Is there a place for me in quant finance?

[Zaubertrank]

My formal education is I have an MS in applied math from a decent state school where I focused on optimization, numerical linear algebra and probability/ML. I've also built a quite significant piece of unsupervised NLP machine learning software (published and listed) in Julia which includes a number of GPU accelerated models written in a combination of Julia, OpenCL, and C.

I've been taking a look at data science jobs, but honestly what I'm most interested in is on-the-metal numerical programming, scientific computing and GPGPU. It seems like a lot of data science jobs are all about data wrangling and using statistics to discover business insights, and that just doesn't grab me the way scientific computing and applied math does.

Obviously a pure quant position would be desirable, but I don't have a PhD so I know my place and I'm content with that. Ideally I would like to build numerical software in languages like C/Fortran and I'm especially fond of functional programming and Julia, but I don't think those languages are used much (yet).

Are there roles in quant finance which fit my interests? Would a quant developer type role be what I want? Am I competitive for such roles? Any other advice anyone can give me?

 

[bigbadwolf]

where I focused on optimization, numerical linear algebra and probability/ML.

Would a quant developer type role be what I want?

I doubt it. It's not clear that there is a future in quant. You might be better off in machine learning and/or the study of algorithms. As long as the grid remains up, there will be some sort of future in them. Your background in optimization (linear programming, dynamic programming, integer programming, knapsack problems) gives you an advantage in the theory of algorithms.

 

[Zaubertrank]

You might be better off in machine learning and/or the study of algorithms

I'm definitely happy to stay in machine learning, I don't really have a preference for what type of math I use or what it's ultimately used for. I would just prefer to do scientific computing and low-level numerical programming vs working in scripting languages and building machine learning models.

For instance Nvidia is hiring people to write C code for their new deep learning GPU architectures, this I like. On the other hand, doing statistical analysis on lots of data, I don't like that as much.

It just seems like there are more opportunities for people to do low-level numerical programming and distributed computing in Finance than in machine learning proper.

 

[Liam]

I doubt it. It's not clear that there is a future in quant. You might be better off in machine learning and/or the study of algorithms. As long as the grid remains up, there will be some sort of future in them. Your background in optimization (linear programming, dynamic programming, integer programming, knapsack problems) gives you an advantage in the theory of algorithms.

I second this. I am yet to hear a convincing argument since 2008 that there is any certain future in quant finance. I think the OP has to face the reality that most people don't understand uncertainty, hence will say differently.

 

[bigbadwolf]

I second this. I am yet to hear a convincing argument since 2008 that there is any certain future in quant finance. I think the OP has to face the reality that most people don't understand uncertainty, hence will say differently.

Could anyone in 2006 have forecast even the rough contours of 2016 today? I couldn't. We've no idea what 2026 will look like a propos quant finance. My best guess is that for a number of reasons it will implode into a rubble of electronic bits and bytes. It is one aspect of a particular world -- a globalised world dominated by the USD and with US hegemony -- that is drawing to an end.

 

[Philip_Mitterrand]

2008-2016 has been a yawning footnote to the events of 2008. The Hegelian dialectical concept of development still holds true.."a development, so to speak, that proceeds in spirals, not in a straight line; a development by leaps, catastrophes, and revolutions; "breaks in continuity..sudden irruptions"

Maybe the next phase of developlment lie outside of pure finance like democratization of banking solutions and deempahsising the need for instutions itself.

Could anyone in 2006 have forecast even the rough contours of 2016 today? I couldn't. We've no idea what 2026 will look like a propos quant finance. My best guess is that for a number of reasons it will implode into a rubble of electronic bits and bytes. It is one aspect of a particular world -- a globalised world dominated by the USD and with US hegemony -- that is drawing to an end.

 

[bigbadwolf]

2008-2016 has been a yawning footnote to the events of 2008.

I agree. The problems that 2008 laid bare were but adroitly brushed under the rug. The US economy -- and much of the global economy as well -- has been on life support, a dead man walking. The problems remain festering and perhaps can't be solved. The metaphor I use is of a dead old whore, in whose stringy hair the authorities have placed a flower, on whose withered lips they have applied some lip stick, and on whose decomposing body splashed some perfume -- all to lend the semblance of life.

