Animal Spirits

To counterbalance my previous foray into the economic principles of the Austrian School, via Mark Spitznagel's "The Dao of Capital: Austrian Investing in a Distorted World", I have started reading "Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism"  by Nobel Prize Winners George Akerlof and Robert Shiller.

Will be posting on these matters soon.

The Debate on Creativity

True potential is hard to manifest.

Pickthebrain.com's 2007 article on creativity states that "Creativity isn't creation at all, it's reorganization."

The premise behind the author's statement is that inspired creation is derived from existing influences and sources, and is, therefore, not necessarily innate in those that are exceedingly inventive. 

Interestingly enough, another article, written in 2011 and published in Psychology Today, answers "No" to the question "Can creativity be taught?"

The authors state:

Creativity only manifests when a person with the right sets of skills and knowledge invents or finds an appropriate problem that cannot be solved using any existing approach, but which is amenable to solution by that person's unique set of experiences.

As generally happens with opinions that lead to arguments, both can seem right to some and wrong to others. In the end, nothing is ever black or white, but shades of gray can most assuredly be determined to be either lighter or darker. An opinion, however, is just an opinion, while an argument, has to be sustained by sound reasoning, which in turn, must be held as clearly evident. 

When considering which article to consider most valid, i.e., most conducing to argumentation and not resorting solely to opinion-based rhetoric, the following comparison comes to mind: pickthebrain.com's article veers into the author argumenting that the creative process is absorbed through influence more than it is enigmatically manifested in a person by focusing on her own journey in becoming a top self-help website editor, where as Michele and Robert Root-Bernstein's article focuses on California's attempt to test state school student's creativity and explaining how the attempt is guaranteed to lead to failure.

Even though the Root-Bernsteins boast more credentials when it comes to the study of the concept of creativity, pickthebrain.com's author's first hand account of her own creative-led journey warrants partial validity inasmuch as she justifies herself as a primary source.

And at first, it seems that the Root-Bernstein's are denying that Creativity can be taught. 

Then, upon further inspection of their credentials, their book on creativity's tag line, as seen online, states:

Creativity isn't born, it's cultivated—this innovative guide distills the work of extraordinary artists and thinkers to show you how.

Wait a second.

"Creativity isn't born, it's cultivated -".

After taking a good look at that verb, and momentarily realizing the power of semantics, I understood what the authors meant: creativity cannot be taught - it can be emulated, it can be manifested in the right conditions, and it can be ultimately cultivated, but no, it cannot be outright taught.

The challenge then becomes apparent: learning how to be truly creative is tantamount to studying how to be a chessmaster - without the right training, background, setting and specific traits, it becomes incredibly hard to manifest, and thus, cultivate the skill in question.

Can then, some people, not manifest their true creative potential (thereby never achieving cultivation), irregardless of the fact that they might be naturally creative?

A recent video I saw of Angelina Jolie receiving the Jean Hersholt Humanitarian Award at the 2013 Governors Awards in Hollywood California, encapsulates the aforementioned idea, in a slightly different context:

She says:

"I have never understood why some people are lucky enough to be born with the chance that I had, to have this path in life. And why across the world, there's a woman just like me, with the same abilities, and the same desires, same work ethic and love for her family, who would most likely make better films, better speeches...only she sits in a refugee camp. And she has no voice. She worries about what her children will eat, how to keep them safe, and if they'll ever be allowed to return home. 

I don't know why this is my life and that's hers. I don't understand that, but I will do as my mother asks [she asked her to contribute and be of value to others] and do the best I can with this life and to be of use. And to stand here today means I did as she asked, and if she were alive, she'd be very proud."

In the same way, there is no telling whether the seemingly mediocre person we brush by every day on our way to work could be the world's next great inventor, or how some poor pick-pocket in a third world country will never be able to show his true creative potential because he's more worried about survival.

What is certain though, and of the utmost importance, is to manifest the creativity reserve we have, whether we know about it or not.

Imagine - what a world we'd live in if people gave themselves a chance.

