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Parasite Rex

Tyler Durden's picture





 

Submitted by Ben Hunt of Salient Partners

Well, it's funny that people, when they say that this is evidence of the Almighty, always quote beautiful things. They always quote orchids and hummingbirds and butterflies and roses. But I always have to think, too, of a little boy sitting on the banks of a river in West Africa who has a worm boring through his eyeball, turning him blind before he's five years old. And I reply and say, "Well, presumably the God you speak about created the worm as well," and now, I find that baffling to credit a merciful God with that action. And therefore it seems to me safer to show things that I know to be truth, truthful and factual, and allow people to make up their own minds about the moralities of this thing, or indeed the theology of this thing.

     – David Attenborough

 

Ash:  You still don't understand what you're dealing with, do you? Perfect organism. Its structural perfection is matched only by its hostility.

Lambert: You admire it.

Ash: I admire its purity. A survivor... unclouded by conscience, remorse, or delusions of morality.

Parker: Look, I am... I've heard enough of this, and I'm asking you to pull the plug. [Ripley goes to disconnect Ash, who interrupts]

Ash: Last word.

Ripley: What?

Ash: I can't lie to you about your chances, but... you have my sympathies.

Parasite Rex

From an evolutionary perspective, the parasite is a beautiful creature. Instead of possessing a set of adaptations that make it suitable for thriving within a “natural” habitat – an ocean, a forest, a tundra, a jungle, etc. – the parasite typically finds its habitat within an organism itself. Parasites twist the core evolutionary process of adaptive radiation in a new direction, finding opportunities for new niches and species differentiation within host species that emerge over time in new geographies, not the new geographies themselves. To a parasite, the world IS an oyster. Given the amazing diversity of life on Earth, using life-forms as habitats presents a phenomenal opportunity for parasitic adaptive radiation and thus, evolutionary success. Almost every multi-cellular life-form on the planet serves as a host for one or more parasites, and as a result parasites account for more biodiversity and sheer numbers than non-parasitic life. In many respects, the parasite is an evolutionary apex.

Why do parasites get such bad press? Most of them are not what zookeepers would call “charismatic vertebrates”, but instead tend to be viruses or squishy worms with nasty looking (from a human perspective) and voraciously-presented mouths. That’s a problem for any public relations campaign. More importantly, parasites do not behave according to what game theorists call a “nice” or cooperative strategy. These are not win-win relationships, where there’s some sort of symbiotic benefit shared between the two organisms, some sort of reciprocal value provided by the tapeworm to whatever warm-blooded intestinal tract it happens to inhabit. No, the very definition of a parasite is that it is harmful to its host, with a one-way transfer of resources. Parasites are squatters, not tenants. They are thieves, not buyers.

But they don’t steal a lot. Not usually, anyway, as examples of Alien-esque life-forms that kill their hosts in some burst of gore are few and far between. Almost all parasites are better off keeping their hosts alive for as long as possible, so it would seem natural for any individual parasite to take just enough from its individual host to live well without killing off the host. And this is, in fact, the case – few parasites kill their hosts – but it’s the why behind this fact, the evolutionary dynamic behind this fact, that I want to examine.

An individually successful hookworm is not thinking “Gee, I better slow down a little bit here. Wouldn’t want to damage my host too much.” That hookworm acts exactly as it is programmed to act … to eat and reproduce as much as it is hookworm-ly possible to eat and reproduce. An evolutionary perspective requires us to look at the population of hookworms in relationship to its habitat – the population of host animals – to figure out the evolutionarily stable strategy (or ESS as it’s known) for hookworms. We will never figure out the ESS by looking at an individual hookworm and an individual host, because you can’t just extrapolate from what’s good or bad for that individual relationship, no matter how much of a long-term view you take for that individual hookworm and its descendants.

