Category Archives: arbit

Good and bad NED

Since I woke up this morning I’ve been “suffering” from a rather heavy bout of NED. But I shouldn’t be saying “suffering”, since I haven’t been suffering at all. I’ve been quite happy all day today, just that I don’t feel like doing anything.

Normally, NED is associated with something negative – when you have no enthu to do something, it implies a feeling of negativity – that you don’t want to do something. Sample this extract from one of my first ever conversations with the person who is now the wife, back from 2007. This was after she had seen me at the Bangalore Landmark Quiz 2007, where we went to the finals and lost. She is not to be confused, of course, with this girl I had seen at the Bangalore Landmark Quiz in 2005 (and whom I’ve never seen subsequently).

Priyanka: Hmmm …
  Tell me about your work!
 me: not now
NED
 Priyanka: okay!
  What about NED?
 me: no enthu i meant
 Priyanka: :P
  Don’t ever use your team name in our conversation again!
me: why not?
  it’s a concept
  not just a team name
 Priyanka: That im not too fond of!
 So your team symbolizes arrogance?
 me: what has arrogance got to do with it?
 Priyanka: Well thats just my take on it. But you tell me why you call yourselves NED?
  QED is so positive!

But what I’ve been going through this morning is not negative at all. I had a wonderful dinner last night (at this place called La Tertulia in Les Corts). It was a very interesting menu, and we finished the dinner with a dessert which was “chocolate 4 ways”. One of the 4 ways was a dark chocolate mousse (it was so awesome I wonder why it’s not more popular – dark chocolate mousse that is). And then I slept wonderfully.

I slept so deeply that when I woke up this morning it took time to recollect who I am and where I am and what I’m doing here and all that. I then dragged myself to a nearby cafe for breakfast, where I had more chocolate – the chocolate croissant there had much more chocolate than a normal chocolate croissant does.

So I’ve been feeling so peaceful and contented and happy that I just don’t feel like doing anything. I have less than three more days in Barcelona on this trip, and I want to go out and explore parts of the city I haven’t seen so far. But then NED is taking over. I’ve been feeling so blissful since this morning that I just don’t feel like going and doing anything! So I’m vegetating, sitting with my laptop and looking at websites on tourist attractions in Barcelona!

I remember being in this state of mind for most of the latter half of 2005. I was on a perennial high, and so high that I would just vegetate and not do anything! Not that it’s a bad thing but the long-term consequences aren’t great!

PS: Going through my blog archives, I find that even in the Bangalore Landmark Quiz in 2007, I had found “a cute chick” sitting in the audience. I didn’t make such a big deal about it, though, and I now don’t remember what she looked like. Going by this and other information I’ve presented in this post I wonder if I’m married to her now.

Business School WAG series – day out with baby bulls

Ten years ago, I was studying in a business school. A few weeks before I joined IIM Bangalore, a friend told me about the concept of a blog. I was told about the existence of blospot and livejournal, and the concept of blogging seemed exciting (I’d just started writing earlier that year and quite enjoyed it). I signed up on blogspot and wrote a post perhaps in June or July 2004 (I’ve deleted the blog, and so have forgotten when). Then I found that most of my IIMB friends were on LiveJournal and I moved my blog to skthewimp.livejournal.com .

My blogging ramped up slowly during my two years at business school – the first increase in momentum was during my summer internship in an investment bank, when my readership improved. A series of fairly controversial posts in the next one year further improved readership. And then the blog did me a lot of good.

I’ve found a client and a couple of other business leads thanks to my blogging. It was also my blogging through which I got to know of the existence of <lj user=”favrito”> eight years ago. Four years ago, I married her, and earlier this year, she decided to go to business school. And I thus became a business school WAG.

My status as a business school WAG was first established two months or so ago when I got an email from “Club – IESE Partners and Families”. These business schools try to take themselves too seriously and sound too politically correct – they could have simply called it the IESE WAG Club (there is merit in the usage of the term WAG (with its origins as “Wives and girlfriends”) as a unisex term). But anyway, I’ve continued to get emails from this club about its various activities. So far none of them have impressed me, but some have freaked me out, such as “day out with kids at the beach”.

My status as IESE WAG was further enhanced earlier this week when I made it to Barcelona, albeit for a short period of time. I visited the school yesterday, where <lj user=”favrito”> introduced me to one and all and sundry, and they eschewed the “three way cheek peck” which is supposedly popular in these parts of Catalunya in favour of the humble handshake. I spent the day in the cafeteria sipping Coke Zero and Dark Hot Chocolate and watching students crib about their performance in placement tests, talk about “arbit CP” that others put in class, and indulge in the kind of nonsense that all business school students indulge in (I surely did ten years ago) which recruiters (mostly business school alumni themselves) pretend doesn’t exist. It was interesting to say the least, but not interesting enough to deserve a blogpost for itself.