The Sopranos, "Pump and Dump" schemes and my personal process on "How to watch a TV Series"

When I say "Sell", you "Sell". You got me?

After years of avoiding the late night binge-watching that would inevitably come with deciding to take on The Sopranos TV series, I bowed to sibling pressure, subsequently relented, and as expected, I am now hopelessly addicted. I recently finished watching Season 1.

My particular way of watching TV series could be labeled as unconventional: subtitles are paramount to understanding every piece of dialogue (to miss a word or nuance is to miss the whole narration), I pause regularly (to understand the different person, place or thing that is mentioned that I do not know) and I sometimes rewind to rewatch particular scenes that are key to character development.

While I don't publicize this way of viewing or even suggest it as "the better way" when it comes to watching critically acclaimed series (i.e., I don't pause much when watching "Suits"), this particular method has worked very well for me.

I'll summarize the benefits related to following my TV-Series watching process:

1) User-friendliness: Everything (characters, settings, scenes and subtext) becomes fully understandable, comprehensible and intelligible. Which means: you enjoy the series even more. Or at least beyond the enjoyment that comes with the simplistic self-gratification some viewers get with just watching "people get shot" or "things blow up".

2) Perspicaciousness via Autodidactism: I am a firm believer that intelligent conversations with intelligent people stimulate intelligence, or at the very least, promote a clearer understanding of the non-obvious. In a series, witnessing intelligent dialogue between intelligent characters in a well thought out scene, can lead to "learning triggers", which in turn, promotes autodidactism, and as such, encourages further understanding and enjoyment.

3) Boredom is never an option: With the brain in a constant state of discernment, there are no boring episodes. Ever. If there are, the viewer can safely assume that the series has pretty much, jumped the shark. HBO will most likely never sacrifice content quality, so series like The Sopranos will always be boredom-free.

In practice, when applying this formulaic process to The Sopranos, I was pausing more than usual to define every Italian word and phrase that was being mentioned. The Italian-American culture and sub-culture represented on screen became easier to understand, and as a consequence, more compelling.

If I've lost you because this has nothing to do with Economics or Finance, I will kindly ask you, Dear Reader, to keep on reading...there is a point to all of this.

Pay attention or gedoudahee

The first episode of the second season of The Sopranos showcases, amongst other things, the evolution of Christopher Moltisanti (Anthony Soprano's nephew), who initially started out as small-time thug leader, and is now positioned as a high-functioning career criminal, with his own business-based crew. His present team, now working out of an office, is helping him foray into the more sophisticated world of white-collar crime.

Soon enough, a new term is mentioned, concerning the illegal trading scam Moltisanti is heading - one of the office henchmen mentions it after having sent a dissenting stock broker to the hospital: pump and dump.

Pause.

5 minutes later - 

A "pump and dump" scheme is basically a small-cap (penny stocks, basically) fraud where brokers misguide investors by pumping up a stock they own, and then dumping it for a hefty profit when the fraud becomes unsustainable, leaving investors with a worthless investment.

The film "Boiler Room" also made a point of the scam in the year 2000. It must be no coincidence that The Soprano's second season aired in 2000.

This must mean that the scam was predominant during those years, as TV Series tend to reflect popular culture. It's no secret that the dot-com bubble, which occurred during the late 1990's, until bursting in 2000, was exacerbated by illegal and legal versions that followed the basic principles behind the pump and dump. Investors were duped into considering clicks and eyeballs as legitimate revenue-drivers, as much as other would-be investors were flat out lied to when it came to the businesses they were supposedly investing in.

The subject gets even more interesting when you start thinking about pump and dump schemes in the 21st century.

An automatic thought: in this post Bernie Madoff day and age, with a tougher SEC, how can people still do this?

Maybe not through old-school cold-calling anymore, but criminals can certainly hook the ignorant and inattentive masses through fake analysis, social media outlets, spam and even hacking. Click the links in the previous sentence for articles that describe such actions, all recent. 

The impending and progressive worldwide regulation of the Internet is beyond the scope of the article, but denoting the importance inherent in recognizing fraud as a pervasive and persistent crime in the cyber realm should be taught to every investor out there.

