Monday, November 10, 2008

Black Swans and Austrian Teddy Bears

At the bottom of an earlier post there's a little discussion about a couple of books I've been reading that contain some overlapping themes

The first is Nassim Taleb's The Black Swan

- Black Swans being large-impact, hard-to-predict, random, unplanned and rare events beyond the realm of normal expectations.

The second is Naomi Kein's The Shock Doctrine: The Rise of Disaster Capitalism

- Disaster Capitalism being the corporate exploitation of people in the wake of disasters or upheavals

The big problem I have with both Taleb and Klein is that they both do a stand-up job of peddling that absolutist, stochastic, 'shit just happens' world view which is so useful to those people who gain the most when things get fucked up

Klein pays nowhere near enough attention to the possibility that many of the disasters and upheavals she refers to were staged, or at least anticipated

Taleb quotes events like the 9/11 attacks and stock market crashes as being examples of unpredictable, Black Swan events, when there's copious evidence that they were anything but. One person's
Black Swan; be it due to deceit, dissonance, indoctrination, or plain incompetence, is very often another person's Bleeding Obvious.

Even the majority of natural, as opposed to man-made, disasters cannot fairly be described as Black Swan events. The people who live in places like New Orleans, Mexico City, Los Angeles or Naples know full well that their cities are inevitably going to get creamed sooner or later, and very possibly within the span of a human lifetime. The fact that many of those people engage in denial doesn't change the predictability of that creaming


Property Hot Spots of the Future #17 - Napoli


As such, both Klein and Taleb and the output of many others given prominence in the supposedly alternative, dissenting media, is paving the way for a truly useless, profoundly ineffective analysis of the ghastliness which many of us believe may be begining to overtake our world

-

At the heart of the ghastliness which many of us believe may be begining to overtake our world lies the imminent (?) collapse of the dollar and related currencies

The
Imminent (?) Collapse of the Dollar Story goes something like this...

  • Forty or more years ago America abandoned the Gold Standard and embarked on a policy of paying for its imports with increasingly devalued, worthless dollars

  • America simply printed as many worthless dollars as it needed and exchanged them for imported stuff that was actually worth something

  • This was made possible by the fact that everything sold on global markets was priced in dollars, so everyone around the world had to hold stocks of this intrinsically useless paper to buy essential commodities

  • Any time anyone comes anywhere to buying and selling essential commodities with anything but dollars the Americans blow the shit out of them

  • There are now so many useless dollars in circulation globally that the entire system is about to choke catastrophically. The Russians, the Chinese and others have had enough and are about to walk away from the whole stinking mess

On-line economician Peter Schiff tells a story about five Asians and an American stranded on a desert island. One of the Asians is responsible for fishing, another for hunting, another for growing vegetables, and so on. The American's 'job' is to eat a big fuck off meal prepared by the Asians every night and leave them enough crumbs to survive through to the next day...

Schiff is one of a loose group of bearish, Libertarian, Austrian School Economicians much beloved by Internet Loons, including my goodself

Other members of this elite club include Jim Rogers, Jim Puplava and, of course, Maaaaaaaax Keiser

(and Michael Hudson and F W Engdahl, sort of)

All of these guys have, to one degree or another, predicted that...

  • The dollar and other fiat currencies of non productive countries will tank
  • There will be a commensurate and massive rise in the dollar price of tangible commodities such as oil, wheat and gold

As it happens, commodities did rise and the dollar did fall earlier this year - to accompanying cries of 'this is it!', 'this is it!' from the little dollar bears

but it wasn't 'it'

The US dollar has subsequently strengthened massively and commodities, commodity-based shares and commodity-based currencies have dived to the floor

Any private investors following the advice of Schiff, Rogers, Keiser and Puplava will have lost up to 50% in two or three months. Anyone who follows their podcasts can't help but have been entertained by listening to Schiff attempting to placate one of his investors who called up after losing half of his life savings or the sound of Keiser melting down into a pool of despair and babbling about buying into dollars a few days ago




It's not that Schiff, Keiser, et al are actually wrong about the future

  • The dollar and associated currencies are fucked
  • The prices of things we can't do without - oil, food, water - will go up in a big, scary, unaffordable way
  • The prices of things we can do without, or need a loan to buy - houses, cars, plastic tat will fall

Their problem is that the secret of good economic commentary, as with all forms of comedy, is




... timing



These guys have got their timing wrong because...


