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    Forever

    Posted by Grurray on 9th June 2016 (All posts by )

    AYC
     
     
     
    This is a long, old article about the Arab “refugees” in and around Israel (h/t – Architect Guy), but it’s still a useful exposé of the maddening hypocrisy that created and enabled Arab terrorism in Israel.

    What indeed? Arabs gorge on hate, they roll in it, they breathe it. Jews top the hate list, but any foreigners are hateful enough. Arabs also hate each other, separately and, en masse. Their politicians change the direction of their hate as they would change their shirts. Their press is vulgarly base with hate-filled cartoons; their reporting describes whatever hate is now uppermost and convenient. Their radio is a long scream of hate, a call to hate. They teach their children hate in school. They must love the taste of hate; it is their daily bread. And what good has it done them?
     
    THERE is no future in spending UN money to breed hate. There is no future in nagging or bullying Israel to commit suicide by the admission of a fatal locust swarm of enemies. There is no future in Nasser’s solution, the Holy War against Israel; and we had better make this very clear, very quickly.

    A lot has changed since this was written over a half century ago, but sadly much remains the same. The system cemented in place to breed evil that ruthlessly murders innocent people generation after generation is flourishing. The United Nations and its international order are the enemy of Israel and the enemy of Jewish people. The Palestinian is not now a partner for peace and never was.

    Related: The Smoking Gun: Arab Immigration into Palestine, 1922-1931

    Like U.O. Schmelz, Roberto Bachi expressed some reservation about the virtual non-existence of data and discussion concerning migration into and within Palestine. He writes:
     
    Between 1800 and 1914, the Muslim population had a yearly average increase in the order of magnitude of roughly 6-7 per thousand. This can be compared to the very crude estimate of about 4 per thousand for the “less developed countries” of the world (in Asia, Africa, and Latin America) between 1800 and 1910. It is possible that part of the growth of the Muslim population was due to immigration

    Not only is it possible, but it’s likely that much if not most of the population of Arabs that now identifies as Palestinian originated in outlying regions such as Egypt and Syria prior to the 20th century.

    This was confirmed by Mark Twain in his book The Innocents Abroad about his Old World travels in 1867.

    No landscape exists that is more tiresome to the eye than that which bounds the approaches to Jerusalem. Jerusalem is mournful, dreary, and lifeless. Palestine sits in sackloth and ashes Over it broods the spell of a curse that has withered its fields and fettered its energies… Palestine is desolate and unlovely… It is a hopeless, dreary, heartbroken land… [a] desolate country whose soil is rich enough, but is given over wholly to weeds – a silent mournful expanse… A desolation is here that not even imagination can grace with the pomp of life and action… We never saw a human being on the whole route… There was hardly a tree or a shrub anywhere. Even the olive and the cactus, those fast friends of the worthless soil, had almost deserted the country.

    Regardless of where the Arabs say they came from or think they came from or what they think they deserve, Jews have lived in the Land of Israel for over 3000 years. They have a claim to the land that stretches back long before Arabs even existed. The Jews of Israel took a barren and desolate desert and turned it into an oasis in the middle of a region otherwise cursed with war, strife, and misery. Israel thrives now while the Arab world is imploding. Israel lives and always has and always will.

    Posted in Book Notes, Current Events, International Affairs, Israel, Middle East, War and Peace | 27 Comments »

    April Showers

    Posted by Grurray on 29th April 2016 (All posts by )

    Yesterday, the GDP figures were released for the first quarter of the year, and they showed that the economy is flatlining. We grew at only a pitiful 0.5%. Much of it was caused by a huge decline in business investment, which saw the biggest monthly drop since the recession.

    This is mostly blamed on the troubles in the oil and gas industry, but output in other areas of the economy also showed weakness. Factory orders dropped and have remained flat the past several months. Car sales plummeted 2.1% last month, their biggest drop in a year. With gas prices low this is the one thing we should see rising. The car industry stumbling means there may be some other underlying problems.

    The conventional wisdom, on the other hand, views this as just a blip. The winter season in the post-recession era has usually been the weakest time of year only to be followed by a rebound into the rest of the year. The exception was 2012 where the high hopes at the start gave way to the rising probability of an Obama reelection. The economic shock spread during the year, and the traditional holiday hangover came a little early in the wake of the electoral wreckage. This year, with the jobs market expected to stay strong and the Fed signaling it will put the brakes on further interest rate increases, the economy is seen bouncing back as the rough waters give way to the calm port.

    It may very well turn out that way for all I know. My crystal ball has been a little foggy lately, so I wouldn’t venture a guess either way. However, there may be some other causes for concern further down the road. This week the McKinsey Institute just issued a research report on the stock market, ominously titled, Diminishing returns: Why investors may need to lower their expectations. In it they provide a detailed analysis of why the next 30 years will see lower stock market returns than the previous few decades.

    Now admittedly, most analysts’ forecast for the next 30 days can usually be attributed to luck. A forecast for the next 30 years probably isn’t something you want to bet the whole farm on. A small corner of the barn maybe, but I would save the rest of the homestead to see how things actually unfold.

    The report lays out in detail why the oversized returns between 1985 and 2015 were possible, and the reasons they say are because of four factors: low interest rates, low inflation, high productivity from technological advances, and favorable demographics from emerging markets entering the global economy. Nothing controversial there. The first three elements increased profit margins, and the last one provided cash influxes, which kept interest rates low, which in turn increased the others. Virtuous cycle – wash, rinse, repeat. They also include some calculations, but the self-evidence is apparent enough.

    The wrench in the works is going to be the fact that those elements won’t have the effect that they once had. Interest rates are already rock bottom, and in some cases even below that. Squeezing more out of low yields is going to be tougher and tougher. In 1980 inflation was 13% and interest rates were 20%. Now they’re currently at 1.6% and 0.5% respectively. There’s nowhere to go but up. Sideways is always a possibility, but we’re still in the same boat. That won’t drive future growth either like it once did.

    Demographic growth may still hold up. There’s still a whole lot of world out there with the potential to drive a modern global economy. The question is will they be capable of replicating what we saw in the recent past with hundreds of millions of Chinese rising out of the Maoist ashes and into the middle class? Any new emerging markets will have a lot more work to do. The report points out that the countries with the largest economies have seen slowing population growth, and that will continue to decelerate

    In Western Europe, aging is more striking than in the United States. In France, for example, the share of the working-age population is expected to decline from 63 percent to 58 percent over the next 20 years. In Germany, the fertility rate has exceeded replacement rate in only seven of the past 50 years. Employment has already peaked in Germany, and its labor pool could shrink by up to one-third by 2064. Until the 2015 influx of refugees from Syria, Iraq, and elsewhere, the German population was expected to shrink by as much as 0.3 percent per year over the next 20 years.

    Germany has decided to address their demographic collapse by welcoming in an unproductive culture. Either way they haven’t much left to contribute in preventing the forecasted shortfall.

    McKinsey does hold out hope for some technological breakthroughs which could pick up the slack in productivity. Whatever it may be, they say it will need to have a bigger impact than the previous computer and internet revolutions because of the other headwinds. The best scenario would be in some combination with fast growing emerging market or industry. The problem with that happening is now that taxes and regulation are increasing, companies involved in fast growing sectors will tend to want to stay private, so equity returns will be elusive for only a select few.