In the end, everyone is responsible for the risk they decide to take, as is very entertainingly manifested in the series The Sopranos - but maybe not everyone is astute enough to recognize the risk inherent in a seemingly risk-free investment.

I'd like to think that maybe someone out there, watched The Sopranos, or some other show, and somehow steered clear of danger.

No wonder governments and institutions banned books before television existed.

Content matters.

The Crisis as a Classic Financial Panic

History repeats itself.

History repeats itself. Everyone knows this. But people tend to ignore that fact. 

Acknowledging history - economic or otherwise - is the best policy.

The Crisis as a Classic Financial Panic
Chairman Ben S. Bernanke
14th Jacques Polak Annual Research Conference
Washington, D.C., November 8, 2013

Self-Reliance and Politics

This might have been set up.

I've long been fascinated with the differences in ideologies held by the thousands of political organizations that are or were in power around the world. I marvel at the logic and reasoning behind the set of principles that distinguish one party from the other and the philosophy/set of beliefs that uphold the movement and forces that distinguish each party.

Every party has their raison d'être. There is no right or wrong. Historical context helps to determine each party's validity. And wars and other markable global events have either served as catalysts for some parties (ex: Capitalist-oriented) or as immediate elimination for others (ex: National Socialism).

I have become familiar with the United States two-party system and have since followed the back and forth on a variety of issues between the Republican and Democratic parties. I've generally followed the evolution (or lack thereof) of both parties' economic policies.

In a general sense, the Republican party's economic policy supports (i) free markets (laissez-faire economics) and have, in factions, advocated supply side economics (most notably during the Reagan years) and have characterized themselves as being "pro-business", holding individuals accountable for the country's wealth creation and economic growth. The Democratic party's economic policy supports (i) increased government spending/intervention and progressive taxation to produce the benefits required by the general population and those determined to be "in need".

The Republican party has been derided for benefiting the rich, most notably through tax cuts, and through the wealth inequality stemming from the ensuing distribution of wealth as a result of leaving the economy to its own devices. The Democratic party has also come under fire for its supposedly irresponsible push towards looking to create a welfare state, in which entrepreneurship is partially affected as a result of progressive taxation and citizens abusing the system (spending other people's money, assuming it will never run out).

The differences between each party and their distinctive economic policies are much more complicated than described, but the central idea and essence that distinguishes each party is present.

As of late, Republican obstructionism has been gaining strength, as evidenced by the recent stand-off between parties that led to the 2013 US federal government shutdown. Democratic insistence and support for Obamacare has also become a divisive issue. Poll results have found that the general US population believes that the Republican party favors the wealthy. This and other events have all become political hallmarks that demonstrate the ongoing partisanship that has plagued the US political system during the years following the 2007-2008 financial crisis.

Who is wrong and who is right often comes down to a matter of opinion. When this happens, politicians like to resort to facts. Facts, most of the time, become useful tools that help support ideologies.

Fact-checking aside, it becomes an awesome thing to witness politicians slinging mud at each side's arguments, all the while having the evidence to support it all. Some argue that democratic frameworks have favored historic economic growth - Krugman does a great job of rubbing it in. Others choose to focus on the ills produced by government intervention and make a point of the unwanted effects it produces.

The literature on this subject is endless; the effect Keynes, Friedman and other Economists have had on the economic policies favored by the Democratic and Republican parties has been remarkable. The back-and-forth between what's right and what isn't has also been schizophrenic at times. What was thought to have worked (New Deal, anyone?) before was found to not have been as successful than originally believed. Believing that something works only to find out later it has been a failure has been the crying call between party leaders for decades; warning the public of the dangers and ultimate demise of the different acts, programs and legislation presented by the opponent is the norm - some predictions have been proven right, and some haven't. Serious soul-seraching usually ensues.

The political process and the slow path to evolution is occasionally draining. The genius behind great politicians lies in their ability in absorbing (and transforming) the harsh realities that come with public service.

What becomes apparent, and ultimately undeniable, is that the different forces behind each party's ideologies were a product of supreme intelligence and motivated self-reliance.

