Noah Healy Profiting Thru Commodities

0:00 Hello, Welcome to another episode of night Be Media's Living the Dream. I'm your hosting moderator. My name is Gregory Tucker. I know it has been a while we've been working behind the scenes and getting more guests to come on the program and share their story. So in the upcoming episode, we have some pretty interesting guests that will be appearing on this program. Again. Night Be Media's Living the Dream is about the entrepreneur story of how they turned a dream into reality. Today, our guest is going to be Noah Heally taking us into the world of commodities. So I hope you have your pen and paper already to take some notes for Noah. We'll be sharing this information with us again. Want to emphasize if this is your first time visiting, please leave a comment and if you find value in this program, please do us a favor or do us this service and that is hit the like button, subscribe and leave a comment. Welcome to Nightbeat Media's Living the Dream podcast with your host Gregory Tucker, where we discuss the entrepreneur's journey of turning a dream

1:30 into reality, showing you how to learn, overcome, and acquire strategic action steps. If you're ready to turn your dream into a reality, then get ready to take action. Here's your host, Gregory Tucker or us in the opener, we're going to talk about numbers, crunching numbers in how they play a major part in our lives. Today. Our guest is mister Noah Heally, and he has some very valuable information to cheare with you. So I hope you are sitting there staying tuned and ready to take notes. And with that said, let's introduced our guests. As we like to always ask our guest, tell us about yourself. Okay, Well, like you said, Ms Noah, I live in the town. I was born and raised in Charlottesville, Virginia, and I'm I'm a recreational mathematician and I'm working on a project to upgrade how commodity markets work. Would that say? What we're gonna

3:00 do, Noah is We're gonna jump right into it now for some of our viewers right here, commodities when you think of about it, most people are thinking, okay, they know about stocks, or they may not know about stocks, but commodities is another part of the market place where a lot of people are able to flourish, become wealthy. You know to see how a free market actually works. Now, one of the things that you've done, Noah, is you've looked at the market and you put a system. You've kind of realized that there's a system in place that many of us are totally unaware of. So we we hear people every now and then turn on the news and you'll ear pork bellies, for instance, that's one of the commodities right there, or grains, oaks and grains, or soybeans. Now, a lot of people are wondering where do people or where does the market get that information? And how are things priced the way they're priced? Can you

4:39 up us with that? Absolutely? And it is a it's a fairly simple, but at the same time sort of indirect approach. So what the market does is it provides a place for people who want to buy and sell to come together, and then it publishes the deals that get made in that forum. And so what that means is that as a buyer, you come in, you get to see the deals that are being made, and you could to decide what sort of terms you'd like to offer, and the same thing happens for sellers. The thing that gets tricky about this is that deals are being made at an enormous rate of speed because people are coming into these markets from all over the planet, and so it really isn't practical for individuals to actually keep track of what's actually going on. So you're talking about stocks, people that are familiar with stock markets know that the map of what their prices look like is just this sort of way wildly swinging graph that's going up and down constantly. That is that's a property of the market, this kind of

6:10 marketplace itself, because we use the same kind of marketplace to trade stocks, and so those that wild jag is sort of around the point where the deals are getting done, but sometimes instability occurs and it suddenly jags off very high, very low. And so that's that's the space that commodity markets operate in, where the deals are sort of good for a microsecond and people are trying to come to grips with this system that's just sort of always sliding away from them. And the thing is that, particularly for commodities, because they are these you know, industrial process types of products, there is a more steady, underlying, sort of facts on the ground thing of what's going on.

7:16 There's so much desire for food. There's so much production for food. These two things come together on a day by day basis, and so there's an opportunity to make this relationship much more direct and to clean up a lot of that instability that's intrinsic in doing it indirectly. Okay, and with that being said, I'm going to go ahead and bring up your chart, so that way it kind of gives them a better idea for of how this is all or how it all breaks down. You have your producers consumers, here's the market speculators, and as far as how it starts and how it ends, could you break it our unrapid force, Noah, absolutely, So let's start with this style of chart. So the basic idea here is that time goes from top to bottom, so this is effectively one trading cycle. This would happen over and over and over again. But things that are at the top of the page happened first, and things at the bottom of the page happened last, and this happens in order. So this kind of layout with arrows connecting lines like this allows us to describe relationships that are evolving over time with

8:52 multiple parties in a way that is somewhat clear. And again, what's going on here is that there's three sides in this market, not just two. So the kind of easiest way to understand this is is to sort of walk down it the first time, just sort of with things happening, and then we're going to sort of walk back up and see why each of those things happened. So let's start with step one, publishing price information. The market has its current view of what the present in future look like, and it tells everybody what that is. And then the three sides split off because they each have a different action to take based on how they feel about what the market thinks is currently going on. Producers offer to sell, consumers commit to purchase, and speculators commit to future price updates. So what does that mean.