There's a disconnect between the world of finance and the real world and the authorities are desperate to maintain the illusion of a recovering real world by propping up the fake world of finance. Arguably at the heart of this disconnect is that in a resource-constrained world, real growth has become impossible. For example, world peak oil arrived in 2005. Yet the world of finance depends (parasitically) on real growth. It's all downhill from here on.

The Hegelian dialectical concept of development still holds true.."a development, so to speak, that proceeds in spirals, not in a straight line; a development by leaps, catastrophes, and revolutions; "breaks in continuity..sudden irruptions"

I agree. But one pole of the dialectic, I might argue, is coming from the physical and ecosystem world. Jason Moore has a good recent book out on this -- "Capitalism in the Web of Life."

Maybe the next phase of developlment lie outside of pure finance like democratization of banking solutions and deempahsising the need for instutions itself.

Again, I agree. I find insight coming more from people like Tainter ("The Collapse of Complex Societies"), Ugo Bardi, Steve Ludlum, and Gail Tverberg.

 

[tfors]

I agree. The problems that 2008 laid bare were but adroitly brushed under the rug. The US economy -- and much of the global economy as well -- has been on life support, a dead man walking. The problems remain festering and perhaps can't be solved. The metaphor I use is of a dead old whore, in whose stringy hair the authorities have placed a flower, on whose withered lips they have applied some lip stick, and on whose decomposing body splashed some perfume -- all to lend the semblance of life.

There's a disconnect between the world of finance and the real world and the authorities are desperate to maintain the illusion of a recovering real world by propping up the fake world of finance. Arguably at the heart of this disconnect is that in a resource-constrained world, real growth has become impossible. For example, world peak oil arrived in 2005. Yet the world of finance depends (parasitically) on real growth. It's all downhill from here on.



I agree. But one pole of the dialectic, I might argue, is coming from the physical and ecosystem world. Jason Moore has a good recent book out on this -- "Capitalism in the Web of Life."



Again, I agree. I find insight coming more from people like Tainter ("The Collapse of Complex Societies"), Ugo Bardi, Steve Ludlum, and Gail Tverberg.

I like Ray Dalio's video, it might just be one of those cycles again.

 

[Philip_Mitterrand]

The fault lines are much deeper. Financiallization of world economy whereby
soverign policmaking is hijacked by banks, bond vigilantes, funds and when the velocity of financialization finally hits a wall you underwrite it with bailouts than allowing the self correcting mechanism of capitalism to restore parity. The origin of capital gain lie in productivity but now it has been chained to inheritance & cronyism.

I agree. The problems that 2008 laid bare were but adroitly brushed under the rug. The US economy -- and much of the global economy as well -- has been on life support, a dead man walking. The problems remain festering and perhaps can't be solved. The metaphor I use is of a dead old whore, in whose stringy hair the authorities have placed a flower, on whose withered lips they have applied some lip stick, and on whose decomposing body splashed some perfume -- all to lend the semblance of life.

There's a disconnect between the world of finance and the real world and the authorities are desperate to maintain the illusion of a recovering real world by propping up the fake world of finance. Arguably at the heart of this disconnect is that in a resource-constrained world, real growth has become impossible. For example, world peak oil arrived in 2005. Yet the world of finance depends (parasitically) on real growth. It's all downhill from here on.



I agree. But one pole of the dialectic, I might argue, is coming from the physical and ecosystem world. Jason Moore has a good recent book out on this -- "Capitalism in the Web of Life."



Again, I agree. I find insight coming more from people like Tainter ("The Collapse of Complex Societies"), Ugo Bardi, Steve Ludlum, and Gail Tverberg.

 

[financeguy]

Not trying to kick a hornets' nest here, but out of interest, what's the story behind the US / global economy being on life support? And how has sovereign policy making been hijacked? It feels like there's a lot of hyperbole in here, but I'm not totally able to connect the dots.

 

[bigbadwolf]

Not trying to kick a hornets' nest here, but out of interest, what's the story behind the US / global economy being on life support? And how has sovereign policy making been hijacked? It feels like there's a lot of hyperbole in here, but I'm not totally able to connect the dots.

