Saturday, May 8, 2010

The God Complex of Humans - Flash-Crash insight

So let's take a high level and very brief look at this. 


 Geoengineering.  In this case we are seemingly smart enough to contemplate how we might best "influence" the climate directly to alter the natural course of climate change.  I am not talking about removal of CO2.  CO2 removal just makes sense.  Or pretty much any other waste stream, liquid, aerosol or solid - either don't make it, or use it somewhere else - closed loop system.  This geoengineering, it is second-third and beyond level climate manipulation through intervention in natural processes that contribute to our climate.


Inter-basin Water Transfer.  We believe that we understand our natural science and processes to the extent that we can with confidence move water from one drainage basin to another without significant impacts.


And in terms of a beast that is not natural, one that has many characteristics of natural living systems as it is made up of people, and people behave, and they express themselves in one manner or another.  I'm referring to the market.  In my very early trading I remember chatting with a fellow trader in a virtual trading room, expressing my long standing interest in animal behaviour.  He remarked that I had a good chance of really loving trading, because in his words " .... it is the biggest human behaviour experiment in existence.".  


So in my morning perusal of my reading list, coming across much ado about the market action on Thursday afternoon.  This statement particularly struck me (SEC said to consider new rules).
Kanjorski, a Pennsylvania Democrat, also sent a letter to SEC Chairman Mary Schapiro seeking the agency’s views on the incident and asking what power it has to prevent future crashes (Emphasis added).
My interpretation of this statement is that this suggests we are now smart enough to control human behaviour.  I'm thinking .... probably not.


One of the best lessons I learned during some of my initial trading training was the explanation provided to me about the principles and significance of pivots, support and resistance.  When price action "bounces" off of certain levels, every time it bounces off these levels it is an expression of the market price sensitivity.  That market sensitivity is made up of many different people reacting to express their opinion.  And in absolute terms, there is never going to be exactly the same people  acting to make the "bounce".  This is the basis to the trading/market notion that every instant in market action is unique and independent.  There are no two instances in time in anything we do that are in absolute terms identical.  Taken to an extreme, every thought is out-dated and old by the time you finish having it.  But in the practical aspect of its application to the markets, it is relevant.  Certainly there are the arguments that "technical" trading makes many people that follow the same technical analysis to behave similarly - and there4fore demonstrate "unity" in the expressed behaviour.  And as we can atest with Thursday's "flash-crash", the algobots can certainly create their own momentum.  


But in it's simplest sense, the market is an expression of human behaviour.  It is a reflection of confidence and trust.  There is much that we can do in this world to improve trust and confidence, but thinking that we will EVER control the global (trading) population's behaviour is highly optimistic,    Any one individual's behaviour is their own.  They make decisions and they take actions.  And should do so with full responsibility and accountability.  Regulations is certainly important.  But more than anything else (to me), this crisis has exposed the serious depth of deterioration in the human spirit.  I agree that there is lots of work to be done to close loopholes as our financial system grows up and matures.  But there is the equally important and complex work that needs to be done on rebuilding the human spirit and rediscovering the true meaning of life on earth.

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