Seeking Alpha

Srikant Krishna's  Instablog

Srikant Krishna
Send Message
Srikant Krishna is a financial technologist and quantitative trader. He has a background in biophysics, software development, and the capital markets. He has lived in Brooklyn, NY, Staten Island, NY, Holmdel, New Jersey, Piscataway, NJ, New York City, Boston, MA and currently resides in... More
My company:
Binary Investment Research LLC
My blog:
Srikant Krishna
View Srikant Krishna's Instablogs on:
  • No More Reveling In NJ

    The recent bankruptcy filings by the $2.4 billion Atlantic City, NJ casino Revel should be an eye-opener for those who continue to insist that a "recovery" is underway - especially in the commercial real estate market.

    From "":

    Operators of the $2.4 billion Revel casino, which opened last April in Atlantic City, announced plans last week to file Chapter 11 bankruptcy in late March. The bankruptcy will help reduce its more than $1 billion debt and allow it to keep operating, reported MSN MoneyNOW.

    According to the Star Ledger, the casino resort was an attempt to turn around Atlantic City's staggering fortunes and keep gamblers from continuing to flock to casinos in neighboring Pa., which last year surpassed N.J. as second-largest gambling center in the U.S., behind Las Vegas.

    New Jersey Gov. Chris Christie hailed the resort as a "game-changer" and it was therefore provided with $300 million worth of aid by the state. But he couldn't have been more wrong.

    New Jersey Gov. Chris Christie hailed the resort as a "game-changer" and it was therefore provided with $300 million worth of aid by the state. But he couldn't have been more wrong.

    The casino did not transform Atlantic City's struggling gambling scene as hoped, instead it has performed poorly over the past 11 months. In January, Revel generated less than $8 million in casino revenue, ranking it last among the city's 12 casinos, according to state data.

    According to News 12 New Jersey, the pre-packaged bankruptcy will wipe away more than $1 billion of its debt by converting more than $1 billion of it into equity for lenders.

    From in between Stamford, CT, where I reside, to New Jersey, I see large swaths of commercial real estate that either long been shuttered, currently going out of business, or quite often the case, struggling to retain business and merely present convey a feeling of comfort and stability.

    Perhaps the most paradoxical element of these observations is that new commercial real estate continues to be built - either in the form of strip malls, office buildings (in the suburban areas), or more expensive top-grade commercial space (in the case of New York City). It appears that commercial real estate developers and owners have taken it in the chin twice - first, during the onset of the Global Financial Crisis in 2007, then once again from 2010 onwards.

    But there are two primary reasons for this, which together explain how the real-estate market is continuing to undergo distortions and disolocations from the "real" market that can only produce staggering tragedies such as the Revel casino. Firstly, many developers had expected a typical cyclical recession in 2009 that would quickly subside in several years. They therefore viewed the low prices at the time as an opportunity to create tidy profits in the coming years as the market recovered. Unfortunately, it appears that they held the artificial "stock market" in too high a regard and did not examine the "real" market for goods and services which did not exhibit such a favorable prognosis.

    Secondly, governments and politicians who have been proclaiming a "recovery" have been quick to introduce stimulus measures and tax subsidies for these projects, which only serves to exacerbate the plight of the entire market. After all, commercial real estate participants who have not been sufficiently "lucky" or "qualified" (both read: connected) to receive political or government support will witness a transfer of their fortunes to those who have.

    We unfortunately will see this game played for a long time along the Malthusian plateau of sustainability as hungry developers increasingly compete in the ferocious circumstance of an evaporating waterhole occasionally watered by a political waterhose.

    Copyright © 2013, Srikant Krishna

    Srikant Krishna is a financial technologist and quantitative trader. He has a background in biophysics, software development, and the capital markets.

    You can follow him on Twitter @SrikantKrishna, and on LinkedIn at, or e-mail him at

    You can visit his blog as well.

