Across multiple literature, its been stated privacy versus health will be one of the primary dichotomy societies around the world will need to juggle with as technological advances are made in the fields of artificial intelligence, communications (surveillance) and medical science (genetic research).
What is surprising was the rate at which the Corona pandemic catalyzed this change. In light of this, it is fascinating to observe how different societies position along the spectrum. Some societies has opted for surveillance to the maximum extend possible with current technology while others opted for its polar opposite going to the extend of staging mass protests against it use.
The AI Economy, Roger Bootler
To Be a Machine, Mark O’Connell
Irrational Exuberance, Shiller, Robert J.
Life 3.0: Being Human in the Age of Artificial Intelligence, Max Tegmark
The basis we use for interpreting what is happening our world is through the understanding of our history. History heavily relies on narrative constructs.
The critical flaw with using narration as a tool to understand, encode and communicate what has transpired is it can only support data in a chronological order while reality is inherently chaotic, multi-linear, on occasions non-linear and confounds understanding thus narration. To tell a coherent tale of what has transpired, authors are forced to decide what to include and leave out of the narrative they weave. This phenomena is commonly labelled as the narrative fallacy.
Compound narrative fallacy with a collection of common human cognitive bias such as the framing bias, survivor bias, confirmation bias and consistency bias and you get a recipe for a fragmented society. This is especially more so when you have multiple equally plausible narratives that are diametrically opposed but draw evidences from the same chaotic sample space to reinforce their positions.
The task of deciphering what has transpired becomes even more daunting to the everyday individual with the reintermediation of social platforms as our primary news source. In the days prior, individuals need only rely on one official news source on how to understanding what is happening, usually from their government. Now, individuals are bombard on a daily basis with news sources sponsored by multiple parties with varying interest and agendas. In this day and age, it has become crucial for individuals to exercise critical thinking.
Some final food for thoughts:
Iran is portrayed as an evil country in American media
America is portrayed as the devils incarnate in Iranian media
China is portrayed as an evil country in American media
America is portrayed as an evil country in Chinese media
Why is it that the winners are always as good and righteous in any battle?
“If God’s on our side, who the hell could be on theirs?” Private Reiben in Saving Private Ryan.
no matter how much research you done regarding a stock you don’t have a contract what the future price should be
with high yield bond there is a contract for a certain price in a future, if you are correct about the calculation, you will be correct about your yield
bargain price: liquidation price 75cents on the dollar buy at 20 cents
when you are not a big established investment firm like Lehmen brothers, you have no franchise to protect. You are free to go the unconventional route for potential outsized returns
great ideas are born bad. Its easy to make your way to a great idea from crazy outrageous ones than cautious and sensible ones. Investment bankers by default filter out the crazy outrageous ones.
Contrarian thinkers need to train themselves to see things via unconventional routes
ways to structure a bond
give money back sooner
give higher interest rates
give more stock
give stocks cheap
It is easier for corporation to pay interest which is tax deductible than dividends which are not
Bonds offer process
first tier high rollers offer liquidity get to buy at cheaper price and exit earlier
second tier payers, with franchise to protect, who want to avoid stigma of being junk bond buyers will come in later at more expensive price and exit later.
Successful leverage buyout scenario: after buy out use cashflow from business to pay off the junk bonds thus deleverage the business
Mutual fund arbitrage: compare value of underlying portfolio and stock price
If you are right about a company being undervalued and it is willing to put itself up for sale, there will be buyers
Poison pill: defense mechanism against corporate take overs. When would be acquirers crosses threshold of ownership, existing shareholders are given extravagant rights rights making it less desirable as take over target
perception versus reality, see what the world could not.
Vision is Strength.
capital is abundant, vision is scarce.
excess capital is not strength but opportunity for weakness
capital put in the hands of someone with vision will result in drastically different results.
return of the owner manager as opposed to the corporate manager
by-pass the China wall principle where companies try to isolate the deal making and arbitrage departments
herd instincts: investors are constrained by appearance. A manager of a respectable financial institution will shun “fallen angels” so as to avoid appearing imprudent to his colleagues
forces wishing to keep a large company afloat are far greater than those that wish to see it perish
credit rating systems are flawed. It focuses on the past instead of the future. Ignore large fortune 500 companies in favor of ones with no credit standings to find a good deal.