1. They underestimated just how crooked supposedly free markets are.

The Chinese increased their oil imports by 46% in September and bullion traders around the world cannot meet demand, yet the reported market price of oil and gold have fallen dramatically. Conclusion? The markets are bent


2. They are attempting to comment in real time about insanely volatile markets

The poor quality of market information available to mere mortals and the volume of market 'noise' is such that only a completely bow-tie wearing berk would attempt to extrapolate daily moves out into the future. The Internet deserves a lot of blame for the rise of this kind of commentary


3. They are nowhere near Loony enough

A lot of people have heard the famous Jefferson quote...

"If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered."

...but don't seem to have understood its implications.

The process Jefferson was talking about 200 years ago is deliberate and managed. Switches between inflation and deflation are only nurtured when it suits the people doing the managing and they are not in the business of telegraphing when that would be.

Years of inflation have already ensnared the bulk of people in debt. All that remains is to mop up the minority of people, mostly Baby Boomers who until a few months ago were expecting a nice, cushy retirement, who actually put money aside over that time

And those who placed their money in the markets have just lost 40-50% of their savings

Those who've kept away from the markets and are holding cash instead can look forward to a 0% interest rate, whilst prices are rising 10%+, as their reward

Once the savers have been rogered good and proper, that's everyone in the bottom 99.99% of society accounted for, then all the money our governments have released to the shadow banking system can be unleashed to buy everything that's worth buying unopposed

A massive transfer of real wealth will then take place and a glittering future of supercharged debt-serfdom secured

And even if some ordinary people manage to avoid mortgaging their lives away and actually retain some savings, there will still be plenty of tricks left in the toybox to deal with them

None of this is too far off now but I won't be picking any dates

.

30 comments:

Anonymous said...

And even if some ordinary people manage to avoid mortgaging their lives away and actually retain some savings, there will still be plenty of tricks left in the toybox to deal with them

What would those tricks be?

Anonymous said...

Spot on. Good to have you back.

Stef said...

What would those tricks be?

take your pick

- a change of currency
- confiscation
- taxation
- fines for unlicensed breathing

etc etc

the greatest trick of the brand of capitalism we live under is that it manages to convince a fair slab of middle earners that they should support the system because they will be permitted to accumulate some capital for themselves

sorry folks, that's not how the game ends

not anonymous said...

I have not read Black Swans but going on gut instinct and common sense I´d say its a load pseudo intellectual bullocks the phrase "large-impact, hard-to-predict, random, unplanned and rare events beyond the realm of normal expectations." could apply to Natural disasters but in the worldly games and affairs of man it don´t wash for a minute.

"Taleb quotes events like the 9/11 attacks and stock market crashes as being examples of unpredictable"

that for me tells me the guy is a fool or a charlatan or both.

In quantum physics in the realms of those tiny tiny smaller than atoms quarks charms farts and all the rest it,it appears that matter or things only has a tendency to exist they seem to spring into existence when we observe them,,fuckin fascinating stuff and I certainly find that all plausible.

If you want to baffle the fuck out of yourself check this site out.

http://quantumweird.wordpress.com/

If you want to baffle the fuck out of yourself check this site out.

Oldtimer the guy who runs the blog is certainly an interesting character,,he ha spoken with angels don´t you know.

Anonymous said...

take your pick

- a change of currency
- confiscation
- taxation
- fines for unlicensed breathing

etc etc

the greatest trick of the brand of capitalism we live under is that it manages to convince a fair slab of middle earners that they should support the system because they will be permitted to accumulate some capital for themselves

sorry folks, that's not how the game ends


Change of currency and taxation seem the most likely. As for the "fair slab" of middle earners, well everyone I know is trying to reduce their tax burden, whether that be through clever accounting or tax-free benefits like a fuel allowance instead of more salary.