    Interestingly, one sector highlighted that will benefit from higher interest rates is insurance companies. The era of low to zero interest rates has made it difficult for them to make any money on annuities. Their annuities pay out guaranteed yields to customers, but ZIRP and NIRP keep profits low. Fixed income annuities in which insurers bear most of the risk will benefit from higher yields.

    However, variable annuities where the customers share the risk have more exposure to equities, so they would be vulnerable to the lower growth/lower returns environment. Providers of variable annuities along with other asset managers will need to adjust their investment strategies:

    To confront this, asset managers may have to rethink their investment offerings. One option would be for them to include more alternative assets such as infrastructure and hedge funds in the portfolios they manage. Such alternative assets already account for about 15 percent of assets under management globally today.

    To chase returns, investors will be forced into riskier assets, possibly with dubious intentions, i.e. government boondoggles otherwise known as shovel ready infrastructure projects. We may already be seeing something like this with the imminent government takeover of financial advisors

    The Department of Labor dealt a bit of a surprise blow to fixed indexed annuities in the final iteration of its rule, issued Wednesday, by lumping the annuities into a more complex and costly regulatory regime than they have presently, representing an about-face from the department’s original proposal.

    Just like Obamacare pushes out the small to medium firms that can provide much needed innovation in order to capture the market, the new DOL fiduciary rules will push out small to medium sized advisors to replace them with automated puppets that will be programed to herd investors into investing in government programs.

    There’s a good reason the Obama Administration is currently fighting so hard to keep these rules. It’s a template for taking over other industries. And with that it’s another impediment to productivity growth and innovation which reinforces the grim forecast of diminishing returns by McKinsey.

    Posted in Business, Economics & Finance, Miscellaneous, Politics | 7 Comments »

    When will we win?

    Posted by Grurray on 23rd March 2016 (All posts by )

    From some recent readings on the Vietnam War

    A bitter little story made the rounds during the closing days of the Vietnam war:
     
    When the Nixon Administration took over in 1969 all the data on North Vietnam and on the United States was fed into a Pentagon computer – population, gross national product, manufacturing capability, number of tanks, ships, and aircraft, size of the armed forces, and the like.
     
    The computer was then asked When will we win?
     
    It took only a moment to give the answer: ‘You won in 1964!’

    Posted in Military Affairs, Miscellaneous, Politics, War and Peace | 14 Comments »

    Without Churchill, India’s Famine Would Have Been Worse

    Posted by Grurray on 12th February 2016 (All posts by )

    There’s been quite a bit of clamor going on the past week about Winston Churchill. First Marc Andreessen made a rather poorly received joke about Indian anti-colonialism on Twitter a few days ago. Then, in last night’s Democratic debate, Bernie Sanders referenced Churchill as a foreign leader to be emulated.

    I’m an avid follower of Andreeson. He tossed out a flippant comment, probably without giving it much thought, and inadvertently got caught in the middle of a hornet’s nest. I’m certainly no fan of Bernie Sanders’ socialist proposals, but I do appreciate his point of view. He made a good point about Winston Churchill. It’s something unfortunately not shared by others in his party.

    In response to these two events, the left wing camp has been working overtime to consign the legacy of Churchill to history’s dustbin, and one of their preferred vehicles has been the Bengal famine of 1943. The hipster-Jacobins at Vox.com have written a piece documenting Churchill’s supposed war crimes including his alleged complicity in the famine. They’re all based on rumor, heresay, quotes taken out of context, and statements by political and personal rivals. If you feel like diving into the pseudo-journalistic dumpster you can go search for it, but I’m not going to give it any more attention than it deserves, which is very little.

    What I will provide is the Churchill Centre’s rebuttal.

    When the War Cabinet became fully aware of the extent of the famine, on 24 September 1943, it agreed to send 200,000 tons of grain to India by the end of the year. Far from seeking to starve India, Churchill and his cabinet sought every way to alleviate the suffering without undermining the war effort. The war—not starving Indians or beating them into submission—remained the principal concern.

    The greatest irony of all is that it was Churchill who appointed, in October 1943, the viceroy who would halt the famine in its tracks: General Archibald Wavell immediately commandeered the army to move rice and grain from areas where it was plentiful to where it was not, and begged Churchill to send what help he could. On 14 February 1944 Churchill called an emergency meeting of the War Cabinet to see if a way to send more aid could be found that would not wreck plans for the coming Normandy invasion. “I will certainly help you all I can,” Churchill telegraphed Wavell on the 14th, “but you must not ask the impossible.”

    I would hope that faith and reason would lead us to see through the falsehoods of leftist revisionists. Sadly, most people now are being fed the biases of the “Explainer Journalism” view of the world, so the record needs to be set straight.

    Posted in History, Miscellaneous | 8 Comments »

    Air and Space Reading

    Posted by Grurray on 3rd February 2016 (All posts by )

    Some things I’ve been perusing lately concerning aeronautics and aerospace

    The WW2 flying wing decades ahead of it’s time

    Flying wing designs gained some credence in the 1950s, mostly due to the efforts of Jack Northrop, who had been inspired by seeing some of the Horten’s sports gliders in the 1930s. The captured Ho 229 may also have encouraged him. Northrop’s unsuccessful YB-35 flying wing bomber design of the late 1940s, was hamstrung by massive vibration problems caused by the propeller-driven engines, showing that the Hortens were right to have used jets in the Ho 229. Northrop’s later jet-propelled YB-49 design used jet engines, and while it never went into service, it paved the way for the company’s B-2 Spirit stealth bomber decades later, a design which certainly shares some physical similarities with the Ho 229.

    When U.S. air force discovered the flaw of averages

    Out of 4,063 pilots, not a single airman fit within the average range on all 10 dimensions. One pilot might have a longer-than-average arm length, but a shorter-than-average leg length. Another pilot might have a big chest but small hips. Even more astonishing, Daniels discovered that if you picked out just three of the ten dimensions of size — say, neck circumference, thigh circumference and wrist circumference — less than 3.5 per cent of pilots would be average sized on all three dimensions. Daniels’s findings were clear and incontrovertible. There was no such thing as an average pilot. If you’ve designed a cockpit to fit the average pilot, you’ve actually designed it to fit no one.

    The A-10 lives to fly another day

    It’s a striking about-face from just a couple years ago when they were saying the A-10 was obsolete. Then again, they’ve been saying that for 30 years. The obsolescence of close air support in general has always been just around the corner for the past 70 years. Since now the A-10 won’t be allowed to phase out completely until a CAS replacement is ready, we need to start planning for the Warthog 2.0

    According to Sprey, the A-10 is by far the most survivable aircraft for the low-altitude, low-speed CAS mission. But almost every aspect of the A-10 can be vastly improved using modern materials and construction techniques. However, The key to producing a new warplane quickly, on time and to budget is to use the best existing technology rather than trying to invent entirely new hardware and software.

    The audacious rescue plan that might have saved space shuttle Columbia

    As with every other task involved with the rescue, there was no room for error, and there would be no second chances. Atlantis would be launched with an all-veteran crew, with selection for the mission biased heavily toward astronauts who demonstrated fast adaptation to microgravity (there was no time to be space-sick) and high aptitude at EVA and rendezvous. The report names no names, but it does indicate that an assessment revealed a pool of nine EVA candidates, seven command candidates, and seven pilot candidates available in January 2003 whom NASA felt could have undertaken the mission.