I further embellished my credentials as a WAG today, though, as I accompanied <lj user=”favrito”> and some of her classmates on a sort of picnic today. There was a fair number of WAGs at the picnic today, though I suspect I was the only male WAG. And I got introduced to a new “sport” in the course of the picnic today – amateur bullfighting, or as <lj user=”favrito”> described it, “Rajnikanth bullfighting”.

So there is a bullring. And they let a bull into the ring (it was a young bull that was in the arena today). And people can get into the ring by way of a ladder. There are these hiding posts all around the ring, behind which people can stand and be safe from the bull. And more than one human being can be in the ring at that point in time.

And they taunt and tease the bull, inviting him to attack and gore them. The bull is young and his horns aren’t sharp, so it is unlikely that it will cause much damage. But the bull is easily ruffled, and he gives short chases to the humans, who having provoked the bull in the first place try to dodge and evade the bull. Some wusses run to the shelter of one of the hiding posts when the bull is about ten metres away from them. Other wusses (including Yours Truly) don’t even bother entering the bullring, preferring to guzzle on the beer and sangria available and make pertinent observations.

And so it was an unequal battle, with several humans and one bull, though in true Rajnikanth tradition only one human would physically interact with the bull at one point in time (though others would hoot and clap and jeer). I was about to use the word “grapple” in the previous sentence but there was no grappling here – the bull would charge you and try and knock you down, and you would try and evade it. Some people even fell while trying to evade the bull and got hit by it, yet seemed unhurt.

This went on for a short period, and soon there were so many people in the bullring that there was no merit in entering it – the bull would surely get confused. And then we retired to this resort somewhere else in rural Catalunya for lunch and more drinks.

Later in the evening, at this resort, I visited the urinal. It was fairly busy at that point in time, with all stalls occupied. The guy to the left of me and the guy to my right had both brought a beer bottle along – they held the beer bottle in one hand and their penises with the other as they input and output liquids simultaneously.

I had half a mind to indicate to them that they could just eliminate the middleman, but then I thought it wasn’t appropriate for a business school WAG to give such advice, and moved on!

I plan to make a series on life as a business school WAG. Not sure how regular this will be though since I don’t plan to spend too much time in Barcelona. 

Pseud tick mark

As I write this post I’m ticking off one of those “to-dos” I had listed for myself a long time back – to sit at a hipster cafe in continental Europe, drink overpriced bad cappuccino and use an Apple laptop to write!

I’m writing this from this cafe whose name I don’t remember in the “nine streets” area of Amsterdam. I’ve had an interesting day today – attending a free concert at Concertgebouw, following it up with a massive and thoroughly enjoyable Indonesian lunch at this place called “Sampurna” at the flower market, and then going on a nice slow walk around the nice areas of Amsterdam city.

At the end of it my shoulder was hurting from carrying my one-shoulder messenger bag, which is all loaded up today since I’ve checked out from my hotel, and so after I “snapped” in terms of not being able to carry the bag any more, I settled down in the first cafe I encountered.

Everyone else here also seems to have a laptop, and everyone except one has an Apple laptop. I have no clue who these people are and what they’re working on, but the sense I get is that they are locals and not tourists. And so I’ve joined them, as I type on my Mac – I’m trying to restart this book I wanted to write ages back and had given up upon – perhaps being at a hipster joint might help revive the book – though the horrible cappuccino doesn’t help.

As I enter the home stretch of my holiday in Amsterdam I must mention that I have fallen in love with the bakeries of this city and haven’t for once regretted booking a hotel room that did not have breakfast included in the package. This morning I was at this bakery whose name I forget where I had absolutely splendid apple cake and cappuccino (which came out of a Lavazza machine – no clue why Barista Lavazza can’t make such cappuccino in India).

Ok I’m off now, back to my temporary hipster life, as I continue on the book!

Geek Talk

So I was talking to the wife using Viber when Viber acted up and disconnected. This happened a couple of times. Then I moved to FaceTime, but that too had problems, and started acting up. Finally I got irritated and decided I wouldn’t mind spending some money for uninterrupted conversation, so picked up my phone and dialled ISD.

And I told the wife, “I was getting damn irritated with packet switching, so I moved to circuit switching”. And then we got talking on why Viber was so irritating, and we talked about Tanenbaum (both of us really loved that textbook of Networking) and acknowledgements and transmission of messages on unreliable channels – which can only happen by introducing redundancy – which becomes painful in a human-to-human direct conversation.

