2009 Survival toolkit : Ability to anticipate

Ability to anticipate change is one of the very poorly understood and misrepresented and often ignored facets of life. Your abilty to anticipate change (good or bad) gives you an option to be prepared and as the ancient philosopher seneca rightly said 'luck favours the prepared'.

It is the differentiating factor between a normal dude who follows the crowd buying an iPhone and a smart guy who in the anticipation of the new 'iPhone application market' that has been opened spends some time learning iPhone SDK. Apart from those who are completely drunk and thinking hard to remember their home address (recent surveys indicate that 2% of them never reach home) nobody wants to be unaware of whats going to happen , otherwise astrology would not be one of the worlds most profitable and aged occupations ,the only obvious competition being ....

Surprisingly many of us including the all powerful leaders who have everything at their disposal blink and and caught unaware of surprising turns of our lives , a few of them would be 9/11, 7/7, recent 26/11, global economic crises. Though all the inciedents are easy to rationalise in retrospect. I feel we ought to learn from lesson and sharpen our toolset to face the bleaky future ahead.

There are only few who succeed in anticipating opportunities and hazards and prepare themselves and the corporations that they represent towards growth and/or avoiding failure. These are the nosy people who could visualize the war when others are struck with the nuances of battles, this is the ability that makes Alexander , Alexander the great.

To dig a bit deeper, what are the key ingredients required to have an ability to anticipate change

The first and foremost is access to the information , secondly ability to process the information either by themselves or by discussing with those who could to convert that into knowledge and finally to be able to rationally decide and act-upon or influence the key decision makers.

Access to the information is not a difficult task anymore thanks to the technology. Internet has cut the barriers of access to the information (to the extent that terrorists also tend to rely upon it for their survival, for instance google earth was supposed to have been referred by mumbai terrorists).

The second part is the most critical part of the equation, many often we tend to form very rigid learning and inference patterns based on what has worked for us(to our dad and some friends) in the past and limit our decision making abilities. And this is exactly the place where our personal priorities and prejudices start playing a major role. By nature , human mind has a tremendous ability to imagine and creates a design space for facing a scenario with numerous decisions and a more complex design space for linking multiple scenarios and so on.

To keep things very simple, if we imagine our decisions are stored in a library which is huge, more often we dont walk across all the shelves to get the exact book we are searching for. We stop at the nearest shelf which has closest possible similarity of what we are searching for. Our restriction of getting stuck to what we beleive is right (esp when we are aware of the fact that it could be wrong) breeds to denial. When we our mind gets used to 'denial' mechanism, it gets even more comfortable as it need to seek only very few inputs from outside.

This is one of the reasons why knowingly people get into mega-ponzi schemes of economic terrorists like Modoff and this is why there are jehadists who are hell bent to change the world in the way they are comfortable seeing with their little knowledge.

The third part of acting is where big mistakes are bound to happen, for e.g we cannot expect obama to sleep tight and think about a solution for on going economic onslaught, he leans on his advisers and his judgemental abilities (on the contrary people still beleive he is effectively googling for a solution), more than leaders we are always sorrounded by people who influence our thoughts and the perennial human itch to do something and be appretiated which would further complicate things.

In short, ability to anticipate really makes a difference in our judgements and keeps us prepared and increases our possibility to succeed. But there is a limit to what we can do and if one could anticipate all or most of the situations, management consultants/holy-men (strangely they both have lot of resemblance in their operations, less work and lot of money) and other advisors would vanish out of the window. Can you imagine a world with out Gartner/Forrester/Mckinsey types. Unfortunately i cannot.

Mindless Terrorism , Faulty democracy and a Small Orphan

The horrendous mumbai crime which was of epic proportions pushed the ongoing economic struggle for a week out of the headlines. Those who wanted to terrorise the psyche of people all over the world ,24/7 indian news channels who were clueless about professional integrity  and the horrible politicians who had narrow visions of their votebanks alone were all in the limelight and had their fair share of publicity, positive or negative.

The crisis clearly showed the guts of the mumbai people and their resilience, the bravehearts who dared their life to put a fullstop to one of the worst terrorisms that world has seen. Apart from the valiant fights of the brave and that of the people to comeback, the terrorists seemed to have acheived what they wanted to, i.e exposing the vulnerabilities of a country and its lack of leadership.

Any country or culture is always represented by their leaders in the tough situations, a Ghandhi was there to liberate india, a Winston Churchill was there to get Great Britain out of World war, a Martin Luther King was there to fight for African American's cause , a Rajiv Ghandhi was there to lead india out of russian-styled socialism to economic growth and the history is never void of these kind of heroe

s. But unfortunately current Indian leader are not more than a laughing stock.

Similar to Credit Crunch Crisis, Indian democracy is facing a systemic failure. Unlike anyother country India is an unique country which is a federation of different cultures,languages often with very less common cause. Only the great leaders of the past and rulers from outside(for administrative purposes) have kept india tightly knit together apart hinduism (intrepreted in different local names over the time) and the shared minds of people.

