"Our hedge fund is using existing technology to steal your money."
This is absolutely certain to be true, also goes for mutual funds, and it happens in the plain sight of almost every investor.
Hedge funds typically get two and twenty: two percent of your investment per year. Twenty percent of all gains. Apply this incentive structure to any sufficiently large pot of money and you make out like a bandit. Investors, not so much. Thankfully, if you have enough money to invest in a hedge fund you have enough money to pay someone who knows this to explain it to you.
Actively managed mutual funds charge a management fee, typically in the neighborhood of 1.5 ~ 2% a year. (These are, thankfully, coming down.) This compares to 0.2% a year for index funds. Since actively managed mutual funds do not add value -- another secret in plain sight -- this will, over time, result in approximately half of the investors' gains accruing to the money manager. Most investors just pick whatever their broker recommends (brokers shudder) or pick the default choice for their retirement plan, which is generally set via splitting that huge fee with whomever is tasked to do the recommendation.
Buy cheap index funds (or, if that strikes you as complicated, open an account with Vanguard and get one of their targeted retirement date options -- they'll work out the math for you).
Hedge funds charge high fees, but a subset of them provide a product you can't get anywhere else: returns orthogonal to other investments. Sophisticated investors pay happily for it. What's being stolen?
I think what jeffmiller meant was that an investors returns from a hedge fund investent should have very little to no correlation to other investments the investor has made.
Or more generally, that hedge funds can be structured for their returns to bear little to no relation to the stock market as a whole. They do this by making highly leveraged bets in both directions. (Buy an option for 10 cents on a stock that rises from $4.00 to $4.10. Bam, 100% profit. Or 100% loss if the stock does not rise at all.) This action is called hedging, giving hedge funds their name.
The dirty secret is that hedge funds do not work long term. The stock market goes up on average over time. A hedge fund that does not correlate with the stock market has no guarantee or even reasonable expectation of doing so. The stock market rises over time because its constituent companies create wealth, by building or manufacturing things. Hedge funds have no such underlying creator of wealth. The only way a hedge fund makes money is to find a bigger fool. For every highly-leveraged gain, somebody else lost the same amount by possessing or acting on less information.
Some hedge funds actually do achieve consistent gains by technical means, as the original article touches on. They can have the fastest computers closest to the exchange trading centers, that can beat other investors to attractive offers by fractions of seconds and/or pennies. There's no secret cabal conspiracy there though. Profit is the only motive; any apparent manipulation is just the result of everybody acting in self interest.
You're right about the fees but I don't think this is all that he is referring to here. He's referring to high frequency trading and other shady aspects of computerized trading.
#1 Sounds plausible, but I know nothing of it; 60% confidence seems a little high to me on conspiracy theory
# 2, at least with respect to the following leaked items, which are perhaps not especially surprising, but are a little more than "baaarely embarrassing":
1. US pressuring Germany not to pursue criminal investigation of US agents' kidnapping and torture of German national (who happened to be innocent, but that's not especially relevant)
2. US allegedly obstructing Spanish investigations of torture of Spanish subjects at Gitmo and use of Spanish facilities for extraordinary rendition program.
Number 1 was an open secret even before the leak. The leak was more of a reminder that Khalid el-Masri was extraordinarily rendered to Afghanistan (the matter has been the subject of a Wikipedia article for years), not anything new.
Number 2 is pretty much more of the same. Number 3 is pretty much de rigueur.
Re: 1. The only reference in the Wikipedia entry to the pressuring of the German govt. by the US consists of this line: "On February 6, 2007, U.S. officials warn the German Government not to issue international warrants." This line was added to the article a few days ago. Its cited source is a document leaked by Wikileaks.
Re: 2. According to Harpers, and its reading of El Pais and Público, what's newly revealed by the released cables is "a large-scale, closely coordinated effort by the State Department to obstruct ... criminal investigations"
Re: 3. Espionage may be expected, even accepted. What is or should be embarrassing for the US is its employment of State Dept. diplomats for the purpose of espionage.
Plausible, open secret, sure. But there is a big difference between something floating around as a rumor (or conspiracy theory) and having it confirmed in a diplomatic cable.
Take, for example, the cable about nuclear weapons in the Netherlands. We always suspected those were there, but neither or government or the US government confirmed it. A lot of Dutch citizens are rightfully enraged now, we deserve to be told those things.