    Which brings us to one of the all time great movies about the space program

    You’re damn right they are! Know what they accomplished living up there in a tin can for five months? Because of men like these, we’ve taken the first step off this little planet. The moon trip was a walk around the block. We’re going to the stars, to other worlds, other civilizations. Men will be killed in this effort just as they’re killed in cars and airplanes……and bars and…

    Posted in Miscellaneous | 20 Comments »

    After the Gold Rush

    Posted by Grurray on 4th January 2016 (All posts by )

    3D printing industry leader 3D Systems announced last week that it plans to stop making consumer 3D printers. They’re going to concentrate on supplying the industrial markets. It’s the culmination of a significant reversal from just a few years ago when the media hype was fueling a bubble among these additive manufacturing makers like 3D Systems and Stratasys. The trend now is moving away from supplying the much publicized hobbyists and enthusiasts and towards the more reliable demand of professional customers

    The company has indicated that the discontinued product line will account for < 2% of revenue, roughly $13M in sales, which is much less that the ~$45M in “Consumer” sales we had projected in our model. The primary difference is likely to be materials (which the company has indicated will still be supported), desktop printers, scanners and Gentle Giant studios.

    The revenue numbers are a big disappointment because the printers were supposed to follow the time tested and much beloved razor blade model with most of the sales coming from resin filament. The markup on the filament in most cases is a holy grail level 1000% – 2000%. The fact that 3D systems, the pioneer of additive manufacturing, couldn’t make this work is bad news for the industry as a whole.

    Stratasys, the other big competitor in the sector, isn’t doing much better. Last year after acquiring Makerbot, perhaps the current top brand in consumer 3D printers, they let go about 1/3 of the workforce (just after making the founders wealthy, of course). Now after seven years and several different updates and revisions, they’re still trying to make a product that works. The class action wolves are now circling, so it may be only a matter of time for their consumer business also.

    Meanwhile, dead tree printing stalwarts such as HP and Toshiba are poised to enter the 3D fray, but they will be making industrial 3D printers. The plan is to leverage their already considerable strengths in sales and distribution to medium and small businesses. Mostly they’re drawing on their experience in the consumer sector where they long ago learned that consumer hardware is a commodity business with little prospects for the big growth expected of startups.

    One business model for 3D printing that seems to be working isn’t selling the devices but making and selling the final product. Such is the case with Proto Labs.

    Proto Labs, on the other hand, enjoys far less competition because the manufacturing services industry is highly fragmented and often slow to turn around orders. This dynamic has allowed Proto Labs to establish itself as lowest cost and fastest provider that can take a product developer through the entire design and manufacturing process — from conceptual model or prototype using 3D printing, to a mid-volume manufacturing run exceeding 10,000 units using injection molding — all in a matter of weeks.

    Years ago, I used to do a lot of business with their rapid prototyping division, Fineline, before they bought them out. They were a nice little group of industry experts in the Research Triangle, and it was always super easy and inexpensive to get anything made and in your hands within a few days. There’s a wide moat, as they say, with this business because of capital requirements and technical skills, so I’m sure acquiring Fineline was a great value. This is a good example of the discipline of Proto Labs, unlike 3D Systems which gorged on any over-hyped acquisition it could find until it suffered its current debilitating indigestion.

    Another business model that seems to be flourishing along with supplying industrial customers is metal 3D printing. In fact, despite today’s overall market drop, 3D Systems stock was up double digits on an announcement it would aggressively pursue this market. Aside from appealing to deep pocketed industrial customers, metal printing may have certain other advantages over plastic which could win it over in the consumer market.

    Metal printing may have the fabled killer app that every innovation must possess to be successful and that has heretofore been so elusive for current 3D printers. Unfortunately, that killer app is firearms, and they are now fighting for their lives. 3D printed guns may save the desktop 3D printer, but first their advocates must save themselves against a State Department ban claiming the guns violate export controls on weapons.

    This case is an exceptionally complicated one that hinges on several legal rulings that honestly I don’t see being resolved until it is kicked up to the Supreme Court. Namely, are digital files considered free speech or are they considered objects, and are 3D printable guns covered under the Second Amendment? Several court cases have been working their way through the courts asking similar questions for different reasons, but as of yet there has been no precedent set–though on the other side of the world New South Wales, Australia has been working to ban 3D printable gun files.

    While everyone is waiting to hear how Obama plans to slap more regulations on gun sales, the additive manufacturing industry is waiting for the Supreme Court to finally potentially unleash their long awaited and much hyped consumer devices. So stay tuned. Defense Distributed is being represented by Josh Blackman, who as far as I can tell is one of the best experts out there on constitutional law. If he can get the case before SCOTUS he’s got a good chance in my estimation to win it, and with that salvage the consumer 3D printing business.

    Posted in Business, Tech | 13 Comments »

    The Islamic State of Saddam’s Iraq

    Posted by Grurray on 23rd December 2015 (All posts by )

    ISIS/Daesh wasn’t created by the American invasion. It’s the logical aftermath and post regnum of Saddam’s Salafized regime

    Alongside the Faith Campaign, Mr. Hussein’s regime constructed a system of cross-border smuggling networks designed to evade the sanctions. This funded a system of patronage, much of it distributed through mosques, that maintained a series of militias directly loyal to the ruler, like the Fedayeen Saddam and the Sunni tribes, as a hedge against any repeat of the 1991 Shiite revolt. These networks, which are deeply entrenched in the local populations, especially the tribes of western Iraq, are now run by the Islamic State, adding to the difficulty of uprooting the “caliphate.”

    This also throws cold water on the belief that Christians were better off under Saddam. It’s true that they were marginally better off with secular Baathists in power than radical Islamists, but that was no longer the case after the Gulf War. In fact, the trouble started even before that with the tyrannical Arabization campaigns that tried to erase the Kurds from history. They also victimized all non-Arabs, including Christians. The biggest problems for Iraqi Christians after 2003 were largely the result of many trying to reclaim lost property, possessions, and dominion. The lack of legal authority and rule of law meant inflamed tensions and retaliations that culminated in the total ethnic cleansing of the past few years, but the roots of the brutality reach farther back.

    The refusal of the Obama Administration to recognize or even acknowledge the plight of Christians in Syria and Iraq is now worsening the already grim situation. It’s obvious now that the official American policy is continuation of the Arabization of the region.

    Posted in Christianity, Iraq, Islam, Middle East, War and Peace | 27 Comments »

    October at the Wall

    Posted by Grurray on 17th October 2015 (All posts by )

    All over the city people are coming out of their houses. This is the nature of Thomson’s homer. It makes people want to be in the streets, joined with others, telling others what has happened, those few who haven’t heard — comparing faces and states of mind.
     
    And Russ has a hot mike in front of him and has to find someone to take it and talk so he can get down to the field and find a way to pass intact through all that mangle.
     
    Russ thinks this is another kind of history. He thinks they will carry something out of here that joins them all in a rare way, that binds them to a memory with protective power. People are climbing lampposts on Amsterdam Avenue, tooting car horns in Little Italy. Isn’t it possible that this midcentury moment enters the skin more lastingly than the vast shaping strategies of eminent leaders, generals steely in their sunglasses — the mapped visions that pierce our dreams? Russ wants to believe a thing like this keeps us safe in some undetermined way. This is the thing that will pulse in his brain come old age and double vision and dizzy spells — the surge sensation, the leap of people already standing, that bolt of noise and joy when the ball went in. This is the people’s history and it has flesh and breath that quicken to the force of this old safe game of ours. And fans at the Polo Grounds today will be able to tell their grandchildren — they’ll be gassy old men leaning into the next century and trying to convince anyone willing to listen, pressing in with medicine breath, that they were here when it happened.
     