    Mar 03 2:05 PM | Link | Comment!
  • Why SNAP And The Baltic Dry Index Are Excellent Measures Of The Real Economy

    Why SNAP and Baltic Dry are Excellent Measures of the Real Economy

    by Srikant Krishna (

    Economics and finance were subjects that I had originally neither possessed a modicum of interest in nor an iota of consideration towards. However, as I matured, and singularly focused my intellectual and physical aptitude on comprehending and solving the details of problems in seemingly unrelated fields, such as biophysics or computer science, I began to look beyond the horizons of the Protein Folding Problem, or understanding the Universal Turing Machine. As it such happened, I was recruited into Wall Street at the same time. To be thrust from a world of Laws based on first principles and experimental validation, into one of handshakes and opinion, was, well to be honest, rather enlightening.

    Through my subsequent years in attempting to understand an exceptionally complex system comprised of not-so-rational human participants, there has always been one central question that I have found myself contemplating at the open and close of each day: How is the world, and in particular the United States faring? And I mean this from the point of view of individuals, families, companies, and organizations. I further wanted to obtain a concrete sense of the very abstract psychological characteristics of emotion, outlook, and prospects, across what is referred to as "the aggregate". It is particularly easy, through the internet, to obtain a heterogeneous battery of opinion from all parts of a spectrum comprised of similarly diverse background and experience of those who profess particular opinions. This however falls short of my requirements of a concrete, objective measure into an invariably complex, subjective topic. I therefore proceeded to spend years and then extending beyond a decade, as any serious investor, financial market participant, or analyst would have done, by poring over various theories, reflections, opinions, "thought pieces", and so forth. I enjoyed engaging in this investigative research because it was a natural extension of my intellectual curiosity that had in the past been expended in other sciences.

    The stated purpose of this article, however, is to demonstrate why the Supplemental Nutritional Assistance Program (SNAP) and (a component) of the Baltic Dry Index are the best gauges of economic comfort and activity. Let us not waste any more time, and instead address the principal components of this discourse. SNAP corresponds to the Supplemental Nutrition Assistance Program, and allow me the opportunity to access the online compendium of human intellect to introduce this program. The health of the American economy, is, without doubt, perhaps the most influential factor in assessing the health of the global economy. As an aside, I am elated that this specific article can avoid discussion of the European disaster, Japanese crisis, and hidden, or more aptly, "managed" Chinese freefall.

    From Wikipedia:

    "The Supplemental Nutrition Assistance Program (SNAP),[1] formerly known as the Food Stamp program, provides financial assistance for purchasing food to low- and no-income people living in the U.S. It is a federal aid program, administered by the U.S. Department of Agriculture, though benefits are distributed by individual U.S. states. They can be used to purchase any prepackaged edible foods, regardless of nutritional value (e.g. soft drinks and confections). Hot foods (such as those found in a supermarket deli) are ineligible, as well as items in fast food restaurants and similar retail settings.

    For most of its history, the program used paper-denominated "stamps" or coupons - worth US$1 (brown), $5 (blue), and $10 (green) - bound into booklets of various denominations, to be torn out individually and used in single-use exchange. Because of their intrinsic value of 1:1 with actual money, the coupons were printed by the US Bureau of Engraving and Printing. Their rectangular shape resembled a US dollar bill (although about 1/2 the size), including intaglio printing on high-quality paper with watermarks.