10:05 That means that based on where prices are now and where prices look they're like they're going. Producers decide how much they should sell today us versus how much they should just keep in the barn or in the warehouse or whatever, and they offer to sell the amount that it makes sense for them to sell. Consumers at the same time offer to buy the amount it makes sense for them to buy, and the speculators take a look at what's going on, think about what they know, and think about where the errors are or even where other people might think errors are that should be restabilized, and so they put in their least about the future. With that set of information, the marketplace can then collate contracts to trade between buyers and sellers, which it sends back out to them, and they can aggregate the information that's coming in from speculators and collect the moneies that they've invested in the future. So then we have a phase where those contracts are actually executed. The producers make the deliveries, which might in sort of small regional markets might involve getting on a truck and driving over to your neighbor's house, but in large organized markets basically involve

11:37 updating the escrow warehouse to let them know that this palette doesn't bold you anymore, it now belongs to this other person. The consumers confirm the delivery, and at that point the market can release the escrow, so everybody's safe trades can't happen, you know, you can't be sort of your money's gone but the stuff's not here, or you delivered but there's no cash. Everything's set up from that side, and also as the market tracks actual trades occurring, it can measure how well the previous speculators did and carve out their share of the revenue that it's collecting to operate itself as its commission and so this kind of thing that you could see in the first phase it sort of we're starting in the middle of things. We have price information, so it doesn't really make sense where that comes from and why people are doing it. But now that we've walked through, we walk back. We see that this is a system of secured trade at known prices, which is very attractive to people that make commodities for a living or need to buy them for a living. So

13:07 they're going to be coming in. They're going to be able to use this speculator half of things to forecast or negotiate those prices in in directions that are useful for them. And third parties will be able to come in to improve that speculatively by putting useful information into the system. And so that's that's where this thing stabilizes towards a functioning marketplace. Okay, that was good right there.

13:48 How you broke it down what we saw and we could actually see it far as on the chart. Now, for those of you who are listening to the podcast, we did have a chart that was on the screen. If you look on our YouTube channel, you'll see the visual video podcast, and that's where you can actually see the chart what Noah was describing right there. Now, there's a couple of factors that also play into this, right Noah, and that the variables such as what is it market makers? Could you tell us about the market makers? Certainly so, market maker is a role that exists in the existing marketplace because the market needs trades to be happening in order to have prices to deliver, and so there are people whose job it is to make deals even when nobody else wants to make a deal.

15:05 And that's something that has been being diminished somewhat by computer trades that are basically so willing and so ubiquitous that trades can sort of always be happening. But even so, sometimes the computers step back from the market, and there's a role of stepping in and bringing this together. What what my system does is, it is it essentially gives these people a different role of actually making the marketplace in the first place, so that market line. There's a role to be had in my system to operate the market in which you are simply providing this sort of three sided service and charging a commission on the trades facilitated, and that can be significantly more remunerative than the existing markets. To put some numbers out there, the CME Group is a publicly traded company and according to their numbers, their annual revenue is about four billion dollars a year. According to the US Census figures, the amount of market transaction costs and commodities,

16:36 which isn't solely the CME Group, but they are by far the largest operator of that sort of thing in the United States, is an excess of eight hundred billion dollars a year. So they're collecting something like half a percent of the transaction value chain by by being market makers, by being market operators, and a CDM style system, this this sort of thing would allow those people to simultaneously shrink that very large number and create a more efficient and prosperous economy while growing that small number and thus having a much more prosperous company. Oh okay, so this right here, your system is designed in order to condense it somewhat, but at the same time give a bigger yield. Yes, absolutely, So the key thing for any market system is volunteerism. So the thing that makes economy is function and grow is that people are willing participants.