Indian democracy expects a strong PrimeMinister to get the act together and paint a strong i

mage to other countries, but unfortunately over the times the regionalism has gained popularity and the national parties have become weaked acoss. This pushes them to get into coalition with many regional parties, those who dont align to thier visions (or lack of it) and form an opportunistic alliance. Being pulled on somany directions to satisfy these parties which inturn do the religious/caste/sect politics, the national govt paints a very weak and vulnerable image to the outsiders. Added to this the pacifist mentality of the people who dont have a bigger cause than their monthly salary, an attitude to get things done by corruption has completely left the system in shambles. Over the times, the system in its current form has become a place which lacks space for somebody with a good cause and who could become a strong leader.

Till a point where  a strong leader emerges who could mend the rotten system and raise the 

hopes of people from Kashmir to Kanyakumari, there will be lot of phonies and cronies (like the current lot) who will rule india and these kind of inciedents would be talked for a month at a max and be forgotten and these cronies will be busy scouting (rather shamelessly) for votes and to save their vote banks, majority or minority.

While we wait for tough leader who could fix all the issues of India, lets apologise to Moshe who has lost his parents who beleived in India and its values.

Somali Pirates and Investment Bankers of the world

Apart from the global economic turmoil, obama and falling oil prices another thing that has been keeping us entertained is the news about piracy. Somali pirates have been very active these days when the world was betting on which bank would fall n and what would be the margin of obama's victory (except for McCain from his family inclusive of his wife). The big news has been the Sirius Star of Saudi arabia with its 110Million $ oil cargo.

Piracy is not a new phenomenon and could been around from the days after humans learnt how to build boats and sail around from the days of phoenicians and may be before them, the more interesting thing is the fact that current form of piracy i

s becoming completely uncontrolled and the Horn of Africa or the Gulf of Aden is completely ridden with them and is driving people really crazy.

The Somali piracy is should be understood along with the recent history of somalia, Somalia has been in chaos ever since 1991 and it is unregulated majorly (though with a presense of a government, president etc) and is governed by various warlords. This lawlessness has opened up the vast coasts of the somalia. This fish-fertile coast was abused by everybody and some entrepreneurial somali saw this as an opportunity and started collecting a small some of fees (protection fee may be) from these foreign ships and today it has fully developed industry to the extent that pirates are about to hijack a ship which is 400 miles away from the coast with the sophistications of GPS etc. While the risk of losing the cargo drives the owners dizzy, they usually tend to negotiate and to get the ships back (17 ships are still with them) which further boosts the pirates morale.

Pirates seems to be very calculative and methodical, they wait for the right catch and take significant risk to conquer, retain and make the money through negotiations and release the ship after the ransom is obtained.

Strangely , I couldnt resist drawing the parallels with the economic crises, the investment bankers (who made money creating complex financial deals on the underlying financial instruments) played the roles of sophisticated pirates and took daring risks and reaped the bounty in bonuses, but should we blame the pirates or the conditions that breed piracy for this. I

t is eitherway and in a country like Somalia where there are not much opportunities and lawlessness is the only law, piracy gets justified morally (atleast for the bribed port authorities and pirates) and 

lack of regulation simply flames it up. Likewise when the market was unable to control the daring acts of the economic pirates and they took the whole economy down.

Hopefully international cooperation controls piracy and co-ordinated global action control the freefall, else the days of people queuing up for the free soups are not far from reality and may be Pirates would get really rich by then and could be contributing to IMF( it has been asking money from everyone)

Is economy an art or science?

Me and my colleague had an interesting argument about whether economy is a science or an art over a Friday evening pint. The conversation was driven by the fact that the pub we frequent was void of the usual buzzling crowds and owing to the current gloomy days. I took (as usual) one my recent readings as a basis of my arguments. George Soros in his recent books eloquently argues about thinking and reality. He puts forwards that 'thinking' alters 'reality' and vice versa and with wide array of participants with different mindset( but with the same goal of making more money), the economic systems are inherently very complex to predict. He refers this as theory of reflexivity.

 And anything complex has always been portrayed as art , ignoring some modern arts with just a dot in the canvas with an explanation of 'portraying intricate human relationships in a deterministic and dark emotions among human ethos'.

Science tries to simplify things and while doing so , removes lot of variables which doesn’t seem to have a significant effect on the outcomes during the observations.  This is done for known lack of correlations with the outcome based on our knowledge. But these variables may have massive effect on the outcomes under unforeseen circumstances.

For e.g. it is a very simple fact that if we lend to risky borrowers, it may never get returned and our capital may be at risk. You don’t need be a nobel laureate to be able to tell this. But in the stable economy with lot of promises and an upbeat mood, this simple variable has lost its meaning or lost its relevance before world woke up and started to stick to its basics. All those complex risky models which the WE-HAVE-ALL-THE-CASH-IN-THE-WORLD investment bankers employed haven’t helped much. So Is economy an art or science?