From a population perspective, a parasite species is trying to balance growth with robustness in the context of its life-form habitat in exactly the same way that a non-parasite species is trying to balance growth and robustness in the context of its geographical habitat. Both grow by consuming resources. If growth outstrips resource supply, that’s a problem, because the offspring population is going to starve and die off. This is the population dynamic that is most closely associated with the work of Thomas Malthus, who despaired of any animal (including the human animal) escaping this deterministic pattern of population growth outpacing resource availability, punctuated by enormous population die-offs in order to restore the balance between resource supply and demand. In the human context, innovation in our tools and our mental constructs has allowed us to increase our species population essentially unchecked by Malthusian logic since the 14th century and the Black Death, with only a small hiccup from pandemic and global war in the early 20th century. In the non-human context, any respite from resource-depletion die-offs must come from the glacially slow process of natural selection and the evolution of adaptations that push a species into a more robust, less volatile relationship with its environment. This is an ESS.

What’s interesting (to me, anyway) is that a parasite species tends to have more options in the development of its ESS than a non-parasite species. A parasite is not geographically “grounded” like a non-parasite. Because its habitat is another population of life-forms, the population of parasites can more easily “choose” how to allocate its resource consumption. Maybe the parasite species is better off if it concentrates on a few individuals within the host population and really loads up on those unlucky targets, depleting all of their resources and killing them in the process, but leaving a critical mass of healthy hosts unharmed so that they can reproduce and provide juicy targets in the future. Maybe the parasite species is better off by getting smaller and less noticeable or impactful on the host species. Maybe the parasite species is better off if it moves from host species to host species within its lifecycle, so that no single host species is damaged too severely even if the individual parasites run rampant during their stay. These are strategic options at the population level that are much more difficult to develop or evolve within species that have a specific geography for a habitat. Not impossible … maybe you can rotate from one resource-rich patch of your geography to another and then back again (migration) … but more difficult. A resource habitat created by life-form populations is just more fungible than a resource habitat created by a singular geography, and that’s a really big deal for an ESS.

This flexibility (and hence evolutionary speed) in creating an ESS is a big reason why parasites dominate the world. Like humans, they’re pretty good at getting around the gloomy future that Malthus predicted. Not by inventing the printing press, fossil fuel energy sources, and liberal ideas of social organization, but by quickly evolving a wide range of behavioral adaptations that are extremely effective at balancing resources and growth. Here’s what these parasite ESS’s have in common: they make the parasite population invisible to the host population. The relationship between individual parasite and individual host may also be invisible, but it also might be a violent struggle to the death or somewhere in between … evolution doesn’t care about individuals. Evolution has to be understood at the group level, and the evolutionary beauty of the parasite is its amazing suitability and fitness – at the group level – for using life itself as a habitat.

Now why do I care so much about parasites and their evolutionarily stable strategies? Because the most effective alpha-generating investment strategies are parasites. An alpha-generating strategy of the type I’m describing uses the market itself as its habitat. It’s not an investment strategy based on the fundamentals of this company or that company – the equivalent of a geographic habitat – but on the behaviors of market participants who are living their investment lives in that fundamentally-derived habitat. A parasitic strategy isn’t the only way to generate alpha – you can also be better suited for a particular investment environment (think warm-blooded animal versus cold-blooded animal as you go into an Ice Age) and generate alpha that way – but I believe that the investment strategies with the largest and most consistent “edge” are, in a very real sense, parasites.

What do these parasitic strategies look like? Their number is legion. They exist in every nook and cranny of every public market in the world, and they feed off the behaviors of non-economic or differently-economic market participants. A giant pension fund isn’t engaged in commodity markets because it has an opinion on the contango curve of oil futures; it’s trying to find a diversifying asset class for a massive portfolio that needs inflation protection. If you’re an experienced trader in that market and you see signs of the giant pension fund lumbering through the brush … well, you’re in the wrong business if you can’t skin a few dimes here. This is what good traders DO, and the really good ones have devised effective processes and strategies that comprise a strategy, so that it’s not just a one-off trade but an expression of a consistent informational edge. These strategies are inherently niche-oriented, and they do not scale very well, any more than any single parasite species can scale beyond the size of its host species. But the informational edge is real, which means that the alpha generation is real, and that’s a beautiful thing even if the outward form is as ugly as a hookworm.

