Top Alpha-Seeking Stories from 2016

By "alpha seekers" for the purposes of this list I mean the managers of funds that invest actively in a range of markets, and that work to do better than average (by various benchmarks). This is a list of big stories of the year ending from their point of view, and it differs from a more general list of financial/economic top stories, which I will present tomorrow.

This, 2016, has been an eventful year for seekers of alpha, their counterparties, and their service providers. For example, the Federal Trade Commission cut a deal with Herbalife this year, disappointing those seekers of alpha who had hoped the FTC would crack down on it as a pyramid scheme. A short side analyst for Macquarie was rather dramatically excluded from a Pax Global earnings briefing, laying bare some of the tensions in the financial community in Hong Kong. And "reverse carry" seemed to rise to prominence in the world of foreign exchange.

But in my quite arbitrary and selective count, none of those three important stories made the list for the top five. The stories listed below are the ones that have left me spellbound.

1. Arch Coal declares bankruptcy

This January development started the year off with a bang. Arch Coal, one of the biggest coal mining firms in the US, entered bankruptcy court protection. Arch Coal had held on, in the expectation that the price wasn't going to decline to zero, that there would be a new equilibrium and beyond that a rebound at some point.

But the price kept falling longer than Arch Coal could stay solvent.

In September, the court approved a restructuring plan, wiping out equity and forcing bond holders to choose between equity or cash. Those who chose equity are now the ones gambling that coal will come back, and in a position to get some positive alpha if it does.

2. The end of the long stand-off between Argentina and its bond creditors.

The election of a new President in Argentina, one with a different attitude about the bond markets, gave a judge in New York the chance to put this matter to bed at last. In late February Judge Thomas Griesa issued an "indicative ruling" that the outstanding injunctions against Argentina would become void if Argentina repealed certain objectionable laws.

3. New developments in the Greek debt saga.

Far away, on January 22, 2016, Standard & Poor's actually Greece's credit rating, giving the country a pat on the back for "broadly complying" with the credit deal of the previous summer, saying its economy had proven "more resilient" than some had expected.

There were some efforts to connect the dots, to relate the solvency and the refugee crises. But Greece's credit worthiness next came under attack, in the opening days of April 2016, neither from land nor from sea but from cyberspace: WikiLeaks.

On April 2, WikiLeaks published the transcript of an IMF conference in which Poul Thomsen, head of the IMF's European Bureau, discussed how the IMF may quit the "troika" of institutions underlying Greek solvency, telling "Mrs Merkel ... you have to think about what is more costly: to go ahead without the IMF?" Great brouhaha ensued.

Later in the year, Greece's economy proved to be very sensitive to news from the UK -- the prospect that the latter would leave the EU seriously spooked investors in Athens' exchange. At year's end, the Greek PM -- the fellow portrayed above, shaking hands with the outgoing US President -- is readying the stage for a big confrontation with the lenders, demanding the terms and conditions of the bailout deal be reworked in his country's favor.

4. Blockchains beyond bitcoin.

Blockchains, more formally called "distributed ledger technology," a means of doing business integral to alt currencies such as bitcoin, has become enough of a factor in the financial world to concern internally greybeard bodies such as the World Federation of Exchanges. A flurry of papers in early September discussed the best way to regulate these worrisome things.

5. Hedge Funds Can be Run by the Crowd

The combination of hedge funds and crowdsourcing seems to have become all the rage as the year ends. Numerai and Quantiacs both get their ideas from non-employees, from data scientists, computer engineers, etc., looking to win prizes that the fund managers offer for the best predictions and/or the best trading algorithms.

The model may be a mere fad, or it may be something big.

A Story About Coleridge

This is a quote from a memoir by Dorothy Wordsworth, reflecting on a trip she took with two famous poets, her brother, William Wordsworth, and their similarly gifted companion, Samuel Taylor Coleridge. We sat upon a bench, placed for the sake of one of these views, whence we looked down upon the waterfall, and over the open country ... A lady and gentleman, more expeditious tourists than ourselves, came to the spot; they left us at the seat, and we found them again at another station above the Falls. Coleridge, who is always good-natured enough to enter into conversation with anybody whom he meets in his way, began to talk with the gentleman, who observed that it was a majestic waterfall. Coleridge was delighted with the accuracy of the epithet, particularly as he had been settling in his own mind the precise meaning of the words grand, majestic, sublime, etc., and had discussed the subject with William at some length the day before. “Yes, sir,” says Coleridge, “it is a majesti

Five Lessons from the Allegory of the Cave

Please correct me if there are others. But it seems to be there are five lessons the reader is meant to draw from the story about the cave. First, Plato is working to devalue what we would call empiricism. He is saying that keeping track of the shadows on the cave wall, trying to make sense of what you see there, will NOT get you to wisdom. Second, Plato is contending that reality comes in levels. The shadows on the wall are illusions. The solid objects being passed around behind my back are more real than their shadows are. BUT … the world outside the the cave is more real than that — and the sun by which that world is illuminated is the top of the hierarchy. So there isn’t a binary choice of real/unreal. There are levels. Third, he equates realness with knowability. I only have opinions about the shadows. Could I turn around, I could have at least the glimmerings of knowledge. Could I get outside the cave, I would really Know. Fourth, the parable assigns a task to philosophers

Searle: The Chinese Room

John Searle has become the object of accusations of improper conduct. These accusations even have some people in the world of academic philosophy saying that instructors in that world should try to avoid teaching Searle's views. That is an odd contention, and has given rise to heated exchanges in certain corners of the blogosphere. At Leiter Reports, I encountered a comment from someone describing himself as "grad student drop out." GSDO said: " This is a side question (and not at all an attempt to answer the question BL posed): How important is John Searle's work? Are people still working on speech act theory or is that just another dead end in the history of 20th century philosophy? My impression is that his reputation is somewhat inflated from all of his speaking engagements and NYRoB reviews. The Chinese room argument is a classic, but is there much more to his work than that?" I took it upon myself to answer that on LR. But here I'll tak

Jamesian Philosophy Refreshed

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