Author: Michael Ferrari, PhD
VP, Applied Technology & Research

One year and several closed funds later, there was a noted difference embedded within many of the discussions at this year’s TradeTech 2010 event, held in New York. At the 2009 conference, Lehman had not yet failed, so where there was hubris on the part of many attendees and speakers last year, this year much of that was absent. That is not to say that everyone was humbled…I saw and heard enough to know that some of the same people will be repeating some of the same mistakes. But the tone was much different than last year.

Here is a brief summary of the highlights from this year’s event:

  • Many of the panel sessions seemed to blend together. Each of the big name brokers, service providers, etc. discussed how they are utilizing technology to better serve their clients. All of this is well and good, but at the end of nearly all of the panel discussions, I was hard pressed to recall anything that stood out. There was virtually nothing that differentiated one provider from the next, and there was little that could have been even termed as a quasi-debatable topic. The only discussion that came close was an assessment of the value of pre-trade analytics, but even then, the conversation moved to post-trade and again, consensus.
  • Nothing noteworthy came out of the dark pool session.
  • Brian Fagan’s talk, while not a panel, again did not give me the impression that anyone on the street is doing much to stand apart from their competitors. His discussion points were pertinent, but to generate true alpha, new models and new metrics are necessary, and embracing the alternatives need to lead the way.
  • Charlie Rose moderated a lively discussion with Bob Diamond, chief at Barclay’s Capital. While this is billed as a tech conference, it was very refreshing to hear Diamond talk about the global macro picture with a keen focus on the fundamentals, and why he is anticipating better results in the coming year. Among his notable observations: he is surprised at how quickly some sectors appear to be rebounding, there is ‘no playbook’ to put the last 18 months into context, and Volcker Rules will not work.
  • On Day 2, Robert Doll of BlackRock shared an economic view (with slightly more conviction) with Diamond that a recovery is imminent, describing a U-shaped economic recovery with a V-shaped profit recovery. While I may not agree completely with his outlook, I do agree with his reasoning, which states that just because the US consumer is weak, this does not mean the economy-at-large is weak as well. He also believes that inflation fears are overdone, and my skeptical nature makes me cringe whenever I hear the word overdone in a sentence that revolves around markets (reinforced below). His medium range outlook is that the healthcare, technology and telecommunication sectors will outperform financials, utilities and materials.
  • Don’t be a turkey. Turkeys live a nice life for a few years, then comes Thanksgiving on day 1,000.  The highlight was finally getting to hear an unfiltered lecture by Nassim Taleb. Disclosure: I have been telling everyone that I know to read Taleb since I first read Fooled By Randomness, so his appearance at this event, in light of his self-imposed media hiatus, was worth a couple of days out of the office. All in attendance likely knew who Taleb is, and were provided the first person intro on Black-Swans replete with real world examples (and why he hates the term), and why the law of large numbers does not work in Extremistan. The primary takeaway for all listeners is that he very nicely described why every portfolio should be protected against (not prepared for) black swan events. These are two different viewpoints, and I feel that most mistakenly believe the important component is the latter, so this discussion hopefully served as a clarification. He then went through the expected retaliations against quants and PhDs (being a quant PhD allows him to criticize) as well as professional economists, but not as hard as I thought he would…I guess he has done plenty of that since 2008, so no need to revisit. The other idea that he expanded very nicely was the relationship between how risk and robustness are viewed in the markets, against the backdrop of natural history. Nature is not normally distributed, nor does it optimize. Redundancy underlies robustness, and this is why when an elephant dies, the ecosystem survives, but when Lehman dies, the financial ecosystem is in disarray. He clearly expects more turkeys to be culled this year.