Why does a parasitic strategy have a bigger informational edge than a non-parasitic strategy? Because market participant behaviors are far more consistent over time than the economic fundamentals of companies or countries. I can predict with 100x more confidence what a giant pension fund is trying to achieve with its market activities than what S&P 500 earnings will actually be next year. World events and market outcomes are utterly unpredictable, especially in a global environment of economic deleveraging, massive monetary policy experimentation, and political fissures the size of the Grand Canyon within and between countries. Human nature, though, is as constant as the northern star.

How does a parasitic strategy with an informational edge persist? Why isn’t it arbitraged (or regulated) away? First, remember that we’re talking about the group level, not the individual. Certainly it’s possible to have competition between individual parasitic strategies that split the economic resources taken from the host. But at the group level, just like their biological cousins, effective parasitic investment strategies are largely invisible to their hosts. As Baudelaire said way before Kevin Spacey did in The Usual Suspects, the greatest trick the devil ever pulled was convincing the world he didn’t exist.

What’s the pay-off for thinking about alpha-generation investment strategies through this evolutionary perspective? Two big pay-offs, I think.

First, one of the trickiest puzzles of effective allocation and risk management for anyone who invests in actively managed funds is trying to figure out the capacity limits of those strategies. This typically isn’t something you worry about with a strategy that is focused on capturing broad market returns or one that uses big liquid securities like S&P e-mini’s to express its portfolio, but it’s a significant concern with funds that claim to have some sort of informational or process edge (alpha generation potential) and express that edge with single-name securities or any sort of liquidity-challenged instrument. There are very powerful formulas in the evolutionary biology toolkit for figuring out both the optimal population size of a parasite species relative to its host as well as the optimal amount of resources that the parasite population should take from the host. This is at the heart of figuring out what behaviors, including size, are evolutionarily stable for the parasite, and it is directly applicable to alpha-oriented investment strategies with parasitic qualities. Instead of taking a manager’s word on investment capacity or making some rough guess based on the AUM of other managers (which is basically the state of the art today), these ESS tools should allow us to project investment capacity directly for many alpha-generation strategies.

Second, it shows how one might create an advanced multi-strat investment platform, one that uses the Adaptive Investing perspective to identify the alpha-generation strategies with the most effective ESS’s, as well as the optimal capacity and allocation characteristics for the market “habitat” in which these strategies operate. Unlike the individual strategies, which inherently scale poorly, a multi-strat structure scales easily, limited only by the number of individual strategies brought under the operational umbrella. Would this sort of investment platform have something of an image problem, intentionally seeking out and unafraid to characterize certain investment strategies as parasites? Maybe. But somehow I think there are plenty of others out there who, like me, can see the evolutionary beauty of these strategies and are not afraid to call them by their proper name. I hope you’ll join me in this exploration.

 


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Tue, 01/14/2014 - 13:54 | Link to Comment One And Only
One And Only's picture

Obama is a hookworm

Tue, 01/14/2014 - 13:58 | Link to Comment NOTaREALmerican
NOTaREALmerican's picture

Politicians use bullshit to manipulate dumbasses.    The highest skilled bullshitters are the leaders of the political parties.

What other system could there be?

Tue, 01/14/2014 - 14:01 | Link to Comment Freddie
Freddie's picture

They use TV and Hollywood.  If you watch their crap - you support it.

Tue, 01/14/2014 - 14:04 | Link to Comment NOTaREALmerican
NOTaREALmerican's picture

There were bullshit spewing politicians long long long before TV and Hollywood.

TV and Hollywood are just one of the many conduits that the bullshit is transmitted through.

Tue, 01/14/2014 - 15:05 | Link to Comment Say What Again
Say What Again's picture

I'm thinking about creating a new user-id on ZH just so I can use that photo as my icon.

Tue, 01/14/2014 - 20:30 | Link to Comment dark pools of soros
dark pools of soros's picture

says the dude with the chuck norris avatar...

Tue, 01/14/2014 - 13:59 | Link to Comment 666
666's picture

Did a god create the 535 parasites in Washington? If so, then I have a reason to be an atheist.

Tue, 01/14/2014 - 14:02 | Link to Comment NOTaREALmerican
NOTaREALmerican's picture

Well,  they aren't the parasites.   They are more like the teeth of the parasite.