    “Pafko at the Wall” by Don DeLillo

    Organized sports have a hold on us unlike other cultural institutions. With precise rules, boundaries, and metrics, these various games of skillful competition provide dependable amusements and diversions. Just as sure as the seasons change, baseball starts up in the spring and football in the autumn. We can’t be certain what our schools will be teaching our children from year to year or which government agency will stomp on our individual rights next, but we do know that three strikes will always result in an out and ten yards a first down.

    Aside from satisfying leisurely pursuits and expectations, there are also other things sports provide. For the athlete, when skills, training, discipline, and focus all come together and reach a certain threshold, the state of optimal experience is said to occur. The best example I always think of for this is Michael Jordan in his prime playing the game on some seemingly subconscious level. At his peak Jordan could be counted on to perform “in the zone” to carry the whole team, often all the way to championships. He hit several game winning shots with the most notable being his last game with the Bulls to win the title in 1998.

    The baseball equivalent of this particular rare quality of being able to elevate your team to victory at the crucial decisive moment is the clutch hitter. Except the statisticians would tell us that they can’t find any statistical significance between performance in the “clutch” and at other times. They say consistency in the regular season simply carries over to important times in games which brings the associative positive expectancy.

    Of course, fans watching and players participating would find the significance of it was not any statistical frequency or probability but that the big play occurred at the appropriate moment. Rising to the occasion when the occasion presents the ultimate trial and pressure. Seizing the day when all involved are maximally invested in the outcome, whether it be facilitating or preventing it. In the context of the aforementioned flow experience, there’s a paradox of simultaneously living in the moment by being mentally outside the moment in order to dominate the moment.

    It’s impossible to quantify situations like that, and that’s why we see them as transcending numbers or rules or frames of reference. All the participants – players, fans, officials – are witnessing something outside normative behaviors. It’s a transcendence of outward conventional description but still operating in immanent territory that’s opaque and obscured to the rules-givers, stat compilers, and deciders,

    Where I’m going with all this is that if you’ve been following baseball lately then you’ve probably noticed that the Chicago Cubs have entered the playoffs. They aren’t just playing in the postseason, but they are looking pretty good, maybe even good enough to go all the way. Now to some this may seem like we’re really tempting fate even talking about it here because the Cubs haven’t won the World Series in over a century. I’m not going to mention it specifically because I think it’s too silly, but if you even have just a casual awareness of the Cubs history then you know why many believe the Cubs can’t win.

    Again the statisticians would just tell us about numbers or probabilities or splits, but the rest of us who’ve been following the team through thick and thin for our entire lives know that there’s just a bit more that goes into either winning or, far too often in the Cubs history, losing.

    For one thing, the matchups in the playoffs really are significant this time. If you remember when Michael Jordan and the Chicago Bulls went on their historic string of championships in the ’90s, they first had to overcome and surpass a bitter rival, the Detroit Pistons. The Pistons had won two years in a row, roughing the Bulls up in the process. When the Bulls finally beat them to advance into the finals, it felt like an immense hurdle was overcome on the path to a championship.

    The Cubs have seemed to be on a similar track so far in the playoffs. They just faced and defeated their historic rival, the St. Louis Cardinals in the division playoffs. Their rivalry is another example of transcending the evident situation or matchup. The Cardinals have hall of fame players and managers come and go but still always seem to finish in first place. Last season, the New York Times mapped out fan boundaries for all the major league teams. The boundary between the Cubs and the Cardinals also closely follows the voting pattern for the 1860 presidential election between Lincoln and Douglas. There’s an ancient demarcation between these two teams, and for the Cubs to beat them now feels like we just overcame a big obstacle, perhaps on the level of the Bulls and the Pistons. Perhaps it was an even bigger test.

    This next series is now for the National League Championship, and it’s against the New York Mets. Many long time fans of the game may recall that the Mets were an unlikely Cinderella story in 1969 when they went on a historic run to win the World Series. They’ve since been dubbed the “Amazins” or the “Miracle” Mets or other such obnoxious monikers. Unfortunately, in Chicago that season is known for the opposite because the Cubs were the team that they overtook late in the season to win the Pennant.

    The Cubs team of the late ’60s may be the most beloved of any, mostly because of its connections with baby boomer fans coming of age but also because of its many terrific players, notably the great Ernie Banks who just passed away this summer. Despite being loaded with talent, the team never made the playoffs, and their collapse in 1969 has always been the nexus of the fans’ bittersweet love for the team.

    I’m sure the current team doesn’t care about it or shouldn’t care about it, but for many fans this next test is a chance to finally come to terms with their complicated fandom for the Chicago Cubs.

    We don’t even want to think about what might come after that. The Cubs have a great team this year performing at its peak just at the right time. Matchups and stats and metrics confirm it, but to get over the ultimate hurdle will require intangible and unquantifiable efforts. And in turn, this “old safe game” of ours that we’ve been playing and watching for so long that it’s become a part of us will give back unsaid reward and maybe a little redemption for those efforts.

    Posted in Miscellaneous | 15 Comments »

    Sic Transit Gloria China

    Posted by Grurray on 8th July 2015 (All posts by )

  • Shoeshine boy trading club, China chapter

  • There’s an old Wall Street legend about Joseph Kennedy, bootlegger and head of America’s original soap opera political family. At the height of the stock market mania in the ’20s, he received a stock tip from a shoeshine boy. It goes something like this:

    But the boy was not of the timid kind. “Oh yeah,” he yelled back at Kennedy, “well, I got a tip for you too: buy Hindenburg!” Intrigued, Kennedy turned around and walked back. “What did you say?” – “Buy Hindenburg, they are a fine company,” said the boy. “How do you know that?” –- “A guy before you said he was gonna buy a bunch of their stocks, that’s how.” – “I see,” said Kennedy. “That’s a fine tip. I suppose, I was a little harsh on you earlier,” he said, pulling off a glove and reaching in his side pocket for some change. “Here, you’ve earned it.”
     
    Little did the boy know that Kennedy, a cunning investor, thought to himself: “You know it’s time to sell when shoeshine boys give you stock tips. This bull market is over.”

    This is supposedly how Joe avoided the financial ruin of the crash. He was probably too busy stockpiling whiskey to really care very much, but it does make for a good story.

    We’re reminded of this old saw today with some distant rumblings in the markets. Last week I was wondering what might cause our stock market to break out of its summer doldrums. Over the past few days we may have gotten the answer. While everyone was looking at the Greek crisis, China’s stock market has been crashing.

    The Shanghai Composite Index more than doubled in the last year up until a few weeks ago. All that time it was rising, economic reports indicated the Chinese economy was slowing. Since the peak in mid June, it has dropped over 30%. Last night it was down another 6%, and it would have been more if not for the Chinese government halting trading in most of the stocks. Bloomberg is reporting that Chinese regulators have banned major shareholders, corporate executives and directors from selling stakes in listed companies for six months.

    Investors with stakes exceeding 5 percent must maintain their positions, the China Securities Regulatory Commission said in a statement. The rule is intended to guard capital-market stability amid an “unreasonable plunge” in share prices, the CSRC said.

    This rule sounds like it’s meant to ban bigwigs and fatcats from bailing out on the economy. However, like Kennedy in the ’20s, all the big money already exited and left regular citizens holding the bag. The Chinese always had a high rate of savings, but recently they have been putting more of it into their stock market using margin to to double down on already precarious positions.