    In the late 1990s, the Food Stamp program was revamped, with some states phasing out actual stamps in favor of a specialized debit card system known as Electronic Benefit Transfer (EBT), provided by private contractors. Many states merged the use of the EBT card for public welfare programs as well, such as cash assistance. The move was designed to save the government money by not printing the coupons, make benefits available immediately instead of forcing the recipient to wait for mailing or picking up the booklets in person, and reduce theft and diversion. The 2008 farm bill renamed the Food Stamp Program as the Supplemental Nutrition Assistance Program (as of October 2008), and replaced all references to "stamp" or "coupon" in federal law to "card" or "EBT."[2][3]

    In the 2012 fiscal year, $74.6 billion in food assistance was distributed.[4] As of September 2012, 47.7 million Americans were receiving on average $134.29 per month in food assistance.[4] In Washington, D.C., and Mississippi, more than one-fifth of residents receive food assistance.[5]

    This is fine and excellent, a social network intended to assist the millions of Americans in poverty. After all, as much of a "socialist", "liberal", "independent', "conservative" or "libertarian" that others have claimed that I am, I also understand the fundamental truth that an individual cannot decide a priori where he or she is born. And infants, small toddlers, children, as such, are not responsible for their living standards. Let me be fully clear: I fully support helping these sorts of families and individuals. Let me be fully clear: I detest and castigate those who would abuse the system. The purpose of this article is not to debate the merits of the SNAP program, but rather, to employ it as a potent indicator of the state of the real economy.

    SNAP numbers, in my opinion, are exceptional in two regards. First, they differentiate themselves from seasonally-adjusted, birth-death modeled, statistically smoothed employment numbers in the same way that a slab of steak is different from processed sausage. In other words, the number of Americans or households participating in the SNAP program is about raw an economic measure that one can obtain, miraculously having had passed through the statistical machinations of a very large bureaucracy untouched. In contrast with the plethora of economic revelations continually dispensed by this apparatus, the purity of a simple measurement can be held in high regard.

    The second reason that the SNAP number has tremendous value is in its intrinsic ability to capture changes in real wages and consumer prices. A perennial exercise of the economic community is the computation of inflation, and this is rife with theory, discourse, conjecture eventually leading to statistical modeling that is increasingly divorced from the factual world. In the real world, as individuals and families begin to feel the pinch in declining living standards, their eventual recourse is to rely on public assistance for supporting basic needs such as food, housing, and medical care. Any perceived social stigma associated with receiving this assistance varies amongst individuals and households, but we therefore can look at changes in the SNAP number as evidence of changes in the real, not modeled, economy.

    Exhibit A, let us examine the recent history of the number of Americans on the SNAP program:

    (click to enlarge)

    The SNAP chart indicates that an atrocious and alarming change in living standards has occurred and persisted from the mid-2000s onwards. Of course, with gasoline at nearly USD $5 in certain locales, this is rather easy to conceptualize. Perhaps given the "cyclical" booms and busts that we have been accustomed, nay, entrained, to, the initial deterioration should not have come as a surprise. Some would in fact, suggest that the period between 1978-1982 was just as intense and significant. However, the evidence that the trend has not reverted, and instead has persisted (though of a completely lower magnitude) should indeed be alarming. Governments and central banks around the world have continually proclaimed an astral "recovery" which has never manifested itself in the eyes (and bellies) of 50 million Americans. Six years after the initial precipice was encountered (I begin my enumeration from 2007), we are still experiencing economic stagnation and decline across the world, most notably in Europe, at the current moment. For how much longer can we pretend that this tectonic economic shift is "cyclical (read: transient and reverting) in nature rather than "structural" (read: permanent and continuing)? Is it not the moral responsibility of governments and other "entrusted" sources to at least make the populace aware of this transition, if not to correct it (as the causative forces are largely beyond their control at this point in history)?

    We next will direct our attention towards global trade. Once again, to quote from the definitive, dynamic compendium of human thought:

    From Wikipedia:

    The Baltic Dry Index (BDI) is a number issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides "an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain."[1]


    Most directly, the index measures the demand for shipping capacity versus the supply of dry bulk carriers. The demand for shipping varies with the amount of cargo that is being traded or moved in various markets (supply and demand).