It was this last set of words (self-reliance) that bought me to Ralph Waldo Emerson's famous essay.

I read that essay in college and I remember I was taken aback. The language was dense, the phrasing was poetic (so much, that at times it was grating), and the message was profoundly spot-on: trust yourself, believe in yourself, understand yourself and become one outside of what society determines you to be. In a nutshell: become an iconoclast in your own right, so much so, that you can readily survive anywhere.

The great political, economic and social revolutionaries (think Marx, think Keynes, think Schumpeter, think Franklin) were superhuman when it came to idea creation. Some did not live long enough to realize the effect they had on the world. But one thing connects them all: their self-reliance.

Self-reliance combined with eventual collective support and world-wide implementation bred the political systems we know today.

The text below explains the concept well. Few grasp it well enough to apply it.

But once the occasional confident visionary steps in, it becomes possible to turn the world on its head.

For the moment, the Republicans and Democrats have been mired in a political stalemate where their differences have dissipated any chance of reaching a general sense of agreement.

Let's see what self-reliant element comes in to shape things up and change what we think is certain today, which might be uncertain tomorrow.

From Emerson's essay Self-Reliance:

"And so the reliance on Property, including the reliance on governments which protect it, is the want of self-reliance. Men have looked away from themselves and at things so long that they have come to esteem the religious, learned and civil institutions as guards of property, and they deprecate assaults on these, because they feel them to be assaults on property. They measure their esteem of each other by what each has, and not by what each is. 

But a cultivated man becomes ashamed of his property, out of new respect for his nature. Especially he hates what he has if he sees that it is accidental, - came to him by inheritance, or gift, or crime; then he feels that it is not having; it does not belong to him, has no root in him and merely lies there because no revolution or no robber takes it away. But that which a man is, does always by necessity acquire; and what the man acquires, is living property, which does not wait the beck of rulers, or mobs, or revolutions, or fire, or storm, or bankruptcies, but perpetually renews itself, wherever that man breathes. 

'Thy lot or portion of life,' said the Caliph Ali, 'is seeking after thee; therefore be at rest from seeking after it.' 

Out dependence on these foreign goods leads us to our slavish respect for numbers. The political parties meet in numerous conventions; the greater the concourse and with each new uproar of announcement, The delegation from Essex! The Democrats from New Hampshire! The Whigs of Main! the young patriot feels himself stronger than before by a new thousand of eyes and arms. In like manner the reformers summon conventions and vote and resolve in multitude. Not so, O friends! will the God deign to enter and inhabit you, but by a method precisely the reverse. It is only as a man puts off all foreign support and stands alone that I see him to be strong and to prevail. He is weaker by every recruit to his banner. Is not the man better than a town? Ask nothing of men, and, in the endless mutation, thou only firm column must presently appear the upholder of all that surrounds thee. 

He who knows that power is inborn, that he is weak because he has looked for good out of him and elsewhere, and, so perceiving, throws himself unhesitatingly on his thought, instantly rights himself, stands in the erect position, commands his limbs, works miracles; just as a man who stands on his feet is stronger than a man who stands on his head. 

So use all that is called Fortune. Most men gamble with her, and gain all, and lose all, as her wheel rolls. But do thou leave as unlawful these winnings, and deal with Cause and Effect, the chancellors of God. In the Will work and acquire, and thou hast chained the wheel of Chance, and shall sit hereafter out of fear from her rotations. A political victory, a rise of rents, the recovery of your sick or the return of your absent friend, or some other favorable event raises your spirits, and you think good days are preparing for you. Do not believe it. Nothing can bring you peace but yourself. Nothing can bring you peace but the triumph of principles."

Econ/Finance and Neuroscience Articles worth reading

From Barry Ritholtz's weekend reads collection:

Until we can all do this, I'll keep sharing knowledge on my blog.

1. What We’ve Learned from the Financial Crisis - one of the best HBR articles I've ever read. Period. Also - one of the best if not the best all-encompassing financial/economic 2008 - 2013 crisis summary out there.