Those of us living off Big-Ag, Big-MIC, Big-Road, Big-Water, Big-Airport, Big-Energy, Big-Ed, Big-House, Big-Fin, Big-OldFart, Big-OldFartHealthcare, Big-AntiDrug, & Big-PoliceState are the parasites.

Tue, 01/14/2014 - 15:02 | Link to Comment Yes We Can. But...
Yes We Can. But Lets Not.'s picture

They're cancerous agents, aiding the tumor that is gubmint metastisize, sucking all it can from its host, the citizenry

Tue, 01/14/2014 - 15:43 | Link to Comment NOTaREALmerican
NOTaREALmerican's picture

Re: aiding the tumor that is gubmint metastisize

The gubmint transports the loot (blood) from the host citizens TO those getting the loot.   Lots of us are the parasites.

Tue, 01/14/2014 - 13:56 | Link to Comment TeamDepends
TeamDepends's picture

Kill it!!!!!!  No, the Company wants it...

Tue, 01/14/2014 - 13:57 | Link to Comment NOTaREALmerican
NOTaREALmerican's picture

Study how the smart-n-savvy people manipulate (feast off of) the dumbasses as an investment strategy.

Sounds like a good idea.    

Tue, 01/14/2014 - 13:58 | Link to Comment hugovanderbubble
hugovanderbubble's picture

Good Article Ben,Thx

Tue, 01/14/2014 - 14:01 | Link to Comment jack stephan
jack stephan's picture

I like the grid one myself, he's mean as a honey badger.

I put out these same lines years back haha took a while guys, you been napping?

Tue, 01/14/2014 - 14:05 | Link to Comment Ignatius
Ignatius's picture

Just a thought.

Since American corporations are running the show here in the US and are increasingly demonstrating that they can get away with damn near anything, maybe, just maybe, the run up in stocks is 'rational' from a control perspective.  Investors want a piece of this runaway leviathon that shows us that (think ObummerCare) it can piss on the populace and tell 'em it's raining.  Thinking "the pyramid is a fact and the best one can do is buy a window seat."

I don't know....

Tue, 01/14/2014 - 14:11 | Link to Comment NOTaREALmerican
NOTaREALmerican's picture

Re:  I don't know....

The smartests-n-savvyest people are going to structure the society to benefit themselves.   What other system could exist; one where the nice people win?

The US has the same basic organization that most of the rest of the world has.    The smart-n-savvy get most of the benefit and the dumbasses get feasted upon.  

You've got to admit tho, we've got the most patriotic dumbasses on the entire planet.   They love getting eaten by their betters; because the smart-n-savvy people have created the required bullshit for the dumbasses about why it's good that the smart-n-savvy people get all the benefits.  (Go Team!)

Tue, 01/14/2014 - 15:45 | Link to Comment illyia
illyia's picture

Man, that was blunt. Watch your back.

And, I'll watch mine...

Tue, 01/14/2014 - 17:00 | Link to Comment BorisTheBlade
BorisTheBlade's picture

'smart-n-savvy' usually means well-connected and entitled, on the top there is on average as many dumbasses as at the bottom. also, educated =/= smart.

Tue, 01/14/2014 - 14:07 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Thank God the HFT parasites aren't insulted and may in fact be pleased.

<I've got problems enough with my gut bacteria at the moment. Whoops, gotta run.>

Tue, 01/14/2014 - 21:15 | Link to Comment acetinker
acetinker's picture

No shit, literally.

Tue, 01/14/2014 - 14:06 | Link to Comment Peter Pan
Peter Pan's picture

Man is the greatest parasite around.

Tue, 01/14/2014 - 14:10 | Link to Comment ebworthen
ebworthen's picture

So you're saying the 401K and I.R.A. crowd are the hosts, and Wall Street the Aliens, right?

"Glad you got that thing off my face, I'm suddenly very hungry."

Rip!  Spurt!  Splorp!  "Hiss!  Scree!"

Tue, 01/14/2014 - 14:10 | Link to Comment The Wisp
The Wisp's picture

And this Article is a Surprise to Anybody ? didn't think So..