18:07 If you're getting conned into buying things on a regular basis, then probably things aren't really going that well economically speaking. And certainly if if you're you know, sort of being threatened into doing things, then then it's it's very bad. Indeed. So a market needs to be able to offer all the people it needs to participate something that's a good deal from their perspective. It's not enough that it's what you would want. It has to be what they would want. And so for CDM to become successful, each of these three participant groups and the operator themselves all needs to be able to get something out of it. And since each of these things, you know, consists of businesses, what they're looking for the out of these things is profits return on investment those sorts of things. And by creating a more efficient algorithm, we can lower friction, lower cost, and actually offer a share of that improvement to each of these roles and consequently have a better marketplace. Okay, Now there's

19:38 another term that I've heard, and that is he'll climbing. What does that? So he'll climbing is a term used in like optimization theory for a generic set of optimization strategies. So at the very basic, imagine that you needed to get to the highest point and how could you do that. Well, you know, here in our day to day lives, you know, you'd take out your phone and you'd ask it for you know, turn by turn directions to the top of Mount Everest and go do that. But in computer optimization, we don't really get to sort of play those types of games.

20:34 So come up with an algorithm that would cause that to happen. So imagine this, look around yourself one step in each direction and figure out what the highest point one step away from you is, and then step to there, and now do it again. Just keep doing that. He'll climbing is a very nice algorithm because it's simple, it's it's very easy to understand how that works. It's very easy to actually implement that in abstract scenarios where you're not really standing on a field or something, but you really do have some kind of abstraction like supply and demand and people coming together, and so the algorithm that existing markets implement is a hill climbing algorithm. Basically, if the market's out of balance, then you will make more money by trading in the direction towards the markets balance than away from the markets balance, and so the market will hill climb towards these equilibrium positions. Hill climbing, like all potential optimization algorithms, has drawbacks, and for hill climbing, the two big ones are multidimensional systems. So usually hill climbing is first exposed to people in terms of

22:12 optimizing a function. So you just have a line on a graph, and so when you when you're looking at sort of all the steps that you can take, there's only two steps you can take. You can go right or left. And that's pretty easy to understand. But if you think about like the first thing I talked about, like if you're doing it yourself and you're looking around yourself, there's sort of a circle around you of you know, an infinite number of directions that you could potentially check. And in abstract spaces, there's no reason to be restricted to small numbers of dimensions like we actually visually engage with. So in an environment like the economy, where there are dozens or hundreds of products that might have interrelations with one of another. Looking at your neighborhood can involve an extremely large number of examinations, and that that's a real cost. The second problem with hill climbing, which probably isn't so much of an issue for economies, is something called local maxima. So I live in a hilly place. If I were to engage in hill climbing, I would wind up at the end of my block, because that's where the highest point in the neighborhood is. But I would not wind up in the highest point in the town that I live in because that's across town, and

23:42 it's across town. There's there's a couple of valleys between me and there, and so hill climbing would never get me to there, And so that becomes a challenge where you've got this maximizing thing, but it comes up against sort of a a little shallow gap, but it can't bridge that gap. And the way generally hill climbing can get past those kinds of gaps is through randomness, which now explains when we're talking about how markets sort of jump and then suddenly jump around that's that's a normal hill climbing behavior of First off, you never want your algorithm to settle down because if it does, you sort of stagnate. And then two, when when you're in an unstable environment, you will suddenly find yourself in a position where you've thought you were heading towards something that you were pretty close to, and then you suddenly discover that just you know a little bit over in that direction, there's a much better thing, and everything starts flooding in that direction instead. So that's that's that's how hill climbing works. It's quite impressive that human beings sort of discovered a hill climbing optimizer eight centuries ago, but in just the last eighty years, with the

25:14 advent of computer science and so on, we've actually learned an enormous amount about optimization algorithms. And what my systems actually doing with integrating multiple speculative points of view is effectively creating what would could be termed a meta algorithm. So people can engage in hill climbing algorithms to figure out where prices are where they're going, but people can also use other more advanced techniques from operations research and their own planning and so on, and what my system will do is effectively aggregate those into a super algorithm which will take weighted values from each of those depending on how valuable they're they're turning out to be. So what you get is sort of a super intelligence that is extracting the most effective approaches from everybody that's engaged in the marketplace. So there's the artificial AI. Is that what I'm hearing? There's an aspect, there's an aspect that AI has come to be a stand in term for one specific optimization algorithm based around neural networks in these