The human society learns predominantly based on what has happened and it follows the pattern of evolutions as the experience get hardwired into the genetic makeups, evolution in its  'design space' gives room for strong and weak both out of mutations and out of circumstances, but the weak doesn’t survive hard tests and gets eliminated. But there is a definite possibility by the laws of probability that it could re-occur and get killed again. Similarly economy which is fundamentally driven by the sentiments of buyers and sellers is extremely complex with humongous amount of influencing variables.  To be able to understand it better,  economists resort to simplification and try to make it as a science.

Without treating economy as a science , we will be walking in the valley of death ridden with beasts in the nights without any lamps to guide us. Science helps us to travel the night to a good extent with a reasonable success. But in the in the unknown path , we never know what is next and are bound to fall down and get hurt. This lamp helps us to understand where we have fallen , what has happened to us and how to get out that place.

World as a whole learns from its mistakes and proceeds forward, but the wounds take a bit to heal depending upon the severity and those who are in control (@#$) try different medicines like injection of capital , cutting interest rates etc hoping the wound will heal faster. This is a pure trial and error and no one will have the sure answer until the wound shows signs of healing.

This leaves us with a conclusion that economy is full of knowns and unknowns , while the knowns are answered by science, the element of unknowns are always an art , once we understand the art, it becomes replicable and gets moved to the science area. This is similar to commodization , to give an analogy, photography made lot of artists redundant and art gradually moved towards impressionism , modernism, post modernism etc etc whose understanding is left to the intrepretations of the viewer (mostly to the artists).

But the high profile economists and risk modelers dont seem to accept this fact and get trapped into deciphering economic complexities through mathematical equations.

The esteemed nobel prize foundation is not an exception, They have been rewarding best economists since from 1969 and am sure somebody who are making 10 Million Swedish Kronars for the contribution towards economics must be really having some answers and following are the list of people who have got the prize for last 8 years and am sure their views may be very relevant. You should definitely talk to them because mainstream media and the govt leaders are not seemed to be bothered about their thoughts and complex models sadly.

Found below is the list, if you want to know who they are.

2008 - Paul Krugman

2007 - Leonid Hurwicz, Eric S. Maskin, Roger B. Myerson

2006 - Edmund S. Phelps

2005 - Robert J. Aumann, Thomas C. Schelling

2004 - Finn E. Kydland, Edward C. Prescott

2003 - Robert F. Engle III, Clive W.J. Granger

2002 - Daniel Kahneman, Vernon L. Smith

2001 - George A. Akerlof, A. Michael Spence, Joseph E. Stiglitz

2000 - James J. Heckman, Daniel L. McFadden

Capitalism and Socialism

Last week is the most dramatic of all the weeks in known history of our generation (who had missed the great depression) and has redefined many conventional thoughts about the capitalistic markets and free economy. The week started with the fall of Lehman’s and was epitomized by the Fed’s bail out of monstrous AIG to the tune of 85 Billion dollars.
Capitalistic economy as per Adam Smith’s is governed by the invisible hand and is to be governed by the participants and with basic governance by regulators. Those who are smart could make money irrespective of their background and those who are not would lose money however mighty they may be. The free-economy had been the pioneering face of the democratic countries and is the basis of the consumerism and global addiction towards luxurious life style.
When the going gets tough, tough gets going and when the world was tired of conventional financial instruments, there emerged a bunch of smart traders who devised complex terminologies to sell the toxic assets (Credit Default Options and Credit Default Swaps have become household items now) and there was nothing wrong in what they did till the market busted. As they say “Success is a great Liar” and makes to be unaware of the possible consequences in the longer run and adding to the human behavior of denial, nobody wanted to blow the whistle.
In fact, nobody blew the whistle and it got blown by itself and eventually the market got shaky and the rest is well documented. But the very interesting part in the whole story is the fact that definitions of capitalistic society are being redefined and earlier foundations are being forgotten. This said, what the definitions of a capitalistic society are?. In my view, there are 3 top things which are the building blocks of the capitalism. First, the market exists by its participants and by their competitiveness. Those who are highly competitive survive and less competitive ones get eliminated (Survival of the fittest). Market is open for newer and legitimate ways to make money.
A socialistic economy based on Karl Marx philosophy advocates protection of interests and encourages governments to tightly govern the industries and advices them to build or own huge non-competing industries leading to state sponsored monopoly. After all the effort that has been spent in curbing communistic policies the US govt has sponsored bailout of Bear Sterns, AIG etc and has created a kitty of 800 Billion dollars to act upon any failures.
Though my intentions are not to undermines the intentions of different countries efforts to safeguard interests of public (me being one of those), but I have a feeling that with the revised laws of the game, the distinction between capitalism and socialism ( I hate this ) are lost and its time where we rewrite laws and come up with something like capocialism which is a balanced approach between best of both. Till that happens lets all start our days praying that we would be able to keep our jobs and pay our mortgage bills, Do you differ?

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