The market which may be quick to digest earnings data was grossly inefficient in valuing everything.
Lessons from Solomon brother traders
I don’t pat myself in the back, because the next sensation is a sharp kick lower down
those who say don’t know, those who know don’t say
Despite the valuable lessons history can offer us, its shown that man does not learn any of these valuable lessons.
Benjamin Graham: The more elaborate the mathematics, the more uncertain and speculative the outcome. Avoid substituting experience with theory.
Key historic events:
1933 Glass Steagall act: separation of investment banking and retail banking
July 1944 Bretton wood systems: World currencies agree to a fix exchange rate against the USD, USD agree to fix exchange rate with Gold.
1971 Collapse of the Bretton Wood systems: US, faced with increasing pressure to maintain the USD gold exchange rates as its foreign reserves were depleted by a extended Vietnam war, went off the gold standard to prevent a run.
6th October 1979 The Volcker Act : money supply will be fixed, interest rates would float
12th Nov 1999: repeal of the Glass Steagall act: banks can now take use consumer deposits for investment purposes.
Wealth is really a subjective reflection of how we feel about the current state of things.
Finance unimpeded by dealing with physical objects tend to respond faster to news and sentiment than physical operations which are tied to physical infrastructure
Credit which the modern economy is built upon trust. In times of uncertainty, trust evaporates credit becomes unavailable. Credit crunch ensues.
Austrian economics versus Keynesian economics
Austrians economists, subscribe fully to the Adam’s invisible hand theory, hold the view the market is always rational, crashes are a necessary catharsis and central banks should not intervene to prevent the crash in this process of creative destruction.
Keynesian economists believe the markets are rational most of the time but malfunctions somethings. In these exceptional times it is necessary to step in to fix the malfunction so as to avert unnecessary hardship. Central banks are the lenders of last resort.
Keynesian economics on handling market malfunction
All market malfunction usually stems from an economic shock
the IT revolution shock lead to heavy and ultimately unsound investment in software technology. The period of rapidly advancing DotComs share prices, the underlying manic optimism, the resultant excess infrastructure capacity and excessive use of leverage marks the initial phase of this malfunction
at the height of the euphoria, market participants start to come to their senses, share prices start softening as demand fails to catch up with excess capacity.
fear sets in when market participants start exiting the market. Panic ensues, rapidly declining share prices and triggered margin calls compounds into a vicious cycle.
The key challenge for central banks in such turbulent times is to act with resolve to provide dollops upon dollops of credit all the way to infinity if necessary to tame the turbulence and to restore proper market functions.
Japan’s 20 years of stagflation and slow recovery post 2008 are outcomes of mild central bank response to stimulate the economy due to concerns over inflation
The real economy
aggregate demand – consumer side
aggregate supply – production side
availability of credit – money supply in the market
Sources of low inflation rate – lack of demand or excess production capacity
East Asian behavior which tends towards saving a larger portion of their earnings compared to the west
Aging population world wide which results in lesser consumption versus a younger population
Automation which allows for higher throughput volume given the same amount of resources.
Good news reporting should seeks to inform rather than sensationalize with attention grabbing headlines. Its easy to appear data driven but still be misleading if you do not use the proper frame for understanding the numbers
On investment bank predictions
When on the receiving end of predictions made by external parties it is important to understand the underlying agenda they are trying to achieve. When examined thoroughly, predictions made by investment banks are so bad and contradictory, they should just stop making public declarations.
However if taking into account their objective is not to inform but to incite a trading decision by their clients so as to make a commission or offload losing positions on their trading books, it makes perfect sense.
Liar’s poker: Rising through the wreckage on Wall Street, Micheal Lewis