Anonymous said...

"The big problem I have with both Taleb and Klein is that they both do a stand-up job of peddling that absolutist, stochastic, 'shit just happens' world view which is so useful to those people who gain the most when things get fucked up"

That pretty much sums up why I love this blog. Welcome back.

Stef said...

@not anon

Taleb's not a daft man by any stretch of the imagination. He just claims too much territory for his thesis and, as discussed previously, the gist of what he's saying can be picked up from clicking on a few net links - his book doesn't add much flesh at all imho

I do think he's on firm ground when he advocates an empirical, 'show me' approach over modeling in the field of science

And people don't factor in 'Black Swan' events that's for sure

Our entire society is managed on a going concern basis, and the more complicated and fragile our systems become the riskier that approach becomes

I can think of some genuinely Black Swan events in human affairs - the appearance and impact of the Internet being one of the most obvious. Virtually no-one saw that coming which is why the Powers That Be are falling over themselves trying to find a way to put a cap on it

Anonymous said...

David Rockefeller is a big fan of Obama isn't he...

not anonymous said...

@stef,

you know I´ve pondered long and hard about why we are on this planet at all,,,we are born we put in 80 shifts if we are lucky!and then we are gone never to be seen ever again.Between the cradle and the grave however we are bombarded with shit everyday of our existence,,,jeezus just out the womb and some fucker smacks our arse!we are then flung into a school and made to learn all sorts of useless shite that we may become useful productive citizens and retire comfortably with our clock or some other meaningless shit,,that is of course if we live in a relatively peaceful part of the planet and manage to avoid being bombed the fuck out of,,,which is why I find this such a beautiful movie that sums all of the above up in a poetic beautiful way.

The Color Of Paradise part 1

Stef said...

David Rockefeller is a big fan of Obama isn't he...

Coincidentally, I'm a massive fan of David Rockefeller

not anonymous said...

synopsis of The Color of Paradise

Mohammad joyfully returns to his tiny village on summer vacation from the Institute for the Blind, unaware of his widowed father's intentions to disown him in order to win the hand-and dowry- of a local woman. With the wedding swiftly approaching, Mohammad's future hangs precariously in the balance as his father struggles against his destiny, unable to see the wonder of life and love that's so clear to his son.

Stef said...

This is completely lateral and not a film I'd actually recommend but one of my favourite IMDB synopses...

De eso no se habla

Leonor, a widow in a small South American town, gives birth to Charlotte, a dwarf. The mother not only provides a rich childhood for her daughter, she erases any clues her daughter might see that would lead her to think she is different (mother burns books such as "Snow White" and destroys lawn statues of gnomes). In short, she doesn't want to talk about it. The mother succeeds in creating a modern-day Rapunzel: Charlotte becomes an accomplished young woman who captures the heart of Ludovico. But then, the circus comes to town...

Anonymous said...

Well, if I was an ultra rich multi-generational shadowy banker and I was worried that people might be about to rumble my age old scam I'd probably replace the current incompetent puppet regime with a charismatic, articulate, massively popular black skinned messiah - the kind of man people would follow whatever terrible things he did.

Thank god I'm a fantasist and that could never ever happen!

Stef said...

That would definitely be an unpredictable Black Swan event

lwtc247 said...

Dear Stef. Glad you're back.

The Economists are correct.

The problems are expectations and scooby-doo like meddling.

You and the economists of doom are correct. The system is unsustainable - massively so. The dollar is screwed. Commodities like oil are running out. food prices will rise to unbearable levels for many. The general 'western' public have been saddled with large amounts of debt by their governments who long ago indebted third world peoples.

The expectation however is for the curve of doom never to meet a point of inflexion or even saddle point.

It can be perfectly well argued that infact an anthropogenically unperturbed descent is more of a stochastic model.