The ZIRP for several years, and then the 0.25% interest rate after that. Plus little or no capital investment though large companies are flush with funds. There's nowhere profitable to invest -- which makes a joke of the so-called recovery. Record low labor participation rate, which makes a joke of the claim of 5% unemployment. If this really was business as usual, we would not have candidates like Trump suddenly coming to the fore. What I'm saying here runs counter to the orchestrated voices of the NYT, WSJ, and so on.

I argue that the financial system has to be propped up to maintain the pretence of a living, breathing economy -- whereas the reality is probably closer to Wile E. Coyote, who has run twenty feet past the edge of a cliff and is now about to realise he has no solid ground underneath him.

The financial system has to be propped up because the mechanisms used to restart the real economy do not function any more -- the reasons are resource constraints. And whereas in the past, the financial sector was a reflection and shadow of real-world economic processes, today the "real economy" is in a bizarre and grotesque way, a reflection of a propped-up financial economy. So when the financial world collapses -- as indeed it must one fine day -- then what remains of the real economy will collapse with it.

More details in Orlov's "The Five Stages of Collapse."

I also found this essay by Adrian Kuzminski useful.

I'm not claiming I'm correct, or that these sources are right. Merely that there's another interpretation to the one dished out by politicians, mass media newspapers, and television. Perhaps they are right. You're free to pick and choose.

 

[financeguy]

A few points to push back on...

The majority of the record low participation rate is explained by aging demographics as the baby boomers reach retirement age, which had been expected ahead of time by macroeconomic models. Some of it is excess slack in the labor market unexplained by the U3 sub-5% rate, as has been the PTER rate (difference between U6 and U3 rates), which was a reason the Fed cited for holding off on raising the target rate after having achieved U3 unemployment historically consistent with full employment / the NAIRU. In other words, there was more to the story than just U3 unemployment, which is sort of consistent with what you're saying, except that a lot of that excess slack has now been absorbed and we continue to print monthly payrolls well above the amount we need to keep unemployment stable. Also, contrary to what you're saying, the Fed was very vocal and explicit about this excess labor market slack when it was a real issue.

Low levels of corporate investment are certainly a problem, and they are contributing to low forecasts of long term potential growth. This issue does raise a problem with monetary policy. Central banks can control interest rates and liquidity all along the yield curve, which essentially gives financial asset holders cash but doesn't force them to do anything with it other than continuing to hold assets or buy more financial assets, which given the performance of financial assets under an easy monetary regime can be a hard incentive to break. You probably agree with me up until now. Where we break in agreement is that I think there is a solution, rather than just being in a hopeless situation. The government should become an investor of last resort, borrow money at a near zero rate of interest, and invest in capital projects to improve the country's infrastructure. The bar for the government to earn a positive return to the real economy is quite low. Across the world, monetary policy is very loose and fiscal policy very tight. Most central bankers are critical of the current global attitude toward fiscal policy, and I agree with them. Central banks currently feel they have to ease more largely to make up for harmfully tight fiscal policy.

I don't think candidates like Trump are a coincidence, either. As per the paragraph above, prolonged easy monetary policy widens income inequality in a trickle-down economics sort of way. If the asset holders who are given the cash don't engage in real investment with it in favor of financial investment, the working class never really sees the benefit as financial asset gains far outstrip wage inflation. I think that's why you see an analogous political climate in many European countries. Europe has had a wider divide between monetary and fiscal policies than the US. But again, no one has ever argued that monetary policy should affect macroeconomic variables other than aggregate employment and aggregate inflation. It is up to the government to sort out the breakdowns of those variables to a healthy place, and governments just aren't doing that right now.

