CEO of something" - mostly technology companies, but occasionally "something" was a public company or a sizable hedge fund. I was expecting to be the youngest person there, but it turned out that my age wasn't unusual - there were several accomplished individuals who were younger. This was the point at which I realized that my child prodigy license had officially completely expired.

Now, admittedly, this was a closed conference run by people clueful enough to think "Let's invite Eliezer Yudkowsky" even though I'm not a CEO. So this was an incredibly cherry-picked sample. Even so...

Even so, these people of the Power Elite were visibly much smarter than average mortals. In conversation they spoke quickly, sensibly, and by and large intelligently. When talk turned to deep and difficult topics, they understood faster, made fewer mistakes, were readier to adopt others' suggestions.

No, even worse than that, much worse than that: these CEOs and CTOs and hedge-fund traders, these folk of the mid-level power elite, seemed happier and more alive.

This, I suspect, is one of those truths so horrible that you can't talk about it in public. This is something that reporters must not write about, when they visit gatherings of the power elite.

Because the last news your readers want to hear, is that this person who is wealthier than you, is also smarter, happier, and not a bad person morally. Your reader would much rather read about how these folks are overworked to the bone or suffering from existential ennui. Failing that, your readers want to hear how the upper echelons got there by cheating, or at least smarming their way to the top. If you said anything as hideous as, "They seem more alive," you'd get lynched.

The comment below on EY's post (not written by me) is, in my judgement, a more accurate description of the business (and political) elite as a whole. It describes the Rulers -- people who run the world on a day to day basis. (I doubt EY would have been nearly as impressed by these people -- they fit his original stereotype of business executives.) The Creators and the Rulers are two partially disjoint groups within the elite.

I went to Harvard Business School, a self-styled pantheon for the business elite.

The average person was:
- top decile intellect (though probably not higher)
- top decile emotional intelligence (broadly construed - socially aware, self-aware, persuasion skills, etc.)
- highly conscientious / motivated

Few were truly brilliant intellectually. Few were academically distinguished (plenty of good ivy league degrees, but very few brilliant mathematical minds, etc.).

A good number will be at Davos in 20 years time.

Performance beyond a certain level in the vast majority of fields (and business is certainly one of them) is principally a function of having no cognitive and personal qualities which fall below a (high, but not insanely high) hygene threshold -- and then multiplied by determination, of course.

Conscientiousness, in fact, is the best single stable predictor of job success for complex jobs (well established in personality psychometrics).

Very high intelligence actually negatively correlates with career success (Kotter), probably because smart people enjoy solving problems, rather than making money selling things -- which outside of quant trading, show business and sport is really the only way of being really successful.

There are some extremely intelligent people in business (by which I mean high IQ, not just wise or experienced), but you tend to find them in the corners of the business landscape with the richest intellectual pastures: some areas of law, venture capital, some cutting edge technology fields.

Steve Ballmer - for instance - might deafen you, but he would not dazzle you.

To be precise, the Rulers are not just the most driven among the group described above, but also the luckiest. The Creators are actually drawn from a smaller population than the Rulers. In the world of Creators the ability threshold is higher and the volatility, although significant, is not as large as for HBS types trying to claw / smarm / cheat their way to the top.



In response to comments, further clarification:

Success in the Creator segment of the elite is more highly correlated with specific, observable capabilities like brainpower or creativity. A startup founder (or entrepreneur) has to have actually had (or at least recognized) a good idea and then, perhaps with help of team, implemented it. There is noise (luck), but signal to noise is not hopelessly small.

In comparison, I think the selection of Rulers from the population of people who, e.g., are admitted to HBS, has a significantly larger stochastic component, so that, when you actually meet one of the Rulers, they tend to resemble the HBS population as a whole (they are the subset who won the lottery), as opposed to a sub-population that has been further selected for ability (e.g., the smartest or most charming or most determined HBS people). If the stochastic component dominates, the most successful ones will resemble the average (you can't directly detect that they are actually the "most lucky" HBS people), not a particular tail. I am more familiar with the Creator population, but have met plenty of Rulers (typically, MBAs who have climbed the ladder within a big organization and are now at or near the top), and my impressions seem to confirm the model I described above -- there are more supermen among the Creators, and more boring suits among the Rulers. However, as the commenter above notes, there ARE areas in business where you tend to find higher concentrations of supermen. Perhaps you could say that those are areas of business where there is a well-functioning meritocracy, or special abilities really matter.

Economics: is it science?

The Making of An Economist Redux by David Colander

The paper describes a survey taken by graduate students at seven top-ranking economics programs. There is an enormous spread in opinions on questions such as: Is neoclassical economics relevant? Do economists agree on fundamental issues? Can fiscal policy be an effective stabilizer? Should the Fed maintain a constant growth rate of the money supply? (See below for results.)

For example, just over 50% of students agreed somewhat or strongly that Economists agree on fundamental issues, whereas 44% disagreed. These results were barely changed over 20 years -- is that a strong indicator of little progress in the field, at least as far as fundamental issues? ***

(Isn't whether economists agree on fundamental issues itself a fundamental issue? If economists do not agree on whether economists agree on fundamental issues, isn't there an issue? ;-)

See the paper for more, or the book, which contains transcripts of interviews conducted at each of the schools. Some parts of the interviews are very funny, like when Colander asks the students Have you ever read any older economists, like Hayek, Robinson or Keynes? The discussion of sociology vs economics is also quite amusing.

The most tragic (yet deepest) question in the interviews is Do economists test theories? Colander obviously understands what he is asking but few of the students seem to.

In the survey results below, "Then" refers to an earlier survey done in the 1980s, "Now" refers to one done around 2002. Click below for larger images.










*** So as not to appear to be an ugly physicist, let me note that we have yet to find the Higgs particle, haven't discovered what the dark matter is but rather discovered a new mysterious substance called dark energy that no one can explain, and still don't know how quantum gravity works. I might also add that physicists disagree about the foundations / interpretation of quantum mechanics, although we don't disagree about the fact that we disagree :-)

Wrong, Trivial, Not Original

The three stages of reaction to a new scientific result:

1. It's wrong

2. It's trivial

3. I did it first

I made this up myself while still a grad student, after a particularly exasperating interaction with a referee. However, I was amused recently to find that a similar quote is attributed to Szilard in this book (see list of quotations at the end; unfortunately not available in the Google Books preview I link to).

In my case, the referee 1. claimed the paper was wrong, then, after processing a detailed reply, 2. admitted the result was correct, but then claimed it was trivial (not worth publishing; lots of things are difficult to understand at first but when clearly explained suddenly become "trivial"). A second referee agreed the result was correct and nontrivial, but of course 3. demanded we cite his earlier related work 8-)