And it's easy to neglect the efforts of the people with large influence and large resources trying to cheat, spin and legislate against the collapse of their descent, quite simply because their financial status and place in society is at risk from the collapse of their synthetic and fraudulent structure. It is unrealistic not to expect a few frantically blown and transient bubbles to be puffed out from the bubble wand of such people.

It can easily be argued (such is economics) that the "strengthening" of the dollar is simply a weakening of the residual currencies following on from the dollar plunge. After all, any currency is exchangeable for dollars, therefore although giving the dollar extra 'importance', the difference between the currencies is marginal. Plus they are all based on the same unsustainable usurious system.

in other words, after the dollar plunge, what happens when the 'market' is flooded with even more euro's, yuan and yen, accompanied by a coordinated lowering of national interest rates? Unnecessary and bizzare bailout anyone?

The relative and the absolute dynamics at play here are easily overlapped which doesn't help clarify the picture.

And gold price (along with many other commodities sold on international "markets" is of course manipulated. The unprecedented demand for gold being met with a fall in the price can be argued from many angles and it's likely the real world picture contain fascets of many of those angles. In fact, I'd be flabbergasted if it didn't.

But that manipulation doesn't negate the economists advice to cleanse oneself of junky fiat and purchase gold or other actually valuable commodities. Dumping paper for things of real worth is a LONG TERM view. Of course there will be hiccups along the way. To say they were wrong when the obvious blip occurs isn't a sustainable refute of their forecasts.

Can one export your extrapolate/bow tie/berk comment is also applicable about people who look a bubble and say "the collapse isn't happening".

If a system is fraudulent it will collapse. The larger the bobble blown around to encapsulate the popping of the previous bubble means volatility increases (the skin of the bubble wobbles far more). The 'crack' of each successive bubble pop gets louder each time. It's self telegraphing.

the larger lie to cover up the smaller initial lie gets weaker and weaker and eventually is unsustainable. Goodbye lie, hello truth.

Those idiot people complaining would only have "lost" 40-50% of their savings if they were gambling and sold off their investments. Given that it's reported the "have lost" it looks like they did gamble, GOOD! they fully deserve it, not least because it these gamblers such as these albeit on a larger scale that prop up this crappy system in the first place. The advice issued to them (which they were free to reject and have 100% responsibility over) was for LONG TERM SECURITY. Serves them right. I mean, for pity's sake, it was only a couple of months ago that they would have adjusted their port-folio. And the alternatives were....? And no doubt these idiots would moan that they weren't given any advice if they stood their ground which say their stocks devalue by 50%.

Stef said...

The people moaning/ suffering the most are Americans who, sensibly enough, put their savings into non US$ denominated equities

Not only have they suffered from the worldwide stock market falls, that hit has been compounded by the strengthening of the dollar

Here in the UK any Baby Boomer looking forward to retiring with an equity linked pension has seen the value of stocks fall by roughly a third this year which is compounded by the fact that the interest rates on which their annuities will be based have fallen by 40%

For anyone retiring this year that's going to be a realised loss locked in for the rest of their lives

Now, admittedly, unless they bought everything this year a lot of their loss is simply giving up years of unrealised paper gains but inflation has been working its special magic over the years and prices most definitely ain't slipping back to where they were 10 years ago

Younger, much more indebted, generations are unlikely to shed a tear for the Boomers

The end result of the last couple of decades of carefully staged financial insanity is a mass of indebted younger people and some older people who aren't anywhere near as wealthy as they thought they were, hoping that what capital they have doesn't leak away entirely before they kick the bucket

The interesting question is, of course, where is all the genuine wealth accumulating as a result of all this

Anonymous said...

American Express became the latest financial group to convert to a bank holding company in a surprise move on Monday that will give the credit card group permanent access to Federal Reserve funds and could facilitate consolidation in the sector.

The Fed said AmexCo’s application had been approved more quickly than usual because of the “emergency conditions” and “the unusual and exigent circumstances” in financial markets.