It sounds like your argument is that the Fed is squeezing the last bit of growth out of the economy before we're all out of it. I just don't think that is correct. The Fed has a dual mandate, unemployment and inflation. Maybe there's an unofficial third mandate of managing stock and bond market volatility. That's it. The Fed doesn't have a mandate to target investment or growth in general. That bit is up to the government. The BOE in 2013 did their FLS and the ECB today is moving toward credit easing. Maybe that's what the Fed should have done, namely monetary policies that target the real economy rather than broad macroeconomic variables, but again that's not been the Fed's mandate. And further, in those economies, the central banks beg fiscal authorities to loosen their stances. I look at the investment problem as more of an opportunity than you do. If corporate investment were strong, and we still couldn't generate productivity growth or expectations of long term potential growth, then that would be a much bigger problem. Instead, I see a system that accidentally disincentivizes real investment in favor of investing in financial assets. If that set of incentives were changed somehow - I'm suggesting a mix of fiscal spending and government policy, but maybe there are other options - then real investment would flow through the economy and we'd experience genuine real growth.

 

[bigbadwolf]

If corporate investment were strong, and we still couldn't generate productivity growth or expectations of long term potential growth, then that would be a much bigger problem. Instead, I see a system that accidentally disincentivizes real investment in favor of investing in financial assets. If that set of incentives were changed somehow - I'm suggesting a mix of fiscal spending and government policy, but maybe there are other options - then real investment would flow through the economy and we'd experience genuine real growth.

Yours is a fundamentally different way of seeing the world to mine. Why is there investment in financial assets but not, say, in manufacturing? Why do the big corporates prefer to sit on their cash hoards rather than put it to productive use? Why the lack of borrowing for real investment? What if there is nowhere in the real economy to invest and make a profit?

 

[financeguy]

Yours is a fundamentally different way of seeing the world to mine. Why is there investment in financial assets but not, say, in manufacturing? Why do the big corporates prefer to sit on their cash hoards rather than put it to productive use? Why the lack of borrowing for real investment? What if there is nowhere in the real economy to invest and make a profit?

The reason I don't immediately reach that conclusion is because the more plausible reason for the lack of investment are bad incentive schemes like corporate bonus formulas that rely heavily on earnings per share, combined with ultra low interest rates. It's very cheap to borrow cash and buy back your own shares. Shares outstanding go down and executive bonuses go up along with the resulting increase in EPS. Further, share prices will also go higher, which is an added kicker to the bonus since shares are a large portion of the composition of bonus payouts. Shareholders today are generally happy as long as share prices go higher, as well. If your mandate as CEO is to create shareholder value, you could argue that the most efficient way to do so in the short term, given the state of asset markets, is to buy back your own shares. It's not long term shareholder value, but it makes people money today. There are certainly other companies that are saying they are foregoing investment for the time being as they feel the economic landscape is less certain, but that's a far cry from "it's all over". Maybe if they paid out all their cash hoards in dividends and went home I'd be a little worried, but at worst they are just waiting for the right moment to invest after locking in debt at low rates of interest.

Your question about not putting investment into manufacturing is probably more clearcut: the competitive advantage of the US is just not manufacturing. We are a services economy and up the supply chain, if anything. That's why economists more closely track ISM non-manufacturing PMI data (i.e. services PMI) than manufacturing PMI, because it doesn't matter as much for the health of the US economy.

Back to your worry that corporations will simply not be able to turn a profit no matter what they do. I just don't see why that's the case. Have we innovated as far as man can innovate? Has every service been optimized to the fullest extent? It's fairly well understood that we have an aggregate demand problem, and the majority of US GDP is from personal consumption rather than investment. We need to make sure the US consumer is in good shape, and investment in goods and services for the US consumer will follow, assuming we get around the incentives issue. The problem with the US consumer at the moment is that income distribution is widening, which dampens future consumption as well as the money multiplier, which reduces the efficacy of continued accommodative monetary policy. That's the root of why easy monetary policy forever doesn't continue to have the same bang for its buck. Fiscal expansion is the easiest and most direct way to address this problem. There is plenty of old infrastructure across the US that can be repaired and new stuff that can be built that can turn a profit to the real economy over and above current treasury yields. Wages paid on those projects would redistribute income while turning a profit for taxpayers. It seems like a no brainer to go down that route rather than throw in the towel.

 

[Daniel Duffy]

Your question about not putting investment into manufacturing is probably more clearcut: the competitive advantage of the US is just not manufacturing. We are a services economy and up the supply chain, if anything. That's why economists more closely track ISM non-manufacturing PMI data (i.e. services PMI) than manufacturing PMI, because it doesn't matter as much for the health of the US economy.

