APL Colloquium

March 23, 2007

Colloquium Topic: Theory and Practice of the New Science of Market Intelligence

Market prices are more than single data points. They are the S of n intentions, preferences and decisions of innumerable market participants. Markets efficiently aggregate this data, however, recent advances in computing power and analytical techniques have allowed market prices to be disaggregated in order to draw reasonable inferences about the presence and actions of market participants including those initially unknown to the observer. These techniques include comparison of apparent price anomalies (based on e.g., share and trade quantity, volatility, relative and absolute value, momentum) with news and other explanatory variables. The absence of surface explanations implies informed trading and begins an inferential process applied to such connate information based on behavioral models. These techniques are of particular interest in the area of national security and may be used to detect the conduct of strategic rivals and transnational actors in areas such as price manipulation, supply disruption, terrorism, expropriation and portfolio diversification in advance of confrontation. Importantly, markets are a strategic part of the national economic infrastructure and, like the power grid, may be understood as existing in a self-organized, scale-invariant critical state. As such, they are vulnerable to catastrophic disruption with little warning and no ascertainable cause. This makes markets vulnerable both to orchestrated "swarm" tactics under a doctrine of unrestricted warfare and to periodic collapse. A robust watch function with well-rehearsed "stop loss" methodologies should be as much a part of national security policy as financial regulation. The collection and interpretation of market intelligence (or "MARKINT") is indispensable to these tasks.

Colloquium Speaker: James G. Rickards

James G. Rickards is a counselor-at-law and investment advisor with over 30 years experience in law, economics and finance including commercial banking, investment banking, hedge funds, exchanges, securities, futures, options and derivatives. He has served in senior capacities for major financial institutions including Citibank and RBS Greenwich Capital and major hedge funds including Long-Term Capital Management and Caxton Associates. At LTCM, he was principal negotiator in the $4 billion rescue which stabilized global markets during the systemic crisis of 1998. Mr. Rickards is currently Principal of Global-I Advisors, LLC, an advisory firm specializing in geopolitics and capital markets. His clients include both private global risk management firms and government directorates. He has published research on cognitive diversity, information cascades and network effects in capital markets. Mr. Rickards is a member of the International Bar Association and the Association of the Bar of the City of New York. He holds an LL.M. (Taxation) from New York University School of Law; a J.D. from the University of Pennsylvania Law School; an M.A. in International Economics from the School of Advanced International Studies in Washington DC; and a B.A. (with honors) in Political Science from the Johns Hopkins University and is a guest lecturer in finance and globalization at Northwestern University and Johns Hopkins. He also holds all major SEC and CFTC securities and futures licenses, (Series 3, 7, 24, 30 and 63). His extensive travels include China, India, Pakistan, Sudan, Turkey, Israel, Saudi Arabia and throughout the Middle East and Africa.