2. You can increase your intelligence: 5 ways to maximize your cognitive potential - Increase your intelligence by following the 5 primary principles: 

(i) Seek Novelty, (ii) Challenge Yourself, (iii) Think Creatively, (iv) Do Things The Hard Way and (v) Network.

I say jump, you say how high

Paul Krugman recently made a reference to a Tom Wolfe essay titled "The Ultimate Power: Seeing 'Em Jump" in his article about the GOP and the true motivation behind the US's top money makers: the 0.1%.

The essay, first published in New York Magazine in 1968, focuses on power - Wolfe goes on to describe in detail how power-hungry New York politicians and businessmen lead their lives, indulge in very specific possessions and treat their underlings.

An obvious question that lacks an obvious answer quickly surfaces: What lies behind their drive for power?

To answer, Wolfe references Abraham Ribicoff, a former Connecticut Senator and Governor, who offers an interesting take on what drives these people:

On what really drives people like congressmen and senators - fame? money? the exercise of power? 

Ribicoff says: 

"It's not fame, at least not in the sense of publicity. They see their names and faces in the paper so often they take it for granted. It's not money. There may be some congressmen with deals going, but most lose money while in office because of the cost of campaigning and entertaining. It's not even the exercise of power, at least not in the sense of putting a bill through or having a part in policy decisions. For most of them it is something else. It's more...seeing people jump. It's a feeling...knowing that anywhere they go, people will move for them, give way, run errands, gather around...and jump..." 

Wolfe adds: 

Jump! Power is, after all, control over people's lives. So perhaps it is natural that the symbols of power - as opposed to mere fame or wealth - should involve people jumping, i.e., acting like servants or loyal vassals.

"Now, raise your hand if you like it when they jump."

I'd be hard-pressed to think of a better way to describe most politicians.

Cristina Fernandez from Argentina, according to an article in The Economist, has built an administration and cabinet full of jumpers (or as Argentines call them, "sock-lickers"), that cannot exist without her.

Fidel & Raul Castro, Evo Morales and Nicolas Maduro are all examples of leaders that not only have jumpers, but also have historically gotten rid of those that do not jump, threaten to stop jumping or just simply, for valid reasons or not, cannot jump anymore.

Africa's longest-serving leaders (Ethiopia's Meles Zenawi - 20 years, Chad's Idriss Deby - 21 years, Sudan's Omar al-Bashir - 22 years, Burkina Faso's Blaise Compaore - 24 years, Uganda's Yoweri Museveni - 26 years, Cameroon's Paul Biya - 29 years, Zimbabwe's Robert Mugabe - 31 years, Angola's Jose Eduardo dos Santos - 32 years, Equatorial Guinea's Nguema Baso - 32 years, until recently, Libya's Muammar al-Gaddafi - 41 years - reference) certainly have their fair share of jumpers, and it'd be idiotic to assume that they're not turned on by others jumping for them. If anything, after so many years in power, it would have to become even reasonable to assume that these men can't help it - their own search for power has made them addicted to it.

They thrive; their people languish.

The world economy suffers.

Mind-numbing subservience squashes entrepreneurship.  Citizens that aren't free end up either working for the detrimental system that limits them (which becomes more powerful through their conscious promotion) or are paralyzed by it.

Global trade advances at a snail's pace. Necessity provokes reform and advances, but mires the newly erected economic structure with corruption and conflicts of interest.

Education is perverted. Creativity and innovation is cornered and made to forcibly trudge through pre-approved channels - thus dampening, stagnating and deviating the creative process.

Those are some general effects.

To describe what lies behind this, one might think of pride, the most serious of the 7 deadly sins; a vice to watch out for, mainly because of the dangers and moral pitfalls related to superiority complexes.

In a religious context, pride has been a point of discussion since Lucifer was cast out of heaven for challenging his Creator. God said "Jump" and Lucifer said "You jump." That was it.

On earth, people are free to make others jump - which is fine, if the jumping serves a purpose. After all, someone has to jump.

The problem, in a nutshell, comes when the jumper is made to jump for its own sake.