    The supply of cargo ships is generally both tight and inelastic-it takes two years to build a new ship, and ships are too expensive to take out of circulation the way airlines park unneeded jets in deserts. So, marginal increases in demand can push the index higher quickly, and marginal demand decreases can cause the index to fall rapidly. e.g. "if you have 100 ships competing for 99 cargoes, rates go down, whereas if you've 99 ships competing for 100 cargoes, rates go up. In other words, small fleet changes and logistical matters can crash rates..."[5] The index indirectly measures global supply and demand for the commodities shipped aboard dry bulk carriers, such as building materials, coal, metallic ores, and grains.
    Because dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finished goods, such as concrete, electricity, steel, and food, the index is also seen as an efficient economic indicator of future economic growth and production. The BDI is termed a leading economic indicator because it predicts future economic activity.[6]

    Another index, the HARPEX, focuses on containers freight. It provides an insight on the transport of a much wider base of commercial goods than commodities alone. HARPEX is regarded as a Current-Activity Indicator, because it measures and charts the changes in freight rates for 'container ships.' Container ships typically carry a wide variety of finished goods from a multitude of sellers. These are factory output goods headed for retail markets, at the other end of the supply chain.[7]

    Other leading economic indicators-which serve as the foundation of important political and economic decisions-are often measured to serve narrow interests, and subjected to adjustments or revisions. Payroll or employment numbers are often estimates; consumer confidence appears to measure nothing more than sentiment, often with no link to actual consumer behavior; gross national product figures are consistently revised, and so forth. Unlike stock and bond markets, the BDI "is totally devoid of speculative content," says Howard Simons, an economist and columnist at "People don't book freighters unless they have cargo to move."[8]

    And how has this figure, that has been claimed to be "totally devoid of speculative content", fared in recent history?

    Exhibit B, a chart of the Baltic Dry Index:

    (click to enlarge)

    This chart indicates that a disaster has occurred in the shipping industry, with rates descending beyond the trough of the 2008-2009 crisis, and reverting back to a decade ago. As a friend of mine, who is a very sharp Federal Reserve economist, recently pointed out: since the BDI index value is merely a function of supply and demand, where is the evidence that the supply of freighters has not increased? In other words, how can we not attribute the sharp decline over the past years (subsequent to 2009) to an armada of freshly minted new freighters and tankers, replete with crew, eagerly entering the shipping market? The answer to this question lies in a comprehensive examination of the annual reports of the major shipping companies (in particular, DryShips, Eagle Shipping, and so forth) since 2009. The story that will unfold is rather sad, nay pathetic, but necessary for an honest investigation into the causes of the collapse in BDI. Regardless, the drop in global shipping rates to those comparable to 2001 (or earlier) cannot be ignored, especially in the face of fuel prices that have doubled or tripled over the same period.

    In this article, we have examined why SNAP and the Baltic Dry Index are two excellent indicators of the real, rather than a perceived, modeled, projected, or propagandized economy. There is a very lucrative trade in information, which is conducted through the well-characterized medium of the internet, in which voice, images, software, or databases are transmitted digitally across the globe. A proper, dynamic, dataset compiled sans biases would be an excellent measure of the online activity of the world as a whole, but this would lack in conveying the "principal components" that a trader, investor, or asset manager would be interested in: a current quantification of a prominent nation's ability to maintain living standards, or a measure of physical goods exchanged globally. We cannot rely on official government figures any longer, as these have been abused for decades and the collapse in their credibility has been well-documented throughout both the ethereal internet and varnished peer-reviewed literature.

    Copyright © 2013, Srikant Krishna

    Srikant Krishna is a financial technologist and quantitative trader. He has a background in biophysics, software development, and the capital markets.

    You can follow him on Twitter @SrikantKrishna, and on LinkedIn at, or e-mail him at

    You can visit his blog as well.