Tue, 01/14/2014 - 14:16 | Link to Comment Atomizer
Tue, 01/14/2014 - 14:33 | Link to Comment disabledvet
disabledvet's picture

it's a dynamic...there are no winners or losers..just "life/non-life." so parasitic behavior is better than altruistic behavior. yet the altruist still exists. as does spiteful behavior, as does cooperative behavior. this is all about Being Human...a single person can engage in all four behaviors...although it is rare for parasitic behavior to be part of a group dynamic (save for Wall Street?) ....same holding true for altruistic behavior. not true for cooperative or spiteful behavior though. these are group dynamics...bull markets run on "cooperation" (through self interest) whereas bear markets run on spiteful actions. both parasites and altruists struggle when the group dynamic is in play...people all want to be part of the group and not have to worry about individual "identity."

Tue, 01/14/2014 - 14:33 | Link to Comment Yen Cross
Yen Cross's picture

   The central banksters are bunch of 'Botfly' larvae... They get under your skin and eat just enough of you to keep you alive.

Tue, 01/14/2014 - 14:44 | Link to Comment kevinearick
kevinearick's picture

The Water Bill

As a result of the walk-out / lock-out, empire demographics have turned disastrously, for the empire, Government has consumed market share globally, and the absolute size of local government is shrinking precipitously. Detroit and Baltimore are not anomalies, and the big financial centers, like Boston and San Francisco, are tipping over.

If the empire does not turn, and the latest round of water wars suggests that it will not, the empire will contract 40% peak to trough by 2035. As a laborer, you could have ten kids and not put a dent in the collapse.

Most empire females can no longer breast feed, the rest are ingesting poison from their food supply, the males cannot put land into production, and they all travel from controlled environment to controlled environment, meaning that they are allergic, to everything. They are like teenagers on birth control run amok, preferring dependence upon a central computer to individual responsibility, operating on the implied assumption that the computer has conquered the planet, and the universe is of no consequence.

GDP is an artificial inflator, not an economic measure. Adjusted for purchasing power, the empire has been crashing for some time now, notwithstanding the $25T of stupidity coming out of China alone. The rocket scientists are well on their way to printing $50T, handing it out to bankrupt real estate control interests from the top down, their demographic collapse continues to accelerate, and they are facing yet another round of deflation.

The perennially bankrupt property welfare recipients are the most cohesive consumer group on the planet, and they employ education propaganda to slot their child slave population into event horizons, training them to chase property with money, from shoes to cars to houses, in a pecking order of bullies and followers, beginning with school administrators. The best quarterback is not the best, but only better among the participants slotted on a Bell Curve for the purpose of justifying the political decision.

With the globalization of enforced urbanization, the focal point of planetary weather is translating, which is why you are looking at local variability. Where I am, the population has fallen 70% since the potheads took over, they can’t seem to find water, their pot is infected with a virus shared across the community, and they are selling their natural resources to Asia for paper promises, to inflate real estate prices, paying higher taxes and complaining about the results of their own stupidity, pointing fingers at each other while keeping their foot on the gas pedal, racing to the ATM machine.

What they teach you in business school is political “science,” that half of the empire population will gladly kill and enslave the other half, to belong to an exclusive group and divvy up the spoils of war. Scale economies fail every time, by design, when the law of diminishing returns hits the wall and the critters wake up to their own self-destruction, too late to alter their addictive behavior. That’s why they call it a depression.

Taxing the rain, printing cap and trade dollars and fracking away the water table is not going to end well. Government is not getting increasingly desperate by accident. The empire kills itself, seeking only to preserve itself, with a population virus of ignorant intent. All you have to do is get out of the way, and get on with your own business.

The only thing new about digital paper recapitalization is global transparency, timing of habit recognition; the critters now get to watch themselves destroy themselves. Survivor Island is not life, except for those who choose it of their own free will. America doesn’t produce anything that anyone will buy without credit coercion, in a closed system that ensures that the consumers cannot escape, built by the consumers themselves.

Surprise, surprise, the ‘better’ rats are abandoning the tax ship. Follow the pension dollars from the top down if you care to know their location; they cannot think independently. Empire development begins and ends with water. Or…keep up the busy work, and wait to exploit the work of children.