    Chinese brokers have extended 2.1 trillion yuan ($339 billion) of margin finance to investors, double the amount at the start of the year. But this often-cited figure is only part of the mountain of debt taken out to finance share purchases. Another 1.7 trillion yuan may have flowed into stock market investment from wealth management products, online lending sites and other sources, according to a Bloomberg survey of analysts.

    This was a good old fashioned bubble, and now it looks like it’s bursting. This will have repercussions all over the world. As of this morning, US stock markets are down over 1%. With the reliance of our industrial and financial industries on the hyper-interconnected global markets, this one probably won’t go down quietly.

    Posted in China, Economics & Finance, Markets and Trading | 21 Comments »

    Midsummer Reflections on the Stock Market

    Posted by Grurray on 2nd July 2015 (All posts by )

    As we’re all getting ready for the Independence Day weekend, it’s a good time to pause and reflect on how the first half of the year has been going. Many developments have arrived and passed in the news which have caused various actions and reactions. One day it seems nagging, complex issues are about to be resolved just when other more vexing problems take their place. The only constant, as the cliché goes, is the constant of change.

    That is except in the stock market. It’s less than 1% above where it opened the year and has been moving basically sideways in that time. From speculation about the Fed raising rates to languidly growing economy to Greek debt dramas, the market seems to be carelessly bobbing along, flotsam-like, awaiting some direction.

    Asking, ‘how did we get here’, is easy. When you shoot for mediocrity as a country and society, sometimes that’s what you get (or worse). Now might be a good time to ask, where do we go from here?

    Today’s jobs report doesn’t give us much of a clue. The unemployment rate has dropped to 5.3%, close to a level which in the past used to be described as full employment. On the other hand, labor force participation is the lowest it’s been since the 1970s, a time before women were fully entering the workforce and life expectancy for men was below 70 years of age.

    Those that dropped out of the labor force aren’t counted in the unemployment rate, and they aren’t eligible for unemployment benefits. However, they haven’t just disappeared off the face of the earth. Many have passed from a temporary welfare program to the more permanent one of social security disability. Well, more permanent until the program runs out of funds as soon as next year.

    But that’s old news. The complacent collective market sees what it wants to see and has chosen to see the government’s version of economic reality.

    We can look at ways of fundamentally gauging the valuation of the stock market such as price to earnings ratio or the so-called Warren Buffet Indicator of total market cap to GDP ratio. I like to look at the Q ratio which is a simple comparison of the total price of the stock market to the replacement costs of all companies listed. This is the favored metric of billionaire black swan investor Mark Spitznagel, who by the way wrote a most excellent book, The Dao of Capital, about Boydian investment strategies.

  • Q ratio – Pricey but is it dicey?

  • By this measure, the market looks to be at a pricey level compared to other points in time. 1907, 1929, 1937, and 1968 were all years when the stock market peaked and saw a significant decline. The problem is it’s also at the same level as 1997, which had a small pause before marking the half way point in a multi-year rally. We generally have seen regression to the mean in the past, but that doesn’t necessarily suggest it has to ever happen again. We could be waiting a long time for a sanity check to take hold, especially if the definition of sanity has changed.

    A shorter term answer possibly comes from the world’s best econometrics blog Political Calculations. They believe, convincingly in my opinion, that expectations for future dividends drive stock prices in the near future, absent any surprising shocks to upset the apple cart. Those of us who used to watch Larry Kudlow on CNBC (since his show was cancelled there hasn’t been any reason to watch that silly network anymore) remember he used to say ‘earnings are the mother’s milk of stocks’. Well if that’s true than dividends are your father’s pemmican.

    What they do is take values of dividend futures traded on the Chicago Board Options Exchange and apply a multiple (and some other math) to convert them to expected stock prices. Their calculations show a possible slide in prices for the next few weeks to few months. It has worked reasonably well in the past with a few caveats.

    There are different instruments traded for different times in the future. Prices can and do take leaps from one trajectory to the other. It usually happens when someone from the FED talks about raising rates, and then the financial press speculates what specific month or quarter it can happen. In this way, stock prices behave similar to quantum particles bouncing from one energy level to another. It’s not a good way to pin down exactly where stocks are going but just gives a range.

    The other caveat is this measurement only works when the market is in a state of relative order, and not buoyed or rattled by some overly cheery or dreary news. While at a smaller level the market seems to obey quantum mechanics, at the macro level it acts like a natural system, following mathematical probabilities such as those observed in predators hunting or even groups of people foraging. The market moves from more easily observable and predictable periods until the forageables (earnings and dividends) run out, in which case it moves into chaos and unpredictability until new expectations are established.

    What will trigger rapid moves in either direction and out of the current financial horse latitudes is anybody’s guess. There’s a big vote in Greece this weekend, but how many times has that situation reached a cliffhanger? Perhaps too many to matter anymore. As unsatisfactory as it sounds, what usually occurs is something we weren’t expecting, not an event that seems to replay itself over and over again. The best we can really predict is that we won’t be drifting forever, and the time will come when the stock market will move far away from this level. The key is to stay ready for it when it finally does.

    [Jonathan adds: If the right side of the included graphic is hidden on your screen — the date scale should go to 2020 — try right-clicking on the graphic and opening it in a new tab.]

    Posted in Economics & Finance, Markets and Trading | 13 Comments »

    The very heart and soul of conservatism

    Posted by Grurray on 16th March 2015 (All posts by )

    There was a brief discussion in the previous post about Reagan and his true ideological credentials. This topic seems to come up from time to time. Whether it’s deficits, immigration, tax policy, etc., it’s become somewhat of a revisionist pastime to go through the historical records with a fine tooth comb and compare them side-by-side to our zoological political classifications, performing a tidy checklist one-by-one.

    Now, blessed with this luxury of spurious hindsight, a lot of people have come to the conclusion that Reagan was not a conservative. He was apparently some sort of mutant. He was possibly really a Democrat that created a pretend, Hollywood version of Conservatism. Perhaps he was really just a war-monger, and what’s conservative about that?

    Fortunately, we don’t have to speculate and debate the motives of the man like he was some sort of long lost, half-mythical figure. Others thought of this already when he was still around and did the legwork for us. In this 1975 Reason magazine interview, Ronald Reagan lays it all on the table about what he really thinks about conservatism, libertarianism, and the role of government in our lives.

    This interview was from a time when Conservatism was enduring a low water mark. It was shortly after Watergate and during the discouraging Ford presidency. One of the few bright spots was Reagan and his exhortation for “raising a banner of no pale pastels, but bold colors which make it unmistakably clear where we stand on all of the issues troubling the people”.

    In the Reason interview he states unequivocally right off the bat that

    If you analyze it I believe the very heart and soul of conservatism is libertarianism.

    He then goes on to say

    Well, the first and most important thing is that government exists to protect us from each other. Government exists, of course, for the defense of the nation, and for the defense of the rights of the individual.

    Government exists and has too, but the best government is the one that is kept to a minimum. His thoughts on the central libertarian concerns about coercion are important on this matter

    REASON: Of course, if you’re talking about starting from scratch–the shipwrecked people on the island– you’re really talking about a voluntary approach, aren’t you–as against taxation?
     
     
    REAGAN: Well, we’re inclined to think that our government here is a voluntary approach and that we’ve set up a government to perform certain things, such as the national protection, etc.
     