According to the Fed, AmexCo had $127bn in total assets but retail deposits of just $7.2bn – another sign that the financial crisis is prompting regulators to accept bank holding applications from compan

Stef said...

American Express became the latest financial group to convert to a bank holding company in a surprise move on Monday that will give the credit card group permanent access to Federal Reserve funds and could facilitate consolidation in the sector.

no doubt, that news would be totally unconnected with this story...

Credit Card Bond Sales at Zero, First Time Since 1993

Anonymous said...

http://www.marketwatch.com/news/story/Winners-losers-Chinas-586-billion/story.aspx?guid=%7B93748AB6-AD89-4E6B-A566-C1A5F8961656%7D

Winners and losers from China's $586 billion boost
By Nick Godt, MarketWatch
Last update: 7:30 p.m. EST Nov. 10, 2008
Comments: 91
NEW YORK (MarketWatch) -- China's 4 trillion yuan ($586) billion economic stimulus plan may have lifted sentiment toward global growth, commodities and related stocks, but some market strategists were quick Monday to identify potential losers from the plan, starting with U.S. consumers and Treasury debt.

not anonymous said...

Medvedev speech

http://www.youtube.com/watch?v=rgm5egSehoo

interesting speech.Never heard it reported once on the BBC for example.

paul said...

LW:

Dumping paper for things of real worth is a LONG TERM view.

Herman Daly suggests that their aren't enough thing of real value to do this

Financial assets have grown by a large multiple of the real economy—paper exchanging for paper is now 20 times greater than exchanges of paper for real commodities.

Though the quest for things of real value, in my opinion, is conducted far too much in the prism of the current arrangements. Valuables such as free time, autonomy, welfare institutions, freedom of thought,the natural world etc will always hold their value.
If only people would invest in them.
PS Oil doesn't seem to be running out and viewing food as a commodity rather than a right is looking very much down the wrong end of the telescope.

lwtc247 said...

This is a top thread :)

I would guess 20x paper for paper means 20times more people see such tx as being the best way to make more more money, rather than meaning commodities are running out, but your point is valid; There is no question with an expanding population and globally manipulated markets, that commodities are tougher for one to aquire, but it's not impossible - rather, just more pricey.

They are available not least because untraded commodities are as useful as a condom on a corpse.

Its a no-brainer, that with an expanded upper financial class, and by globalisation, people in that set will suck commodities out from the market.

In some cases it even means even the grass from underneath peoples feet is stolen.

e.g. 25,000 Indian farmer suicide rate (last 10 years) HERE for a link to a short PBS/Frontline video on the matter.

It's a suicide pandemic due to what they have to go through (Monsanto of course denies everything and suspiciously enough. about a week after that denial, the guardian prints a very pro monsanto article citing a likely 'bought and paid for report' saying Monsanto is the good guy in all this.

I agree with your list of things that should be invested in, but such admirable and altruistic ideals have no place among todays stone slab MP's - scum that's trashing the country with more vigour eery day.

Re: Oil. It most certainly is running out, unless one advocates abiotic oil for which there is no proof whatesoever. Well around the globe are pumping less, new oilfields are smaller and contain less oil.

Anyway as a commodity, you said yourself, these are harder to get (albeit in a slightly differnt way)

Stef said...

The End

Anonymous said...

"One person's Black Swan; be it due to deceit, dissonance, indoctrination, or plain incompetence, is very often another person's Bleeding Obvious."

But Taleb would agree with you. Consider one of Laplace's analysis of probability.

A farmer gets a turkey on 1st Jan. He feeds it every day until Christmas Eve, whereupon ...

From the point of view of the turkey the probability that he is going to be fed on Christmas Eve, according a formula worked out by Laplace, is ((1+ 357) / (2 + 357)) * 100 = 99.7 %.

Probability analysis is based upon the facts (evidence) that you have to hand. The farmer (or observers with our experience) have a different degree of evidence to that of the turkey.

The maths is correct but the results can be completely different depending upon your prior knowledge.

If you're interested ET Jaynes wrote a good book, Probability Theory: The Logic of Science: Principles and Elementary Applications, on the subject. (Taleb will most probably be intimate with said and with Laplace's work).