    Mar 01 9:11 AM | Link | 1 Comment
  • On The Diabatic Process And Standards Of Living

    On the Diabatic Process and Standards of Living

    by Srikant Krishna (

    In thermodynamics, an adiabatic system is one that is isolated with respect to the transfer of heat. An example are two thermally sealed flasks of coffee, one warm, and one cold. This is an adiabatic system because in theory, no heat can be transferred between the two objects. The two flasks will forever maintain their own temperatures. We contrast this with the diabatic system, which as the nomenclature suggests, permits the exchange of heat between the two components. In this case, we would insert a conductive metal pipe between the two flasks. Over time, we can then expect that the temperatures of the two flasks will achieve equilibrium.

    Prior to the 20th century (and in particular, the new millennium), ideas, languages, agriculture, buildings, technological implements - in other words culture and societies - were separated by vast distances, often only reachable through long and arduous voyages. This is one of the reasons why the merchant import/export trade was extremely profitable, regardless of the commodity or good being exchanged. In fact, many of the earliest corporations were formed precisely to engage in these sorts of enterprises. Historically, regions such as South Asia and East Asia contributed the lion's share of the world's GDP, until the development of European financial and military technology, and the concomitant colonial expansion of these nations. And thus the highly prized spices, textiles, and crafted goods of the East became available to world. In Africa, diamonds, gold, ivory and sadly even human beings were the prized exports. The gold, land, and natural resources of the Americas did not escape the machinations of European colonialists either.

    The world was a very large place indeed, with an incredible diversity of culture and natural resources. Nations and cities began to become highly specialized based on the type of culture, resources, and economic activity that was transpiring at a particular locale. The first several millennia of human history were replete with a multitude of empires, and city-states with such ambtions. From the Hittites, Assyrians, Persians, Greeks, to the Romans all successfully laid claim to lands and people that extended far beyond their origins. For the purposes of this article, we begin during the Age of Colonization period during which European cities very rapidly achieved a status as a center of global import/export, and hence banking and finance advanced at an expedited pace in these regions. Other parts of the world that were colonies, rather than the centers of colonialism, specialized in resource extraction, manufacture of certain goods, and agriculture. This implicit diversity, a fundamental consequence of colonialism, created profound disparities not only in the sort of economic activity that was sited in a specific locale, but a host of ancillary institutional and organizational structures as well.

    For example, the European centers of banking, finance, trade and engineering demanded that a substantial portion of the population become skilled and trained in these economic activities. Correspondingly, European universities were responsible for an astonishing array of advancements, and were the leading world-class centers of higher learning, technological innovation, and organizational and management skills. It is interesting to note how European cities displaced the previous centers of trade, learning, and technology that existed primarily in the Islamic world during the Dark Ages that also engaged in somewhat similar forms of colonialism throughout the Middle East and North Africa. A further consequence of the European domination of global economic activity was that capital formation and retention was preserved regionally and nationally within the very same European centers. For example, if a well-networked group of investors or entrepreneurs sought to raise funding for their enterprises, regardless of the particular type of activity, then the most obvious sources would be likely situated in England, Italy, the Netherlands, France, Spain, and other major economic hubs.

    The heterogeneity imposed by differential economic activity produced stark sociological disparities in living standards, life expectancy, education, and population growth. For example, a diamond miner from the African continent had virtually no access to education, technology, or capital to improve his standard of living, and therefore the entire concept of social mobility was virtually absent in most of the world except for the major economic centers. This is not to say that cultural factors did not play a significant role as for example in Japan or India, but the notion of an individual from a poor or middle class background achieving education, forming networks with the priveleged, and being able to live a much more comfortable life than his or her previous generations was an exceptionally rare circumstance except in the European circles - even of which this was an improbability.

