Thanksgiving is a time to get together with friends and family, and celebrate the people and things for which we are grateful.
Even if the food is mediocre (don’t @ me, I’d rather be eating steak in red wine sauce), it is comforting to have customs and traditions, no matter what they are. Come with an open heart and mind, and I’ll even eat marshmallow sweet potatoes.
The trappings of our heritage change over time. YouTube shows us outtakes of hapless chefs trying deep frying for the first time. The guest list evolves to bring in new family and celebrate the memories of others. The surface level details shift, but at the heart most celebrations this week will look familiar, even if it’s the first time visiting your soon to be in-laws.
Repetition is true throughout our lives. Every morning I wake up and perform the same routine within the first ten minutes of hearing someone scream alighting with vigor. I turn on the kitchen lights, check if there’s coffee in the grinder, then add hot water to the kettle. The grinding and boiling starts with the flick of two switches. Combine, stir, sniff. Awaken.
This is a basic but soothing routine. The details are specific to my location’s equipment (French press, Sicilian roast) but the fundamental purpose is the same. It lets me clear the cobwebs, and these days provides a fun activity for my daughter to get involved with. We’ve been making coffee together for three months and she still cracks a huge smile after pushing the button and hearing the mill roar to life.
Other routines feel absolutely endless. There’s ALWAYS trash to be taken out. The rock needs to go BACK up the hill. How much of, or moreover how you perceive this tedium is an important personality trait. As Albert Camus said, “we must imagine Sisyphus as happy.”
When we say that “time is a flat circle” are you interpreting that with the optimism of Nietzsche’s Zarathustra or the cynicism of Rust Cohl? The 19th century German philosopher believed that eternal recurrence is something that the strong should relish, as it provides the ultimate playground in life. Cohl from the series True Detective sees this as endless pain and suffering and it sends him spiraling.
On longer time scales than a spin around the earth’s axis or a turn around the sun, we also see the same patterns over again. “History repeats itself” is a meta trope of tropes. We’ve been saying this as long as there’s been written history. The Old Testament book of Ecclesiastes even says that “there is nothing new under the sun.”
When we look at current events, they feel like the same movie with different costumes and actors. The SBF/FTX story has been mercilessly beaten to death (though if you have space for one more, Ben Hunt of Epsilon Theory cuts straight through the noise), but so much of the commentary comes back to “it was just plain fraud.” Enronesque, WorldComish, or Lehmanese, thousands of commentators look back into the not-so-distant past to find eerie parallels.
Part of this is simple heuristics and mental shortcuts. Clickbait relies on these points of mutual recognition. A headline that references a shared cultural moor - no matter how tenuous the connection - is far more likely to get read than something highlighting nuance and complexity. And if Uncle Dave can boom across the Thanksgiving table with “SBF is worse than Jeff Skilling!”, an explanation of the Byzantine Generals Problem probably isn’t going to win you oratory accolades.
Perhaps there’s a reason beyond simple pattern matching. What if there are certain truths that resonate over and over again because of what they reflect about the innate humanity of the participants? At the risk of philosophizing before even sitting down for dinner, I’ll propose the Inverse Turducken.
If you’re not familiar with this “creative” interpretation of a traditional bird roast, the idea is to stuff a chicken, into a duck, and then into a turkey. All the fowl you ever wanted in one smooth cut. Americans aren’t entirely to blame, as globally this is known as a three-bird roast or a Gooducken in England where they replace the turkey with goose.
I call this theory the Inverse Turducken, because I think the turkey should be at the center. Like the good parts of Thanksgiving, the turkey represents the fundamental truth that lies at the core of any human endeavor. It’s the love that Romeo and Juliet showed for each other, echoed across centuries and showing up again When Harry Met Sally.
It’s why fraud looks the same whether the assets are telecoms, California electricity, or the combination of the two to make crypto. All of these were massive opportunities that became too tempting for their stewards, slowly drawing them into marginal, and then extreme criminal behavior. Lots of money means a lot of room for corruption. (h/t to Kris Abdelmessih for pointing out this episode of the Founder’s Podcast on Ed Thorp pointing out many examples of this dynamic.)
Framing this turkey truth another way, that inner bird represents the fundamental objective of most professions. When I think about the business of trading, the nuts and bolts are pretty simple. Dynamically price risk and manage inventory. That’s a lot easier said than done for reasons both psychological and practical. If that’s the turkey, then the outer duck is knot of FIX connections and vol models we wire up to go about that business.
The evolution of trading over the first part of the 21st century from mostly pits to mostly screens created a seismic shift in the texture of the outer bird. But The Song Remains The Same. Different skill sets were rewarded by the new practicum, but the principles are unchanged.
When Joe Ritchie first walked onto the floor of the CBOE with a Texas Instruments calculator that was programmed with the Black Scholes formula he was ridiculed in ways I can only imagine. This nerd didn’t know anything about how to trade an option, who cares what his model says it’s worth.
After he got bored with his success a few months later, the rumor is Ritchie handed the calculator to Steve Fosset, who became the most significant trader (and seat lessor) on the floor at the time. His fortune floated him around the world in any kind of aircraft he could get his hands on. Sure they had a ton of edge back then, but they were also taking big risks and doing so with rudimentary tools.
The outer layer is always going to be changing. The “how” of what we do will be strongly influenced by technology, macroeconomics, and current zeitgeist. Crypto fraud uniquely captured all three of those.
This change engenders reactions both skeptical and enthusiastic. Artificial intelligence is an interesting lightning rod for this debate. Both supporters and detractors are convinced that an irreversible paradigm shift is about to take place, with completely different visions of what that means. Dystopia vs. utopia.
As I discussed a bit in my last post about AI, I think that it will be an incredibly powerful instrument. The potential for creative and quantitative professional tooling is immense. But it’s still just an outer layer shift. We’re turkeys at heart. The best art in AI will be guided by artists who can leverage these mechanics to tap into greater expressions of the human condition.
AI will change the markets, but probably not how most practitioners or observers fear. I don’t think there will be a significant shift in the number of professionals employed in this business, but the skillset of those who are certainly will. Google didn’t obviate librarians, it just meant they had to level up their Dewey Decimal skills.
Trading is a business of managing risk. As we’ve seen time and again, it’s very difficult for humans to avoid the temptation of flying too close to the sun. AI will help us understand the complexities and autocorrelations of our risk, but the risk manager’s inner turkey remains the same. Who wants odds there’s another multi billion dollar financial fraud in the next 10 years in a domain we have yet to hear about?
Harmony rings true when two legs of a chord come together. We find comforting solace in the repetition of daily practices and the resonation of fundamental values. There’s room for wide eyed optimism and brow furrowed skepticism because that’s what keeps the inner turkey in balance.
Happy Thanksgiving!