We had to help the US find those WMDs in Iraq in their 'war for freedom', but it seems we're sitting on WMDs ourselves without knowing it. This is serious, not just some gossip!
And the allegations toward Russia and North Korea are even worse.
It is really really unlikely they released this on purpose. I could see a more limited leak used in this way, but the 'big fish' better be really big to warrant releasing all of this.
The problem with his Wikileaks theory, in my opinion, is that he fails to account for the fact that only ~0.1% of the cables have been released at this stage. The philosophy behind a staggered release? As stated by Wikileaks and Assange, releasing them in waves will allow the public and the press to digest all of the material in a paced, stable manner. This implies that subsequent waves will have important, valuable information that needs to be digested and processed.
I have seen this "US Government is behind cable leak" theory a good deal in the past few days and I do not believe that it holds any water. I think that it's reaching, to be quite frank.
1) is partially right. The extra volatility is probably caused by trading programs, but they are intentionally installed, not a virus.
2) I actually came up with this one myself. I even posted it in a former comment on HN. I draw a parallel to the Zimmerman cable, which the British intercepted and had to find a way of leaking to achieve their aims.
Conspiracy theory is an overloaded term, though, it doesn't have to be outlandish. Any group of people can conspire to achieve something.
Mr. Adams says he's a fan of conspiracy theories, but I don't think so, since he suggests conspiracy theories are typically "any wild story" engineered to sound feasible. This definition goes against the whole reason for including the word "theory" which is supposed to suggest underlying assumptions are at least in part based on observations. He unwisely paints such theories as black or white in terms of how feasible they are, without acknowledging that the truth of many popular conspiracy theories may (often likely) fall somewhere between completely false or true.
Take his first example of a small group of rich people secretly running the world. Have people in the past conspired to influence outcomes at a local town or city wide level? Certainly. How about a larger scale than this, such as at a state or country level? Again, in many places, most certainly. Could that scale be increased even larger? Are there super wealthy people with power and influence? Certainly. When viewing things this way this "unlikely" theory becomes a lot more feasible, and the truth is probably somewhere between zero intentional conspiring, and one evil mastermind with an underground hundred-monitor supercomputer.
What about aliens abducting people? I don't know about implanting chips in people's necks, which Mr. Adams seems to have thrown in to conveniently push this theory into the complete nonsense pile. I've always heard simply about alien abductions. Now, most credible sane scientists will tell you that it's more likely than not there is alien life in the universe. If we've now established alien life likely exists, we can also reason that it's possible that some alien life is further evolved and advanced than humans. In my opinion, the first place the abduction theory breaks down is the likelihood of any actual contact with aliens in existence (the universe is a really, really big place). I would say that's unlikely enough to effectively kill the abduction theory completely. However, if one lets the mind wander and play then maybe sufficiently advanced life forms could have discovered a way to leap through spacetime akin to the Starship Enterprise's warp speed ability. Sure, that's still a huge stretch, but it does give a bit more entertaining feasibility to this abduction theory Mr. Adams has so completely dismissed.
To me that's how a true fan of conspiracy theories entertains them. ;)
I agree about the few rich people running the world. I'd even be surprised if no such group were at least trying to. The catch is, it's probably not secret: our financial system for instance is basically designed to put all the money in the pockets of bankers (wild oversimplification). Finance is complicated and boring (for most people), but it's not secret. "Not secret" has a strong tendency to imply "no big deal" (scarcity bias), so we don't pay attention. This is frighteningly brilliant: the absence of actual secrecy (and conspiracy) tend to enhance the de-facto secrecy (and conspiracy).
Minor point about the aliens: if aliens had FTL interstellar travel, they would have built a galactic civilization before they found us. Such a civilization would be visible from Earth. See http://hanson.gmu.edu/greatfilter.html for more details on these speculations. So, there may be more avenues to the abduction theory, but this one is closed.
They would be visible from Earth because they would be everywhere. Even if some members of a galactic-expansion-capable civilization did not want to expand enough to exploit all available resources, they would be quickly out-competed by the ones who did want to.
The universe is a big and mysterious place. It's doubtful whether the all-pervasive influence of human civilisation on earth would be that evident to a sentient barnacle anchored to an isolated islet far from inhabited land.
Sounds like a Deeply Wise Curiosity Stopper. OK, it's all speculation, but it's still reasonable to expect visible changes, like Dyson spheres.