Stef said...

But Taleb would agree with you

I'm not sure that he would

The turkey example, even though Taleb uses it in his book, is not strictly Taleb

I could argue that Taleb is being quite naughty using it

The turkey's fate is predetermined by a controlling intelligence and not the product of hard to predict, random factors

and Taleb is all about randomness

I agree with a lot of what Taleb has to say but on the subject of Black Swans he's essentially arguing that they are inherently unpredictable events. I would argue that many, though not all, of them are predictable. It just suits powerful interests (because they are either wicked, incompetent or in denial) to pretend that they are not

Stef said...

and I don't think that Taleb really is breaking much new ground with the Black Swan thing

The debate over the role played by what Taleb calls Black Swans goes back centuries

One of my pet hobby horses is the way the Post-Enlightenment Secular Rationalism (sic.) went to such efforts to distance itself from Religious thinking that it threw the baby out with the bath water

An example being the absolutist application of the principle of Uniformitarianism on Earth Science which had Geologists pretending for the better part of 200 years that Catastrophes (ie Black Swans) didn't happen - not because that's what the science was telling them but because talk of catastrophes was just a little bit too Biblical to handle

The clash between Creationism and Evolution is also a kind of Black Swan vs. Steady State debate

What Taleb is trying to do is patch up an essentially flawed view of how the universe works which came about as reaction to religion

My problem is that in rejecting the hand of God in human events, secular humanists downplayed the role played by humans in human events. I simply do not believe that human affairs are as uncontrolled as corporate controlled culture would have me believe, randomly occurring lumpy bits or no random occurring lumpy bits

paul said...

The fact that Taleb uses 9/11 as a black swan is instructive.
That a cave bound videographer could launch an attack on the most powerful nation on earth would rightly not find room in any actuarial table.
Taleb accepts that it did and it was unforeseeable. It is not worth attempting to foresee the impossible or even the wildly improbable, except for fun.
He seems to be citing an event which did not occur (seeing black swans where there are none) and also ignoring the empirical evidence that attacks on the WTC had occurred before, and that the perpetrators then had more than a little assistance from the authorities.

Stef said...

From the prologue of The Black Swan (Mr T's italics)...

"Black Swan logic makes what you don't know far more relevant than what you do know. Consider that many Black Swans can be caused and exacerbated by their being unexpected.

Think of the terrorist attacks of September 11, 2001: had the risk been reasonably conceivable on September 10, it would never have happened. If such a possibility were deemed worthy of attention, fighter planes would have circled the sky above the twin towers, airplanes would have locked bulletproof doors, and the attack would never have taken place, period. Something else might have taken place. What? I don't know"

Stef said...

I think that concern about what I might have known or we might have known was provoked by some statements that I made in a press conference. I was in a press conference to try and describe the August 6 memo, which I've talked about here in my opening remarks and which I talked about with you in the private session.

And I said, at one point, that this was a historical memo, that it was -- it was not based on new threat information. And I said, "No one could have imagined them taking a plane, slamming it into the Pentagon" -- I'm paraphrasing now -- "into the World Trade Center, using planes as a missile."

As I said to you in the private session, I probably should have said, "I could not have imagined," because within two days, people started to come to me and say, "Oh, but there were these reports in 1998 and 1999. The intelligence community did look at information about this."

To the best of my knowledge, Mr. Chairman, this kind of analysis about the use of airplanes as weapons actually was never briefed to us.

ziz said...

What would those tricks be?


Strongly suspect that the ultimate shitty litle trick s the US Treasury will simply refuse to redeem their Treasury notes - or make their redemption coditional on a 100% rollover - or some other scheme to make the debt perpetual

A knawing (Chertof style) feeling in the guts, suggets that MR Dubya may do such a thing prior to dpearture leaving Obama guilt free.

Suspect also Mr Dubya may pardon Mr Tony Resko just to embrass Mr O for a lark.... nice Skull and Bones trick that.