     
    REASON: Aren’t we deluding ourselves to talk in terms of consent, though? When we talk about taxation, aren’t we really dealing with force and coercion and nothing less than that?
     
     
    REAGAN: Well, government’s only weapons are force and coercion and that’s why we shouldn’t let it get out of hand. And that’s what the founding fathers had in mind with the Constitution, that you don’t let it get out of hand.
     
    But you say voluntary on the island. Let’s take a single thing. Let’s say that there was some force on the island, whether it’s hostiles or whether it was an animal, that represented a threat and required round the-clock guard duty for the safety of the community. Now I’m sure it would be voluntary but you get together and you say look, we’re all going to have to take turns guarding. Now what do you think would happen in that community if some individual said “Not me; I won’t stand guard.” Well, I think the community would expel him and say “Well, we’re not going to guard you.” So voluntarism does get into a kind of force and coercion where there is a legitimate need for it.

    It’s clear from this article, that Reagan is stating that he is really a proponent of what we call now Minarchism.

    More specifically Reagan was a Right-Minarchist

    R-M reject the non-aggression principle with respect to national defense. They do so not because they favor aggression but because the principle, in its standard interpretation, is a non-action principle. It would not allow a preemptive attack on an antagonistic state that is armed, capable of striking us at any time, and known to be contemplating a strike. R-M, in other words, tend toward hawkishness when it comes to national defense.

    Many of the card-carrying Anarcho-Libertarians have declared that, after Ferguson, Minarchism is dead because the Night Watchmen have grown into fleecers, swindlers, and oppressors. However, they’re misguided. What’s really happening there is not Minarchism but Statism.

    Statism lives not in a big tent but in a colossal coliseum. It comprises a broad set of attitudes about government’s role, propounded by “types” ranging from redneck yahoos to campus radicals, each type proclaiming itself benign (for some, if not for others). But each type would — in thought and word, if not deed — set loose the dogs of the state upon its political opponents and the vast, hapless majority.

    Minarchists advocate that

    the ideal government is restricted to the protection of negative rights. Such rights, as opposed to positive rights, do not involve claims against others; instead, they involve the right to be left alone by others. Negative rights include the right to conduct one’s affairs without being killed, maimed, or forced or tricked into doing something against one’s will; the right to own property, as against the right of others to abscond with property or claim it as their own; the right to work for a wage and not as a slave to an “owner” who claims the product of one’s labor; and the right to move and transact business freely within government’s sphere of sovereignty (which can include overseas movements and transactions, given a government strong enough to protect them).

    The right to be left alone includes being left alone from a morally bankrupt fine levying system unfairly absconding money and hard earned possessions.

    We see the basis of Minarchism comes from the person Reagan called “the prophet of American conservatism,” Russell Kirk. There’s no single Conservative Manifesto or one conservative ideal, so Kirk set out to list six basic assumptions that generally reflect the values of Conservatives

    “Belief that a divine intent rules society as well as conscience, forging an eternal chain of right and duty which links great and obscure, living and dead. Political problems, at bottom, are religious and moral problems.
     
    “Affection for the proliferating variety and mystery of traditional life, as distinguished from the narrowing uniformity and equalitarianism and utilitarian aims of most radical systems.
     
    “Conviction that the only true equality is moral equality, that all attempts to extend equality to economics and politics, if enforced by positive legislation, lead to despair, and that civilized society requires order and classes.
     
    “Persuasion that property and freedom are inseparably connected, and that economic leveling is not economic progress.
     
    “Faith in what conservatives call ‘prescription’—the accumulation of ‘traditions and sound prejudice,’ i.e., common sense.
     
    “Recognition that change and reform are not the same things, and that ‘innovation is a devouring conflagration more often than it is a torch of progress.’”

    These canons are balancing and reconciling innovation with prudent permanence. We defer to these traditional values and methods that are the elemental building blocks of common sense because, in the swirling convolutions of our complex system, these customs have passed the test of time.

    Surviving the proving grounds of generations takes precedence over the latest lobbyist driven state mandates. The same can probably be said for much of the layers and encumbrances of modern society piled on for many reasons long since forgotten or obsolete. This is why the minimum state is the best option, but only with its guard still up.

    This is the real emphasis of Traditional Conservatives and their modern scions Minarchists. Reagan possessed this balance and used it to skillfully helm the ship of state through the rough seas of the 20th century.

    This is why Ronald Reagan was a Conservative, and his legacy is Minarchism.

    Posted in Book Notes, Civil Society, Conservatism, Libertarianism, Political Philosophy, Society | 5 Comments »

    In the Future We Will All be Slaveowners

    Posted by Grurray on 9th March 2015 (All posts by )

    Image8
    Or so they thought in 1957 in this Mechanix Illustrated exposé.

    The description of the robot valet and cook makes it seem like dependence would make us more of a slave to the technology then the other way around, but the robot cars and drones are closer to the mark. I can’t imagine anyone waving amicably at today’s red light cameras, although many drivers would probably welcome the hail of bullets fired in their direction.

    The robot reporters prediction was about 50 years too soon, but we’re now starting to see them for statistics heavy topics like fantasy sports.

    The most amusing part is about GE’s role in the upcoming cyber serfdom.

    Most remarkable is General Electric‘s new Yes-Man, a master-slave manipulator of incredible dexterity. Any movement the human master makes with his hand, even lifting a finger, is faithfully duplicated by the powerful slave machine. In a fantastic demonstration, Yes-Man fixed a girl model’s hair-do and applied cosmetics, all with the gentle touch of a woman’s hand.

    Of course, it took awhile, but we know now that the GE Yes-Men did in fact come into existence and took over the entire company. For the past decade they apparently had the same short term forecasting skills as Mechanix Illustrated.

    According to the article, this was all just a walk in the park for cybernetics pioneer Dr. Norbert Wiener who envisioned the Age of Robots unfolding before us. Well, he didn’t exactly deliver the Jetsons, but Wiener did leave us with some insights to give us some pause in our pursuit of a future with digital autonomy.

    Finally the machines will do what we ask them to do and not what we ought to ask them to do. In the discussion of the relation between man and powerful agencies controlled by man, the gnomic wisdom of the folk tales has a value far beyond the books of our sociologists.

    In short, it is only a humanity which is capable of awe, which will also be capable of controlling the new potentials which we are opening for ourselves. We can be humble and live a good life with the aid of the machines, or we can be arrogant and die.

    Posted in Predictions, Tech | 7 Comments »

    Crude Unglued

    Posted by Grurray on 18th December 2014 (All posts by )

    The big news in the financial world for the past few months has been the dramatic drop in oil prices. Since June oil has lost nearly 50% of its value and is now at a price not seen in over five years during the depths of the recession. Although the signs have been around for a while, the sudden and protracted decline has taken everyone by surprise. We’re now seeing all sorts of explanations, justifications, and ruminations about what it all means.

    Aside from homeowners in the Northeast who heat their homes with heating oil, the big impact on most of us is the lower gas prices to fill up our cars. If you’re like me, unless there is some big news about it, we really don’t notice fluctuations at the gas pump. However, when prices drop this much, it’s hard not to notice something is up. And in this case, that something is we have more money left over when we pull out. For most of us it’s certainly a good time of the year to have that kind of pleasant surprise.

    A lot of people, unfortunately, don’t see it that way. Some of them think that lower prices aren’t such a good thing. I guess some people can’t get into the holiday spirit.

