Interview with Half Man, Half-God

Marko Kolanovic is the global head of macro quantitative and derivatives research at JPMorgan Chase & Co.His star, in fact, has reached such heights that CNBC sometimes identifies him in its chyron as “Half-Man, Half-God.

Some interesting quotes from his interview with Bloomberg

I do tend to be a more contrarian person who looks at things that people aren’t looking at right now—which is good and bad. It’s good because you can uncover things that nobody thought of, and they become very relevant. The bad is that you may be sometimes looking too far out, and then it’s not relevant. If most people don’t look at something, chances are it isn’t going to be relevant very soon. “Too early” sometimes also means “wrong” in finance. If you’re just going to be stating consensus, and a trend follower, you’re not adding much value. The proposition of being a bit more out-of-the-box contrarian is more risky, but it also differentiates.”

There’s this fragility in the marketplace that came with the new structure of liquidity, with electronic market-making, computers, and growth in passive. Passive assets and quant assets will grow, and computers and AI will have a bigger role in ­market-making. At some point that’s going to end up badly—most likely when the next recession hits. Some of the problems around computerized liquidity are going to be fully exposed, and it may really deal a blow to investors and markets overall. Not that we are forecasting it with a certain timeline, but more that investors should have it in the back of their minds.

There’s more algorithmic trading, where algos are going through headlines or sorting through earnings statements or going through social media in real time and trading. What are the consequences for investors?
We’re seeing reaction time get shorter and shorter for releases, which can also incur costs or take advantage of slower human investors. There are signs of potential abuses with social media posts and headlines. That’s going to get worse and worse and be more of an impediment for human investors to make money. It’s going to cause more confusion in the marketplace.