I have an engineering degree, and am fairly good at maths, and read a fair bit of economics and history, so keep popping up concepts from these in my regular conversation. Some people find it abhorrent, and wonder if I’ve landed from another planet, given that I talk this way. For example, I remember using  the word “incentivise” while answering a question at a quiz (which had nothing to do with economics). I often rationalise purchases saying they offer “option value” – real options are one thing that I think I understand. And so forth.

From this perspective I think it’s really wonderful that I’m married to someone who not only tolerates this geek talk but actively encourages and participates in it! Like the wife has now become a big proponent of the concept of option value (though admittedly she has just joined B-school so is yet to appreciate the finer points of the Black-Scholes-Merton model). I’m not sure if before she met me she would quote as regularly from Harry Potter as she does now (or maybe I’m taking too much credit). And she keeps peppering examples from physics and astronomy and electrical engineering in her normal day-to-day conversation.

And speaking of physics and option theory and sporting analogies, I get damn irritated when people describe curves as the one below as “hockey sticks”.

I’m Indian, and the only hockey I know is “field hockey”, whose stick looks like a J. So whenever someone mentions “hockey stick” I start imagining a J-shaped curve. As for the above curve, I sometimes (especially when I’m hanging out with banker types) describe it as “call option payoff”. When I’m hanging out with more scientific types, I describe it as “photoelectric effect”.

I wonder how our kids will turn out!

A misspent career in finance

I spent three years doing finance – not counting any internships or consulting assignments. Between 2008 and 2009 I worked for one of India’s first High Frequency Trading firms. I worked as a quant, designing intra-day trading strategies based primarily on statistical arbitrage.

Then in 2009, I got an opportunity to work for the big daddy of them all in finance – the Giant Squid. Again I worked as a quant, designing strategies for selling off large blocks of shares, among others. I learnt a lot in my first year there, and for the first time I worked with a bunch of super-smart people. Had a lot of fun, went to New York, played around with data, figured that being good at math wasn’t the same as being good at data – which led me to my current “venture”.

But looking back, I think I mis-spent my career in finance. While quant is kinda sexy, and lets you do lots of cool stuff, I wasn’t anywhere close to the coolest stuff that my employers were doing. Check out this, for example, written by Matt Levine in relation to some tapes regarding Goldman Sachs and the Fed that were published yesterday:

The thing is:

  • Before this deal, Santander had received cash (from Qatar), and agreed to sell common shares (to Qatar), but wasn’t getting capital credit from its regulators.
  • After this deal, Santander had received cash (from Qatar), and agreed to sell common shares (to Qatar), and was getting capital credit from its regulators, and Goldman was floating around vaguely getting $40 million.

This is such brilliantly devious stuff. Essentially, every bad piece of regulation leads to a genius trade. You had Basel 2 that had lesser capital requirements for holding AAA bonds rather than holding mortgages, so banks had mortgages converted into Mortgage Backed Securities, a lot of which was rated AAA. In the 1980s, there were limits on how much the World Bank could borrow in Switzerland and Germany, but none on how much it could borrow in the United States. So it borrowed in the United States (at an astronomical interest rate – it was the era of Paul Volcker, remember) and promptly swapped out the loan with IBM, creating the concept of the interest rate swap in that period.

In fact, apart form the ATM (which Volcker famously termed as the last financial innovation that was useful to mankind, or something), most financial innovations that you have seen in the last few decades would have come about as a result of some stupid regulation somewhere.

Reading articles such as this one (the one by Levine quoted above) wants me to get back to finance. To get back to finance and work for one of the big boys there. And to be able to design these brilliantly devious trades that smack stupid regulations in the arse! Or maybe I should find myself a job as some kind of a “codebreaker” in a regulatory organisation where I try and find opportunities for arbitrage in any potentially stupid rules that they design (disclosure: I just finished reading Cryptonomicon).

Looking back, while my three years in finance taught me much, and have put me on course for my current career, I think I didn’t do the kind of finance that would give me the most kick. Maybe I’m not too old and I should give it another shot? I won’t rule that one out!

PS: back when I worked for the Giant Squid, a bond trader from Bombay had come down to give a talk. I asked him a question about regulatory arbitrage. He didn’t seem to know what that meant. At that point in time I lost all respect for him.

Twitter, outrage and political correctness

So I continue to be off twitter. The only tweets you see from me are the automated tweets that go out (which i customise a bit) every time I write a blog post, which has been fairly often in the last one month or so.