    The esteemed liquidity expert and chronicler of the debt crisis John Mauldin has just dispatched a report on the oil price’s effects on overall growth. There’s a lot of information here, muddied somewhat by the gratuitous inclusion of the tinfoil hat brigade at Zero Hedge, who’ve never met an economic event they didn’t think was going to cause the collapse of Western Civilization. Here’s the important takeaway:

    Employment associated with energy production is going to fall over the course of next year. It’s not all bad news, though. Employment that benefits from lower energy prices is likely to remain stable or even rise. Think chemical companies that use natural gas as an input as an example.
    I am, however, at a loss to think of what could replace the jobs and GDP growth that the energy complex has recently created. Certainly, reduced production is going to impact capital expenditures. This all leads one to begin thinking about a much softer economy in the US in 2015.

    Thankfully, Mr. Mauldin dismissed the more ridiculous assertions going around that the drop in oil is a replay of the subprime credit crisis, but that does still leave us with a picture of the energy industry facing serious problems. The emergence of fracking has been an absolute boon for those communities sitting on shale oil and gas fields. One would expect their fortunes to be reversed when the price of oil drops.

    One immediate area that is starting to see some signs of life since oil dropped is employment of young workers. Now, kids in retail and entry level jobs may not restore confidence in those who see collapse of mighty industries around the bend. On the other hand, all the consternation lately about the rise of the machines, technological unemployment, and the lack of relevant job skills has a lot to do with companies unwilling or unable to invest in training unskilled and entry level workers because it’s simply not affordable. Kids getting jobs again is definitely a step in the right direction to correcting the mismatch. Except in overly regulated states, that is.

    Unlike every other state in the United States, California increased its minimum wage on 1 July 2014, just as the employment situation was about to improve across the entire country thanks to falling oil and fuel prices. No other state has likewise implemented an increase in their minimum wages during this period.
    By arbitrarily increasing their minimum wage from $8.00 to $9.00 per hour in July 2014, California’s politicians effectively jerked away the prospect of finding employment from its job-seeking teen population at a time when it would have its best chance at doing so in years, while also damaging their prospects for increased future earnings. All by making it too costly for the state’s employers to employ them profitably.

    Which tells us the real danger to growth isn’t the natural movements of markets but the unnatural manipulation from government.

    As for where the rest of the growth is going to come from to offset the decline in energy sectors, if the oil industry existed in a vacuum then there would be something to worry about. However, the fact is they sell to other industries and to consumers who will have more money to spend. Period. It’s not just petrochemical industries either. Car companies and heavy equipment industries and airlines and shipping companies and on and on and on.
    Why some people choose to ignore these benefits and obvious upside is somewhat baffling. Luckily I’m here to let them know: absent some other unforeseen shock, lower prices will definitely and absolutely create more jobs then it will destroy. End of story.

    But what about the energy industry? Surly lower prices will bankrupt it, end the American energy renaissance, and enslave us all to Arab Petro-Sheiks forever, right? It turns out that immense capital intensive projects like oil drilling take a long time and aren’t as responsive to price fluctuations. North American production is still expected to grow in 2015, mostly because there’s no alternative. The easy oil coming from Saudi Arabia that everyone believed was close to or at the peak is still probably running out. Sticking a straw into the ground and slurping up oil was great while it lasted, but it really is increasingly a thing of the past. That’s not a bad thing as new technologies naturally spring up to replace it and introduce innovations that bring the price down where it probably should be in the first place.

    Likewise, high prices encourage the discovery of new technologies that allow explorers to find and recover previously untapped reserves of oil. And high oil prices encourage the development of alternative sources of renewable energy, allowing us to shift away from the use of hydrocarbons altogether. In the graph, we can clearly see how these incentive effects worked to bring oil prices back down in the 1800s and the 1980s. Most likely, these same incentive effects will work to push oil prices lower in the years ahead.

    For years there was manipulation and a geopolitical premium on the price of oil. Now prices are dropping because the market is actually working correctly again. Let’s welcome it and allow it to continue.

    Posted in Uncategorized | 13 Comments »

    Narratives, Scenarios, and Strategies

    Posted by Grurray on 22nd November 2014 (All posts by )

    “Essentially, all models are wrong, but some are useful”

    -George E.P. Box

    Models, predictions, and forecasts are always wrong, or, more accurately, they’re never completely right. That’s obvious since the map can never truly be the territory. Some are better than others, but no matter how hard we try and how much information that we gather, we’ll never construct a representation of reality better than the real thing. That being the case, forecasts therefore reveal more about ourselves and our present state of mind than anything about the future.

    The Research Feature in the fall issue of the MIT Sloan Management Review, “Beyond Forecasting: Creating New Strategic Narratives” (link here – requires a one time registration – or purchase Kindle article here for a few dollars), concerns a certain type of forecasting called scenario planning. The authors studied a tech company that was being hit hard during the 2001 economic crash and needed to find new strategies to navigate the rough seas ahead.

    Their research revealed that

    “future projections are intimately tied to interpretations of the past and the present. Strategy making amid volatility thus involves constructing and reconstructing strategic narratives that reimagine the past and present in ways that allow the organization to explore multiple possible futures.”

    These explorations of possible futures, more commonly referred to as scenarios, are stories intended to describe possible futures, identify some significant events, main actors, and motivations, and convey how the world functions.

    The authors note that constructing forecasts based on these methods usually doesn’t work very well because the future is uncertain and often unfolds in a way that is very different from current trajectories. The current paths are comfortable and familiar, so they are difficult to deviate from. Constructing scenarios of the future actually first requires constructing paths that connect the past, present, and future. The narratives are those paths.

    ”In comparing strategy projects within CommCorp, we found that the more work managers do to create novel strategic narratives, the more likely they are to explore alternatives that break with the status quo. In other words, to get to an alternative future, you have to create a story about the past that connects to it.”

    Predicting, prognosticating, and prophesying have been around since time immemorial. The modern version of strategic scenario planning can be attributed to Herman Kahn at the Hudson Institute and his “thinking the unthinkable” about nuclear war by taking into account non-linear, disruptive changes that lead to an uncertain future. The first to bring scenarios into the business world was the pioneering strategy guru Pierre Wack at Shell Oil who coined the term. Wack was a colorful and imaginative individual who took Kahn’s insights and repurposed them to affect the quality of judgment rather than quality of predictions.

    Among the many books, case studies, and articles on the Shell planning department, I just completed The Essence of Scenarios: Learning from the Shell Experience, a history of the scenario group culled from interviews of former members. Pierre Wack helped found it and headed it throughout the 1970s. The book concerns the entire history from then until the present, but it devotes a large part to Wack’s work and legacy.

    In contrast to Kahn’s theories, Wack was less concerned about decoding uncertainty or getting predictions right and more concerned with making future uncertainty more relevant to the present situation.

    “Wack was interested in scenarios as a way to ‘see’ the present situation more clearly, rather than as a basis for knowing about the future. The value of the scenarios is not in better forecasting what ‘the’ future will be, but in encouraging already smart people to learn by ‘seeing’ the present situation afresh, from the perspective offered by plausible, alternative futures , in a process that Wack termed ‘disciplined imagination’.”

    With an emphasis on present adaptation instead of future clarity, their first attempts happened to be nicely prescient. Their November 1971 scenarios covering “Producer Government Take/World Economic Development” and their January 1973 scenarios for “Impending Energy Scarcity” presented different tracks for oil prices including: a low slow growth scenario based on the continuation of past agreements with producer countries, a track that the corporate leadership expected; and a high price growth scenario which factored into concerns that producer countries were reaching limits to how much more capital inflows they could absorb.