Now, back to the boob tube Bob…and keep building those 777s; we’ve got inventory to monetize, and more cheap labor to throw into the cartel rat hole.

Take a look at those property tiles in your community, particularly the ones surrounding it, creating a closed system of economic activity symptoms in a positive feedback loop, and who is profiting from the prison construction. The first order of business is to bypass all those electronic devices the monopoly rats have been installing, as their means of granular extortion.

Remote control simply accelerates stupid, and the Nazis are just the lowest common, stripped of political correctness, revealing empire best business practice for what it is, slavery – of, by and for slaves, to an artificial life support system. Expert / smart systems are designed, built and installed by morons, for morons. Technology as a crutch doesn’t work.

Grow your own seed, or expect the virus. Healthcare is toast; there is no positive cash flow in the system and it is hopelessly upside down. An ounce of prevention and a pound of love will see you through anything the ivory tower morons, their programmers, and their certified technicians do next.

If you can’t see the generator, experiment with a different focus. The Foundations are cracking, under the weight of the imploding pension ponzi.

What does your water bill look like?

(moron: dependent upon extortion, complaining about extortion)

Tue, 01/14/2014 - 20:04 | Link to Comment kevinearick
kevinearick's picture

“Mr Hollande’s plan is based on a “responsibility pact” with the employers federation Medef. The group’s chief, Pierre Gattaz, said he is willing to “play ball”, praising Mr Hollande for a genuine shift in strategy after 18 months of half-measures, false-starts and back-sliding. Medef has pledged 1m jobs by 2020 in exchange for a shake-up of labour laws and a €100bn cut in labour costs over five years, split between tax cuts and lower social security contributions.”

too f-ing funny…keep slicing up a shrinking pie…

Tue, 01/14/2014 - 21:34 | Link to Comment MeelionDollerBogus
MeelionDollerBogus's picture

You nailed it 100%. Only a total fucktard would -1 you

Tue, 01/14/2014 - 15:09 | Link to Comment Blazed
Tue, 01/14/2014 - 15:08 | Link to Comment alphamentalist
alphamentalist's picture

i would agree that ETFs are a huge parasite. but they are not an alpha strategy. most alpha strategies are more like scavengers. they are too weak to attack the market directly so they eat the crumbs, scraps, and carion left behind. or, they enable (bet against) stupid...and there is nothing parasitic about betting against stupid. but all of that ignores that the biggest parasites in the market, that always go without mention, are the branded beta shops that charge 1-2% for closet indexing.

Tue, 01/14/2014 - 15:37 | Link to Comment vulcanraven
vulcanraven's picture

They are all ticks.

Congress, Wall Street, Central Banks, Credit Card companies, Welfare Queens, the whole fucking lot of them.

Tue, 01/14/2014 - 15:44 | Link to Comment Colonel Klink
Colonel Klink's picture

The well known "Hooker worm" on Wall street has the same look but the mouth is just a little rounder.  Oddly in the same news they like "blow" too.

Well know fact, Politicans are known to be infected by the same Wall street parasites.  This is not to be confused the the "Blood Funnel Squid" which is known to be one of the vilest and most voracious eater.

Tue, 01/14/2014 - 15:52 | Link to Comment illyia
illyia's picture

Well, well, well...

That certainly provoked some reaction.

Thanks for the article.

Tue, 01/14/2014 - 18:12 | Link to Comment blindman
blindman's picture

ANY OF YOU FUCKING PRICKS MOVE IM GONNA EXECUTE Every last fucking one of you.
http://www.youtube.com/watch?v=7boL2J7ZuDM
.
parasites, as evolutionary beautiful as they may be
no one cries when they are summarily executed.
no one.
you might say ... so what?

Tue, 01/14/2014 - 20:39 | Link to Comment XitSam
XitSam's picture

Read Liars and Outliers

Tue, 01/14/2014 - 21:22 | Link to Comment acetinker
acetinker's picture

Ah, but my dear Tyler, are you suggesting that the parasite provides value to the host?  If that's true, and it may well be, it means we are, collectively, parasites and all, degenerating.

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