I once talked to a Chinese professor and he could not understand why the West has outsourced its manufacturing.

I used to work in CAD/CAM and engineering in NL and Germany in the eighties and manufacturing was seen as core business. Now the factories have closed down.

In a few years time robots built in Japan and China will work in supermarket, hospitals and IT. And then?

There is plenty of old infrastructure across the US that can be repaired and new stuff that can be built that can turn a profit to the real economy over and above current treasury yields. Wages paid on those projects would redistribute income while turning a profit for taxpayers.

Here in the Netherlands we pay relatively high road tax but we have great roads (probably the best in the world (disclaimer: I am not Dutch, so it's not bravado), highways and bicycle lanes. There are no potholes and no decrepit infrastructure. etc. It's all about the priorities.

 

[Philip_Mitterrand]

The rationale that improving bank liqiduity ratio will kickstart a wider economic activity has been empricially debunked now as the west is sinking to negative interest rate terrain. QE, Negative interest rates has only created inflations in financial asset values without kickstarting the household economic activity because banks are not the engines of growth only a gluing mechanism and productivity curve can't be shifted by printing press but require cycles of innovation with healthy state intervention like the case studies of Korean chaebols.

The seemingly sensible solution is progressive taxation (>60%, screw the laffer curve) to fund and create an enviornment where vertical breakthroughs could happen but again the top 5% capital holders are like that errant backyard bully who takes the bat & stumps with him if you dont play by their rules.

Anways, this opinion only hold for US as a case factor..

 

[bigbadwolf]

Back to your worry that corporations will simply not be able to turn a profit no matter what they do.

I'm not "worried" about it as I don't have any skin in the game. But it's also not what I'm saying. The corporates are making profits. There's just no incentive to expand production. New investment in factories will not yield a profitable return. First of all, the demand isn't there. Secondly, in an economy of oligopolies and cartels, where there's a glut of manufacturing, there's no incentive to expand it yet further. Even the Chinese, for example, are going to shy away from further investment in steel production. These arguments were already made half a century back by the likes of Baran and Sweezy in "Monopoly Capital" (see last month's Monthly Review for an extended discussion of Baran and Sweezy and secular stagnation) and Ernest Mandel in "Late Capitalism." What has been added to since their time is the growing realisation that the resource inputs for industrial civilisation are running out and we're looking at a future without abundantly available fossil fuel.

Once you take real inflation into account (see Shadowstats estimate here), the economy has been shrinking since at least 2008 -- and will probably continue to do so indefinitely. As Michael Roberts argues in his latest book, The Long Depression, we've been in a depression since 2008.

 

[tfors]

I'm not "worried" about it as I don't have any skin in the game. But it's also not what I'm saying. The corporates are making profits. There's just no incentive to expand production. New investment in factories will not yield a profitable return. First of all, the demand isn't there. Secondly, in an economy of oligopolies and cartels, where there's a glut of manufacturing, there's no incentive to expand it yet further. Even the Chinese, for example, are going to shy away from further investment in steel production. These arguments were already made half a century back by the likes of Baran and Sweezy in "Monopoly Capital" (see last month's Monthly Review for an extended discussion of Baran and Sweezy and secular stagnation) and Ernest Mandel in "Late Capitalism." What has been added to since their time is the growing realisation that the resource inputs for industrial civilisation are running out and we're looking at a future without abundantly available fossil fuel.

Once you take real inflation into account (see Shadowstats estimate here), the economy has been shrinking since at least 2008 -- and will probably continue to do so indefinitely. As Michael Roberts argues in his latest book, The Long Depression, we've been in a depression since 2008.

But I bet the service economy has been growing. In my opinion one of the pivots of our time is a further swing to the service sector.

 

[Zaubertrank]

Honestly I mostly just want to live in NYC. I just got back from an interview in Mountain View, and it's like one huge, immaculately manicured office park, which in no way justifies the stratospheric rents.

I have skills in stats, ML and optimization and I'll shop them to the highest bidder. Unfortunately the engineering side of ML is all done out west, but I'd rather live in NYC and do business analytics than live in the Bay Area and do just about anything.