Reverse Engineering Renaisssance Tech

CNBC just ran one the best stories of the week, discussing AQR, DE Shaw and the rest of the quants cracking the code at Renaissance; as the other quants finally used reverse engineering, or a similar method, to figure out the black box James Simons has been using.

Once they did, the trade got predictably crowded. But some are at a loss to explain it…

“Clearly, something is amiss in the markets that few in our strategy, if anyone, have experienced before,” Black Mesa’s managers Dave DeMers and Jonathan Spring wrote. .

Its all a big game, with some decisions being made that have nothing to do with dividend discount models or the usual research that academics lean on.

It is game, played by grown men, who love to play it.

It was probably inevitable that this would happen, I have no doubt it explains some of what we have been seeing.

Another rumor is that SAC Capital has turned its quant programs in reverse so they are taking the opposite positions of the other quants in the market. Honestly, someone was bound to do this. If you sit around all day talking about your model, someone had to ask what would happen if everyone was running for the exit at the same time, and someone else had to quip “‘we’ll just run the model in reverse”

It makes perfect sense, and it is not even that brilliant.

It is predictable.

There are other stories going around, like the some funds who have copies of other funds positions. And then shooting against them. The usual stuff, like what happened at LTCM.

An extraordinary week, whatever the truth is.

The Rise of the Machines might be over.

Good news, no doubt, for humans everywhere. Although the machines certainly are not going away.

This is not the perfect explanation, but moves the discussion in the right direction.

Hopefully Sam Eisenstadt would agree.

Ed note-We have an update to the story read it.
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RENTECH
While we believe we have an excellent set of predictive signals, some of these are undoubtedly shared by a number of long/short hedge funds. For one reason or another many of these funds have not been doing well, and certain factors have caused them to liquidate positions. In addition to poor performance these factors may include losses in credit securities, excessive risk, margin calls and others. All of this may not influence the direction of the overall market, but it may certainly alter the relationships of stocks to each other in a dramatic way. Given the undoubted partial overlap of our portfolios, these liquidations have had a negative impact on RIEF.
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Updates, More Rumors, and Maybe Some Facts
Scurvon Investing
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. no positions

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