26:47 in these days, But the general term artificial intelligence simply refers to systems capable of sort of intelligent decision making that aren't human brains or some other animal brain. And so marketplaces have been artificial intelligences for centuries before computers were really even the thing, because they do they do extract these multiple points of view from people using the hill climbing algorithm. It's just they're using one specific algorithm, which is which is sort of being overtaken by events and technology, and so if we want them to keep working, we need to update. We need to update that algorithm. So in other words, we have to keep feeding a machine right there, So instead of it's just going to arbitrarily come out with something you have to it only comes out with good quality if it's fed good quality data. Exactly. Yes, uh yeah, the market, the market's not a genie or an oracle. It's not. It's not telling us what to do. It's taking on our our actions and our desires and finding

28:22 the best of those and and presenting them as sort of that what the wisest guidance that is available. Much like government. Uh you know if if if you don't participate, it gets very very bad. That it's there's not an US and to them it's all us and us okay. And with that then said, how long did it take you know what, to work your to develop your system. I would say, I would say, to be completely fair, six months from sort of intuitive idea in order to actually said I'd really solve the problem. I think the key thing was getting the code written and then analyzed. It took me about three months to find a problem solution.

29:26 But writing code, particularly writing the first draft of code for something that you've only got some math equations for, always has some tricks to it. So I'd go with six months, okay, And one other thing in that is how does this benefit the average person? Well, to go back to those numbers, those hundreds of billions of dollars show up in your grocery bill, They show up in when you're buying lumber, they show up in the cost of clothing, they show up at the gas pump, they show up in every part of your life, and they also show up in your business choices. You know, we have this this thought that, like, you know, working for a bank in the city is a good job because there's you know, very high returns and a lot of opportunity, and working on a farm in the country is a bad job because there's very low returns and not a lot of opportunity. So the kinds of things that you can do with your money and the kinds of things that you can do with your life are shaped by these costs, and markets only recently got this expensive. Part

31:00 of the large shift in behavior from uh sort of goods and goods production to services production is that there's been a vast expansion in the amount of money that can be made by by market services and financial services. So by simplifying this, we reach a point where actual stuff is less expensive, can be made with higher quality, and jobs making actual stuff that's less expensive and our higher quality are more available and more remunerative. So the common man, as it were, gets to sort of go to a world where what they're doing is just more useful. Okay, Well that was a great explanation in a wrap up. Also, because the main thing that we want to do here on this program is to educate people at the same time sharing journeys far as how entrepreneurs or individuals overcame those obstacles on their journey far as creating or turning that vision into a reality right there, And I think he did a great job

32:36 far as at summarizing that there, Noah, And for those of you who look at it and say, well, what does all of this number crunching or all this information has to do or how it affects you know just mentioned he just pointed it out that is is your quality of life. It's your bottom line, because what happens to jet out on the farm definitely has effects on you when you're bringing in food to go on the table for your family or even for yourself. Right there, So think about it the next time in what would you like the audience to walk away or leave with? Noah, I think we're at an important point in human history with computers. They give us a lot of capacities which not merely couldn't have been imagined, but couldn't really even have been expected people's people's expectations were in the opposite direction of imagining what was now possible. And so, in addition to my system,

34:12 which I would hope to bring to everyone who hears this, there are opportunities at every level in our society and across our entire society to simplify and increase the intelligence of virtually everything that we do. And look for those opportunities and seek them out, because you know, the world's a competitive place, and if if you aren't finding these things, then someday your lunch will be eaten by the people that do very well. Put right there, and Noah, how can people find out more information regarding your system? So there's a website at chorddisc dot com c O R D I s C. You can also reach out to me directly. Please do Noah peheely at yahoo dot com.

35:22 We'll find me quite readily, or you can find me on LinkedIn. I'm the Noah Heally on LinkedIn. Okay, well again, thank you for sharing valuable information with it's Noah. Thanks for listening to Nightbeat Media's Living the Dream. If you enjoyed this podcast, please live a comment or hit follow and subscribe on our link so you can stay up to date on new episodes until next time. When writing the story of your life, be sure you're holding the pen