And the barnacle certainly would detect us. We changed the weather. We use planes all over the place. At the very least, it would detect Iridium Flashes, which are hardly natural. (OK, that would take a scientist sentient barnacle, but humanity does science anyway.)
Depends on the scientist sentient barnacle's frame of reference; I'm sure it could posit naturalistic explanations for weather changes and distant things that move across the horizon and flash light at us. I'm not saying it's impossible for us to observe the activity of extraterrestrial lifeforms (that would be absurd), simply that traces of intergalactic activity might not be immediately obvious; surely one of the side-effects of a Dyson sphere, for instance, would be to render the star almost undetectable to our telescopes.
surely one of the side-effects of a Dyson sphere, for instance, would be to render the star almost undetectable to our telescopes.
No. A Dyson sphere would just emit a lot less radiation in the region that we happen to perceive as "visible". This is a special case of "Stealth is (close to) impossible in Space"
> Mr. Adams says he's a fan of conspiracy theories, but I don't think so, since he suggests conspiracy theories are typically "any wild story" engineered to sound feasible.
But how are those wild stories engineered? By collecting all facts and half-truths that seem to fit. (... and often by inventing additional "facts" as appropriate.)
So of course those stories are partly based on observations.
> This definition goes against the whole reason for including the word "theory" which is supposed to suggest underlying assumptions are at least in part based on observations.
For the reasons above, I think that your definition is almost equivalent to the definition of Mr. Adams.
most credible sane scientists will tell you that it's more likely than not there is alien life in the universe
Really? I would have thought that no credible scientist would try to extrapolate from a single data point. I think the current consensus in the scientific community is "we don't know".
It seems the author needs to brush up on Bayes' theorem, i.e. before giving a percentage confidence in a given theory, you need to consider the likely hood of the theory not occurring.
#1 Analysts explain it away by saying, for example,
"The market was hoping for even better news than the
good news they got." A simpler explanation is that the
market is being manipulated.
This a false assumption, as I would say it is more likely that the analysts got it wrong. If analysts could predict the stock market with near 100% accuracy, then it wouldn't be a high risk investment option would it?
#2 The lack of bombshells in the Wikileak materials
looks mighty suspicious to me
It is also wrong to assume that because no remarkable secrets have been exposed, that any have been leaked in the first place. This is a statement of pure fantasy based on no logic or facts.
This is as good as any place to say prediction; number 2-2 is also on my mind. I believe possible motive is to begin justification of military action/expansion vs Iran. I wager by Q3-4 2011 or Q1 2012 considerable military action thus begins.
thank god he suggested #2. I suggested the same thing here on HN and got downvoted a grip. Funny thing I was upvoted until about 3-4 then I was swiftly downvoted to -3 or whatnot.
How much money did the US government dump into hedge funds to keep them from collapsing because they were "too big" (read: too well-connected) to fail? Doesn't sound like they have secret magic to steal money, else they wouldn't have been in trouble.
As for the recent underwhelmingly US diplomatic memo leaks, that has an easy and logical explanation. These memos were merely secret information, about on the level of a ... memo inside any corporation. That is why security was so lax on them to allow so many of them to be accessible to low rank personnel. More important information is kept more secret with a tighter reign on who has access and how many people have access.
I think he's referring to the thousands of small (in comparison) hedge funds out there rather than the giant investment banks that received TARP funds.
This is absolutely certain to be true, also goes for mutual funds, and it happens in the plain sight of almost every investor.
Hedge funds typically get two and twenty: two percent of your investment per year. Twenty percent of all gains. Apply this incentive structure to any sufficiently large pot of money and you make out like a bandit. Investors, not so much. Thankfully, if you have enough money to invest in a hedge fund you have enough money to pay someone who knows this to explain it to you.
Actively managed mutual funds charge a management fee, typically in the neighborhood of 1.5 ~ 2% a year. (These are, thankfully, coming down.) This compares to 0.2% a year for index funds. Since actively managed mutual funds do not add value -- another secret in plain sight -- this will, over time, result in approximately half of the investors' gains accruing to the money manager. Most investors just pick whatever their broker recommends (brokers shudder) or pick the default choice for their retirement plan, which is generally set via splitting that huge fee with whomever is tasked to do the recommendation.
Buy cheap index funds (or, if that strikes you as complicated, open an account with Vanguard and get one of their targeted retirement date options -- they'll work out the math for you).