I gave up on my efforts to curate a twitter feed and get the links to pocket. I simply use the Flipboard app on my iPad, which I log on to once a day to see if there are interesting links. For a few days it worked. I collected lots of nice links. I still collect some nice links.

But then the thing with flipboard is that along with the links you end up seeing the twitter commentary that accompanied the links. And I see a lot of outrage. People don’t seem to have patience for a civil discussion on twitter any more. Everyone takes sides, every little topic is dissected like crazy and it’s almost like people have this pathological need to outrage and twitter is their vehicle for that. If this means that this might decrease their outrage in the rest of the world it’s a good thing, but I’m not sure if that is actually happening – it might even be that the constant outrage on twitter is keeping people’s outrage knives sharp and they are outraging more outside too.

Sometimes I like to crack a joke. More often than not it is likely to be offensive and politically incorrect. There is a friend who says he uses twitter exclusively as an outlet for the jokes that build up within his head -to let off steam in some sort of way. But then the extreme outrage and political correctness that twitter imposes on you means that you can never crack a nice harmless politically incorrect joke – people will descend upon you like a pack of wolves, and you get called names and all such.

And so you hold back. And you become a little less of what you were. And you regress. And then you find that you simply can’t function the way you used to a long time back.

Last night I was going through some of my blog posts from 2008 – I go on these trips sometimes. There will be some trigger that will remind me of a particular blog post, and from there I’ll read 20 other adjacent ones. Looking back at the blog posts, they were profound. They were the products of a clean and unfettered mind, who liked to put things out and who didn’t really mind any adverse reactions.

But over the last six years that mind has been dulled, sullied, bullied, into writing possibly only politically correct stuff, which might be flat and hardly profound. So the last month and a half when I’ve been out of twitter has also been an exercise to reclaim myself from @karthiks. And become back closer to skthewimp.livejournal.com – for that is the mode in which I think I function best!

Anyway.. My current thinking is that my facebook and twitter sabbatical will last until the end of October. Going by my brief intrusions into twitter via flipboard, though, it seems like I might stay away for much longer. But you know where to find me!

Planning and drawing

Fifteen years ago I had a chemistry teacher called Jayanthi Swaminathan. By all accounts, she was an excellent teachers, and easily one of the best teachers in the school where she taught me. Unfortunately I don’t remember much of what she taught me, the only thing I remember being her constant refrain to “plan and draw” while drawing orbital diagrams (I’ve forgotten what orbital diagrams look like).

Now, I remember wondering why it was that big a deal that she kept mentioning “plan and draw” while drawing or asking us to draw such diagrams. This question answered itself a few days later at my JEE factory, where the chemistry teacher started drawing an orbital diagram which soon threatened to go outside the blackboard. A friend who was sitting next to me, who was also from my school, quipped “this guy clearly didn’t plan and draw”.

The reason I’m mentioning this anecdote here is to talk about how, when faced with a deadline, we start running without realising what we are doing. I can think of a large number of disastrous projects from my academic and professional life (till a couple of years back my academic and professional life was rather disastrous), and looking back, the problem with each of them was that we didn’t “plan and draw”.

I especially remember this rather notorious “application exercise” as part of my marketing course at IIMB (btw, since the wife is doing her MBA now I keep getting reminded of IIMB quite frequently). We had a problem statement. We had a deadline. And we knew that the professor demanded lots of work. And off we went. There was absolutely no coherence to our process. There was a lot of work, a lot of research, but in hindsight, we didn’t know what we were doing! Marketing was my first C at IIMB (and the only C in a “non-fraud” course, the other being in a rather random course called Tracking Creative Boundaries).

Then I remember this project in my second job. “Forecast”, I was told, and asked to code in java, and forecasting I started, in java, without even looking at the data or trying to understand how my forecasts would solve any problem. Six months down, and forecasting going nowhere, I started coding on Excel, looked at the data for the first time, and then realised how hard the forecasting was, and how pointless (in context of the larger problem we were trying to solve).

There are several other instances – see problem, see target, start running – like the proverbial headless chicken (as made famous by former Indian ambassador to the US Ronen Sen). And then realise you are going nowhere, and it is too late to do a fresh start so you put together some shit.

That piece of advice I received in chemistry class 15 years back still resonates today – plan and draw (pun intended if you are in a duel). Its is okay to take a little time up front, knowing that you will progress well-at-a-faster-rate once you get started off. You need to understand that most projects follow the sigmoid curve. That progress in the initial days is slow, and that you should exploit that slowness to plan properly.