    These scenarios involved explorations for prices through the late ’70s into the early ’80s. It’s important to keep in mind that, in keeping with the notion that they weren’t meant to be exact predictions, the high price track scenario still ended up being off by a factor of 20 as oil embargoes and inflation pushed prices higher than anyone could have imagined. Despite the fuzziness of the numbers, however, presenting a possible future far off from what was expected shifted thinking outside the company’s comfort zone.

    There was some initial skepticism from top executives, but the scenario planning helped the company to think differently and conditioned them to adjust in flexible ways that they wouldn’t have considered previously. Consideration of the high price track eventually led to Shell investing in nuclear and coal which helped offset the political turmoil and price shock that would arrive in the mid ’70s.

    “In October 1973, the first oil crisis began to unfold, and the entire organization became aware of the possibilities that scenarios offered. The 1973 scenarios report had provided a new frame of reference – the mindset of the oil producer countries. This new frame was significantly different from the usual analytical frame – the mindset of an oil company. The scenarios had enabled Shell executives to rehearse the future as a thought experiment rather than a crisis exercise. When the crisis actually occurred, Shell was able to collectively re-interpret the turbulent situation and to respond much faster than its competitors.”

    In order to be taken seriously, the Shell scenario team had to relate to top management how the oil producers’ situation related to their own situation.

    “In September 1972, Wack gave what those present remember as a three-hour, enthralling performance that was based on an image of the six scenarios as a river forking into two streams, each of which divided into three tributaries. The insight about hither oil prices and possible energy crisis… were integrated into one of these scenarios.”

    This technique demonstrated the narrative of how the high price scenario was linked to Shell’s operations and how it could have sprung forth from Shell’s past. The key was teasing out the culture, values, and qualities of the past that could make that future plausible.

    Similar re-interpretations of the past are what the MIT researchers found were most successful for their tech company. It wasn’t that they provided better predictions, but it helped provide a unifying vision and get everyone to buy into course changes that didn’t seem to fit before.

    “the crash in the market for its existing products had forced everyone at CommCorp to reevaluate the company’s historical strategic trajectory. This questioning enabled one manager to reinterpret CommCorp’s history, not only as a provider of big-ticket hardware for the backbone of the Internet but also as a provider of communications technologies across the whole network. By seeing the company as all about “communications,” the manager was able to propose a project for improving access at the “last mile” of the network. This reinterpretation made a radical shift in a future vision possible: CommCorp could provide small-ticket, standardized products as well as customized, high-end technologies.

    The narratives and scenarios became a way to define the company as it was today and illustrate a more coherent organizational structure. This is possible because of the rich potential of examining the past.

    “strategy making is not about getting the ‘right’ narrative. It’s about getting a narrative that is good enough for now, so that the organization can move forward and take action in uncertain times. This recognizes that strategy will in some ways always be evolving and “emergent.”

    Everyone loves to try to make predictions, but the real value lies in re-evaluating the past and restructuring past trajectories to provide for a launching point to navigate into the future. This “re-programming” the past is the way to deal with an uncertain future. Instead of forecasting futures that merely extrapolate from the status quo or futilely fighting future models that conflict with conventional mental maps, the use of narratives, scenarios, and strategies provides ways to create stronger and more harmonious models of the present.

    Posted in Academia, Book Notes, Deep Thoughts, Economics & Finance, Energy & Power Generation, Entrepreneurship, Management, Predictions | 16 Comments »

    The First Rip in the Iron Curtain

    Posted by Grurray on 23rd October 2014 (All posts by )

     Hungarian Freedom Fighters in 1956

    Today is the anniversary of the start of the 1956 Hungarian Uprising..

    In contrast to David’s previous discussion about young European women abandoning Western civilization, in Hungary that year women were fighting for freedom and to be part of the West.

    In Budapest last week . . . the Russian masters and their desperate Hungarian puppets faced a new and formidable foe. The city’s women, some of whom had fought earlier at the side of their men and then had bitterly buried the men who had fallen, suddenly banded together in a series of fresh demonstrations of defiance.

    “Only women are wanted this time,” they shouted as they joined up in the streets. Then, ignoring the ominous presence of security police and Russian tanks, they marched with flowers and flags to a service commemorating their dead. The men doffed their hats in tribute as the women paraded past and joined with them in the stirring words of a forbidden song—“We shall never be slaves.”

    Despite the fact that the uprising was crushed by Soviet tanks in the following weeks and months, the oppression eventually eased to the point where Hungary came to become one of the “Happiest Barracks” of the Soviet sphere. Thanks to those brave young men and women, freedom eventually found its way through to the rest of Eastern Europe.

    Posted in Uncategorized | 18 Comments »

    The Great Lightbulb Conspiracy

    Posted by Grurray on 15th October 2014 (All posts by )

    This year has seen many historical anniversaries, and one that has gotten some recent notoriety is the 90 year anniversary of the planned obsolescence of the light bulb by an industry cartel.

    How exactly did the cartel pull off this engineering feat? It wasn’t just a matter of making an inferior or sloppy product; anybody could have done that. But to create one that reliably failed after an agreed-upon 1,000 hours took some doing over a number of years. The household lightbulb in 1924 was already technologically sophisticated: The light yield was considerable; the burning time was easily 2,500 hours or more. By striving for something less, the cartel would systematically reverse decades of progress.

    It’s even more notable because last week three pioneers in LED technology just won the Nobel Prize.

    We all know about the efficiency standards for light bulbs that are effectively banning incandescent bulbs in slow motion. I’ve noticed during my usual stops at the home improvement stores that the choices for the vintage bulbs are fewer and farther between, and the prices for what’s left are creeping up.

    The promise of the new standards is that the new LED lighting is far superior. While it’s much more expensive, the steady drumbeat of the diffusion of technology is supposed to reduce the costs, eventually putting them within reach of the common household.

    The costs have indeed dropped exponentially, but that’s undoubtedly been helped by government aid and deliberate shortages of the old technology. Besides the federal standards, every state has some sort of efficient lighting rebate program that artificially decreases the price. Tax breaks and other incentives have encouraged manufacturers like GE to expand production in the US and create a few hundred jobs, which, although nice, don’t quite make up for the thousands they shipped to China during the Great Light Bulb Leap Forward. How much of the price gains can be attributed to Moore’s Law type improvements and how much to government supports is a legitimate concern.

    Now there’s some question about how long prices are going to keep falling going forward.

    In stark contrast to the promised dynamics that the technology is supposed to follow, LED prices actually rose considerably last month.

    In contrast, 40W equiv. LED bulb prices were up 14.3% in the U.S. market. Manufacturers including Cree, Philips, GE and other renowned brands have raised prices for certain products in the U.S. market.

    Because of industry consolidation, the top ten LED manufacturers now control 61% of the market. That much control brings pricing power over the market, and they are apparently now using it.

    With green energy executive orders on Obama’s agenda and the unelected EPA issuing mandates, the oligopoly is sure to get worse with permanently higher cost per lumens the possible result.

    The LED industry, taking a page from the incandescent bulb industry so many years ago, is discovering the key to the rent seekers’ success – competition is for losers, and unfortunately sometimes so is progress.

    Posted in Economics & Finance, Energy & Power Generation, Politics, Tech | 21 Comments »