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22nd Century Finance Notes Volume 3 Number 7

Monday, August 8, 2011 Money Manager Capitalism Requiescat In Pace Money Manager Capitalism Limits Out Leading Edge Alps Traders Escape Economic Gravity
Amidst the wreckage of these the end of days of money manager capitalism there emerges the brave new world of over the counter trading in derivatives based on the higher order statistical moments of investment returns distributions. Wow, that's a lot of words, in these financial whitewaters, the leading edge traders have finally escaped economic gravity! In the most highly specialized quantitative trading with the most highly specialized quantitative trading groups in the most quantitatively astute prime brokerages of the most forward thinking flow monster banks, there is no longer any semblance of a connection between the money management strategy and the real world economy, the underlyings are abstract higher statistical moments. Is there further proof that money manager capitalism is a road to nowhere for the global economy? that money manager capitalism is an inherently unstable and neurotic attention deficit disordered frenzy incapable of producing anything in the way of permanent lasting economic value? that money manager

capitalism has diminished and compressed economic timeframes beyond any reasonable minimum thresholds for practical economic development? At a leading edge synthetic bank group in the Alps called ber Wirtschaftswissenschaften Synthetisches Handelsbanken, UWSH for short, multiple doctorate higher order statistical moments derivatives traders calmly weather Monday's devilish financial storm that drives the S&P 500 Index down 6.66% and leaves the best of normal finance's juju men reduced to the role of boiler room Gold touts rationalizing downgraded Treasuries as their dederisking trade. UWSH sheepishly admits to making "around a billion dollars" on a day when global investors lose more than a trillion dollars. Siegfried, who holds doctorates in physics, mathematics, and engineering, is UWSH's only fluent English speaker. He explains Monday's trade. "There is no reason to deal with exchanges, names, or indexes anymore. We focus on the Variance and the Skew and what lies beyond them. Thanks to the CBOE that developed the volatility and skew indices and educated the world about them, we are able to find counterparties who understand our trade well enough to hedge their own books for the premium fees that we pay." For this Maleficent Monday, when even the cool and calm President Obama hesitates to come out and talk to flipped out financial markets, Siegfried and his colleagues are so tuned in with their higher order statistical moments that they put Risk On. "The market's quantitative matrix at the close on Friday looked unprecedented. When we ran the numbers, we could not believe what we saw, so we confirmed and reconfirmed them. Everyone laughed, we felt like that man who broke the bank at Monte Carlo. The synthetic bank was originated and she swapped Variance and Skew big time. The numbers were beautiful, the Fear Index and the Black Swan Index were literally waltzing." And their prime brokers are happy too. "UWSH has a great relationship with her prime brokers but even they were aghast. They knew how to

hedge everything and they understood the trade on paper, but their knees were knocking. So we tripled their usual fees. They are smiling tonight." Investors in the UWSH synthetic bank make out well, real well, everything is liquidated, the assets converted into Gold Bullion. Siegfried advises those who can to look into trading the Variance Skew pair. "But run your numbers carefully and then rerun them very carefully, it is easy to fool yourself." All of this begs the question. What does any of this have to do with real world economics? with solving the increasingly complex economic problems of our times? with evolving the global economy to advance human civilization? Siegfried shrugs. "That's beyond my pay grade, but I can say that our work in higher order financial derivatives reveals that money manager capitalism has nothing to do with any of those questions." Said Miranda, "O brave new world, That has such people in't!

vega strategies
LOS ANGELES CALIFORNIA
vega [dot] strategies [at] bigstring [dot] com