Sigmoid Curve

I will end this post with this beautiful video. Ilya Smyrin versus Vishwanathan Anand. Semi-finals of the PCA candidates tournament in 1994 – the tournament that Anand won to face off with Garry Kasparov at the WTC. Anand, playing black, gets only five minutes to play the whole game. Watch how he spends almost a minute on one move early on, but has planned enough to beat Smyrin (Anand only required a draw to progress, given the rules).

Raghuram Rajan replies to my Pragati article

At least I like to believe that! A couple of weeks back I’d published this article in Pragati (published by the Takshashila Institution, where I work part time as Resident Quant) slamming recent decisions by the Reserve Bank of India to make two factor authentication compulsory and to limit the number of free ATM withdrawals from non-home banks.

My criticism for both these decisions was that they were designed to take money out of the banking system, which would result in a reduction of money supply, and subsequent increase in borrowing costs, thus slowing down India’s economic recovery. I had some other criticisms, too, such as it being none of the RBI’s business to mandate what was essentially a pricing decision between the RBI and the customer, and the perverse incentives the rule created for banks seeking to set up new ATMs.

Could it be that the above regulations are a move by the RBI to curtail money supply without necessarily doing the politically tricky task of raising interest rates?

If it is (and it is a very remote possibility), we should commend the RBI for what will then amount to be a sneaky decision. If not, it must be mentioned that though noble in thought, the two decisions are completely bereft of economic and financial reasoning.

I had written.

So an article published an hour back in Mint quotes Rajan on these two policies, where he defends them. On the two factor authentication issue, he is surprisingly defensive, offering nothing more than a statement that banks and companies need to follow the rules and not try to circumvent them in the name of innovation. Rajan then added that he is looking into permitting transactions up to  a certain limit that don’t need two factor authentication – something I had pointed out in my Pragati piece.

On the ATM issue, I (and other news organisations who I got my news from) seem to have got my information wrong. Apparently currently regulation exists that five ATM transactions per month from non-home banks are supposed to be free, and that is being cut down to three. Rajan clarifies (as reported in Mint today) that the new regulation only allows banks to charge customers beyond the first three transactions in a month, and they are not obliged to do so. He talked about the perverse incentives that the earlier regime (where banks were obliged to permit a number of free ATM transactions from non home banks) created.

My apologies for not reading the regulations correctly (of course a part of the blame has to go to the newspapers that reported it thus! :) ). I admit I should have checked from multiple sources on that one.

Coming to the point of the post, why do I think that Rajan is responding to my Pragati piece? You might argue that it might simply be a case of correlation-causation – that it might be coincidental that Rajan has spoken about two issues that I had highlighted in that post. However, there are two reasons as to why I believe that Rajan was responding to my post.

The first has to do with the combination of subjects. While the two regulations (ATM withdrawals and two factor authentication ) were widely reported in the media, I haven’t seen any piece apart from mine which addresses these two issues together (I must admit my perusal of Indian media has dropped nowadays given my Twitter and Facebook sabbatical). Given that Rajan has chosen to address these two issues today, it is likely that he is responding to my piece.

The second reason has to do with the timing. The Takshashila Institution sends out a weekly “dispatch” which is a summary of commentary written by its fellows and employees and associates. This is an emailer which contains links to these articles along with short snippets, and a number of fairly influential people (within the government and outside) are on the list of recipients. The latest edition of the Takshashila dispatch went out this morning, and it has a link to my Pragati piece. Now, while Rajan is not on the mailing list (to the best of my knowledge), it is likely that an influencer on the list with access to him brought it up today (it could even be the Mint journalist who has reported the story – that would still count as Rajan, albeit indirectly, responding to my piece). This reaffirms my belief that he was responding to my piece in his comments today!

You might think I’m deluded. So be it!

Carrots have become expensive

image

Carrots have become expensive in Bangalore, relative to cucumbers at least.

I’m at mainland China in Jayanagar to have their excellent pepper lemon chicken soup – which is brilliant when you’re nursing a cold – like I am  now.

Like any good Chinese restaurant they’ve given kimchi as complimentary starter and I’ve been eating that as I wait for me soup.

As you can see in the far right corner of the photo though the kimchi (not sure if the pickled carrot and cucumber they give as complimentary starter can be classified this or if the term is reserved for the pickled cabbage – anyhow) only has cucumber.

It’s my mistake that I took this photo now and not even it just arrived but what was supposed to be a bowl of carrot and cucumber was actually a bowl on picked cucumber only with one token piece of pickled carrot!

Clear indicator that carrots are expensive now – relative to cucumbers at least!!

PS: I shopped for vegetables on Wednesday. Bought carrots for sixty rupees a kilo while cucumbers cost twenty a kilo. So no ticket science to this post. Just a pertinent observation