    Eventually, through revolutions, warfare, and the dissemination of certain philosophical notions regarding the role of individuals, and governments, colonialism and monarchism came to an end, and engendered the formation of many modern democracies, federations, and republics throughout the entire world. The industrial revolution dramatically made the world smaller with a host of developments, including the steam engine, automobiles, the telegraph, airplanes, and electricity. Unfortunately, however, as seems to be the case with any technological innovation, whether it serves as a benefit to human civilization or a detriment is determined by the end user. Steam engines, automobiles, airplanes and electricity enabled an extraordinary leap in the devastative capabilities of militaries. The period between 1914 and 1945 was one of the most brutal and horrific eras in human civilization. It was only after the devastating power of atomic energy was unleashed on entire cities that world leaders were forced to consider ramifications of war that included the permanent destruction of a nation. In this analysis, the Mutually Assured Destruction (MAD) protocol served as a rational, game-theoretic barrier that thus far has prevented the offensive employment of highly advanced thermonuclear weapons since.

    But the world became much, much smaller. Supersonic flight, rapid rail transit, highways, telephone systems, and satellites rendered travel and communication to distant places no longer an exclusive privilege that could only be afforded by the affluent. And as the world was becoming smaller, massive waves of emigration and migration became possible, that continue to this day in many regions of the world. Socially, class mobility became the norm, and no longer the exception. From 1945 onwards, it appeared that each generation's standard of living was expected to exceed the prior's. Coupled with the August 15th, 1971 elimination of any constraint on the creation of credit, there literally was no physical or regulatory barrier that could prevent an ordinary citizen to become educated and through success, acheive a very comfortable or luxurious life. Well, actually they could just borrow the money and pretend to live a successful life, but that is a mere aside.

    Three final technological innovations reduced the size of the world to roughly that of a (navel) orange. First, the internet made it possible to communicate large amounts of data at very high rates with virtually anyone else. The data could correspond to software systems, patient record information, live video feeds, electronic mail, or digitized speech. In essence, it permitted the transmission of any type of information from one individual or organization to another in a matter of milliseconds. Simultaneously, advances in cellular technology made it possible for one individual to directly communicate through voice or messaging with anyone else on the entire planet - a truly marvelous feat that would have been difficult to predict even a few decades earlier. In fact, the most basic cellphones today far exceed the transmitter devices employed by the original Star Trek crew. And finally, today, we have mobile devices that exceed utility as cellphones, but can access the internet, and are capable to connecting hundreds of millions of people together. The result of this has been astounding collaborative human accomplishments - I point to Wikipedia as the most prominent - an dynamically evolving record of the entire human intellect.

    In today's world, the differences in learning tools, educational and informational capabilities between the rich and poor, between the developed and undeveloped parts of the world, is virtually nil. For the first time in human existence, it is possible for the individual to be limited in their ability to acquire knowledge only by the expanse of their curiosity, and of course, sadly, time. Those chidren that are being born in privilige today will have to compete directly with their counterparts in any part of the world. The notion of retention of capital in a few favored cities, regions, or even nations is rapidly evaporating.

    We begain this article with the considering of an adiabatic system, in which heat cannot be exchanged by the various components of the system. This was both the colonial and 20th century models. But the world of today is a diabatic system , and fundamentally very different. If we were to regard "heat" loosely as instead the flow of information, culture, and capital, it is clear to see that the process of wage arbitrage and relative changes in the standards of living throughout the world must continue until the system reaches equilibrium.

    Dear reader, please consider this momentarily, as it is the crux of this precis. No law, regulation, or policy impediment can prevent the diabatic process from forcing the system into an equilibrium state. Waking up in Manhattan or Shanghai will result in similar experiences in the very human terms of living standards: goods available for consumption, medical care, technology, transportation, and so forth. This is not to say that vast geographic differences will not strongly influence the economic activity and quality of life - as they always have. But the world has become very small indeed.

    Copyright © 2013, Srikant Krishna

    Srikant Krishna is a financial technologist and quantitative trader. He has a background in biophysics, software development, and the capital markets.

    You can follow him on Twitter @SrikantKrishna, and on LinkedIn at, or e-mail him at

    You can visit his blog as well.

    Feb 16 1:27 PM | Link | Comment!
Full index of posts »
Latest Followers

Latest Comments

Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.